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The 5 steps of testing your business idea

As COO -and Venture Coach- of Holland Startup, I'm always impressed by the number of ideas, enthusiastic pitches and great teams we get to see and speak. I really do enjoy experiencing the innovation power and the amount of energy of entrepreneurs, or soon to be entrepreneurs.

But what to do if you want to start a business, but you don't have that perfect idea yet? Many of our Entrepreneurs-in-Residence had this situation. It's not a problem; our process and coaches can help you find it.

So, how do you know if your idea is great?
The interesting part is: nobody knows until you have tested it.

This is an introduction to how we, at Holland Startup, like to test business ideas. We use this process in the Holland Startup Studio, where all of the community members, entrepreneurs in residence and cofounders share this experience. You're never out of inspiration or feedback. This really helps to prevent tunnel vision – which we all have from time to time – and to spark new ideas and insights.

The 5 steps of testing

Step 1: Document your idea in a Business Canvas
It helps to spend a bit of time documenting your idea. We use tools like the Lean Canvas, the Business Model Canvas or Value Proposition Canvas. These canvasses are well known and easy to understand. To get the most out of it: make it as precise as possible can. Narrow in on your customer: who is it? what region? what size of company? what distinguishes your customer from other businesses in the market?

Step 2: Assumption identification
Now, ask yourself: what assumptions are you relying on? What needs to be true, for this business to work? Some examples:

  • your customer actually experiences the problem you try to solve –  or is it more an annoyance?
  • your customer is willing to pay for the solution – or is it not important enough?
  • you are better than the existing solutions – let's say 10 times better?

We like to write them down as 'believes':

  • we believe that….our product really helps a customer doing a high-value job
  • we believe that….this customer segment exists
  • we believe that…our customer is willing to pay a monthly amount of €200 monthly to use our service

A nice trick is to think about assumptions from three different angles:

  1. Desirable: “Do they really want this?”
  2. Feasible: “Can we do this?”
  3. Viable: "Should we do this?"

Step 3: Assumption Mapping
This is about priorities, which assumptions are vital? Every new idea requires a leap of faith. This leap of faith can make or break your business. We use the assumption mapping workshop to make all the risks explicit and prioritize them.

ranking assumptions

The most important aspect is to identify the leap of faith assumptions and specifically the ones that you do not know about. These are the assumptions that require testing as early as possible.

Step 4: Testing
Testing begins with “talking to customers”. I recommend reading “The Mom Test” by Rob Fitzpatrick before you start interviewing. This great book describes many of the pitfalls in customer interviewing and how to get valuable insights when everybody is lying to you.

Make sure you make your test explicit. Write down a test card explaining which assumption you are testing, how you are going to do that and how do you know your assumption is true? Discuss this in your team, so you know it is precise and testable. How many customers will you interview? How do you know they are your target customer segment?

Oh, and don't change the experiment while you run it. It gives false results…

Ready to go?

I know this is not the most “glossy” phase of startup live. But, in the very early stage of a startup, if all you have is energy, your drive and an idea: this test phase is essential. There is a lot to learn from your customers. Celebrate every learning success and change your ideas if proven false.

That's the job of Entrepreneurs in residence at Holland Startup: finding innovative business ideas and testing them. If an interesting idea for a software startup is found, then we'll set up a company together!

It helps to do this process within a team or group, to provide feedback or even just test an interview script. That's why I think the community of the Studio is so important.
There is a lot more to it than I can tell in an email or blog. but I hope this will get you started!

If you are thinking about starting your business and you'd like to meet some members of the community, why not visit our free webinar Meet Holland Startup† I look forward to meeting you there!

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