{"id":134249,"date":"2024-10-19T14:16:09","date_gmt":"2024-10-19T18:16:09","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=134249"},"modified":"2024-10-25T14:21:42","modified_gmt":"2024-10-25T18:21:42","slug":"business-model-test","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/business-model-test\/","title":{"rendered":"How to Run a Business Model Test With Your Customer Base"},"content":{"rendered":"\n

What does it take to successfully run a business model test before scaling up? How can you position your product effectively in different types of markets?<\/p>\n\n\n\n

Understanding your sales approach and market positioning is crucial before expanding your business<\/a>. The process involves testing your sales strategy with early adopters<\/a> and determining how to shape public perception of your product based on your market type.<\/p>\n\n\n\n

Let’s explore the essential steps to validate your business model and create a winning positioning strategy<\/a> that resonates with your target customers.<\/p>\n\n\n\n\n\n\n\n

Testing Your Business Model<\/h2>\n\n\n\n

After you\u2019ve found your customer base, it\u2019s time to run a business model test to see if it resonates with that base<\/strong>. Steve Blank explains that companies often jump the gun and hire large sales staff at this stage despite not yet having a solid business and sales model<\/a>. This stage is not<\/em> about selling: Rather, it\u2019s about developing a sales plan<\/em> that will be successful once you finish customer development and begin selling in earnest.<\/p>\n\n\n\n

(Shortform note: In The Mom Test<\/em><\/a>, Rob Fitzpatrick offers some advice on how to test your business model with your customer base. The Mom Test is a set of rules designed to elicit honest feedback from potential customers<\/a>, helping entrepreneurs gauge whether their product truly meets customer needs. These rules are: 1) Don\u2019t pitch your idea<\/a>, 2) ask questions about the past, and 3) listen more than you talk. By applying these principles during the testing phase, companies may gather more reliable and actionable insights than simply attempting to sell an unfinished product<\/a>. This could help refine both the product and sales strategy before scaling up, leading to a more successful launch and reducing the risk of premature expansion.)<\/p>\n\n\n\n

Blank advises that, for this step, you\u2019ll develop your sales materials and plan, and then test it out by attempting to sell your (currently unfinished) product to early adopters<\/strong>. These are people at high levels of a company who have decision-making<\/a> power and are willing to take a risk on the product you\u2019re promising them. You need only a few of these to test your sales on; this step isn\u2019t about generating an immediate profit but about making sure you can<\/em> sell the product.\u00a0<\/p>\n\n\n\n

(Shortform note: Blank doesn\u2019t go into detail about why early adopters should be people at high levels of a company, but we might look to Geoffrey Moore’s Crossing the Chasm<\/em><\/a> for a possible explanation. Moore writes that before a new product is widely adopted by a mainstream market, it’s tried out by <\/a>early adopters, who he defines as leaders looking to use new technologies to gain a competitive advantage<\/a>. If they<\/em> adopt the product, other, more mainstream customers are likely to follow their lead. Blank may be advising the same strategy\u2014reaching out to people who seek out novelty for leverage and who can influence a wider swath of customers with their approval.)<\/p>\n\n\n\n

Blank explains that this is also the stage where you need to decide how you want to shape public perception of your product and your company\u2014a practice known as <\/strong>positioning<\/em><\/strong>. Based on what you\u2019ve learned in step 1 and from your preliminary sales to early adopters, decide how you want the public to view your product in comparison to competitors. The way you do this will depend in part on your market type.<\/p>\n\n\n\n

(Shortform note: In Positioning<\/em><\/a>, Al Ries and Jack Trout<\/a> provide some additional advice about how to position your product and company. They argue that positioning is not just about the product, but about occupying a distinctive place in the mind of the prospective customer<\/a>. This aligns with Blank\u2019s emphasis on deciding how to shape public perception. Ries and Trout suggest that effective positioning often involves being first in a category<\/a> or creating a new category altogether. This perspective can guide startups in developing their positioning strategy during the customer development process<\/a>.)<\/p>\n\n\n\n

Positioning by Market Type<\/h3>\n\n\n\n

There are four startup market<\/a> types: 1) new market, 2) existing market with a new product, 3) resegmented market with a cheaper product, and 4) resegmented market with a specialized product. Depending on your market type, you can determine how <\/em>to shape public perception of your product. However, it\u2019s not until Step 3 that you\u2019ll begin implementing your positioning<\/a> strategy. <\/p>\n\n\n\n

Blank writes that when positioning your product<\/a> in a new market<\/strong>, you need to explain what purpose your product serves on a basic level<\/strong>: What issue is it going to help your customer with, and how? <\/p>\n\n\n\n

(Shortform note: In Play Bigger<\/em><\/a>, the authors note that positioning in a new market can be especially easy when you clearly communicate to customers the problem you\u2019re going to solve for them. This is because, in a new market, you\u2019re often identifying a problem customers didn\u2019t even know they had<\/a>, and once they become aware of it, they feel compelled to solve it. When you help customers recognize an underlying problem or unmet need, and then position your product as the only solution, you can dominate your new market and even make older markets obsolete.)<\/p>\n\n\n\n

For the other three market types, your customers will already understand the purpose of the product, so the goal is to demonstrate how it\u2019s superior to competing products<\/strong>. <\/p>\n\n\n\n