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Why you should not rely on business plan and research and should do a market test of your business model?

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May 2, 2012

Saul Kaplan the author of The Business Model Innovation Factory and the Founder and Chief Catalyst of the Business Innovation Factory (BIF ) wrote in a recent post on HBR blog that:

Anyone can map out new business model ideas on paper. It's easy to do pro-forma analyses of how a new business model might work. And it's not much more work to write up a fancy report embellishing on the potential of a hypothetical new business model. But until a business model idea sees the light of day in the real world, it is impossible to know if it will really work.

One of the common mania among many startup entrepreneurs is that, they love to make their businesses happen on paper. Most of them, who often fail, wants to write a detail business plan, do some qualitative and quantitative research and put some SPSS statistics that is indigestible for most people. They believe prior of starting business the most important thing to do is making some graphs, stats and so called market research.

However, most entrepreneurs, who are successful now, don not believe in market research. Steve Jobs even had an apathy in market research. Once he said, did Edison conduct any market before inventing electric bulb! So, they don’t believe in business in paper rather in business in practice. Most of these entrepreneurs test their ideas in market.

It often happens that, people write their ideas on the back of a waste paper, or used item and preserved it and then do a prototype to test whether it works or not. So, it is logical to not to rely on research and long tail business plan at all. Here are some more intricate reasons:

Waste of time: Living with statistics is not a job of entrepreneur. He should live with creation. Doing a lot of paper work is a waste of both paper and time! Putting lots of variables, calculating on them and relying on them is one of the most insane unrealistic things to do.

People can’t articulate anything hypothetical: A growing whining is quite sensible against qualitative and quantitative market research. It has been found that, people are worse at telling their feelings or what they like or dislike. Say for example, you ask me, what kind of mobile phone I really love, though I can tell you a mixture of color, size, functions but cannot make it clear. The very reason is that, even sometimes I don’t know what I want. I can sense it when I see something, taste something, or wear something.

Research cannot find the real cause or result: From above point that is: we even don’t know what we want, then how can I tell some researcher that I want this or that kind of product. The limitation of market research is wide accepted. Doing a qualitative or quantitative research is not a way of testing a business model. Moreover, research finding vary based on researcher. Top of that, the amount and type of data people provide in an interview vary largely based on environment, with whom one is talking and on about what. Due to this problem with conventional research now many marketers and marketing firms are turning towards neuro-research, that is interviewing consumers brain!

All these arguments prove that, instead of doing a lot of paper work one should focus on testing in market. Most successful business people or entrepreneurs start in real market and they develop their business model sequentially.

Saul Kaplan also said in his article that:

The idea is to move as quickly as possible from concept to prototype to test, and then iterate until you land on a business model configuration that works and is ready to scale. Along the way there will be many failures. The trick of course is to fail fast and to capture learning that can be applied in the next round.

To make his point stronger he put following example:

Mickey Drexler, chairman and CEO of J. Crew Group, serves on the board of Apple and gave Steve Jobs some excellent advice that is relevant for any business model innovator. Jobs was getting frustrated with Apple's inability to control the entire customer experience since its products were sold through traditional consumer electronic retail channels. Apple products, in his view, weren't getting the shelf placement, sales support, and customer service they deserved. He wanted to apply Apple's design magic to what he rightly believed was a critical part of the customer experience—buying the product. As Jobs began thinking about the possibility of Apple specialty stores, Mickey Drexler told him to build a prototype near the Apple campus and to hang out there until he was comfortable with it. It was the perfect advice and that is exactly what Apple did. Its first store was a real world lab or design studio to explore how the new business model would work.

Beyond that doing a market test is advantageous for start-up in many ways. Some of more tangible advantages are:

Direct customer feedback: Without losing any further money and time you can easily get customer feedback just by testing your prototype. This help in developing product quality at large and make things more smoother.

Marketing: Letting people test your product is among the best ways to market your product. It let people to know that you are coming with something that is either interesting or becoming an interesting one. Moreover, it sends a message that you care about customer and their feeling that is why you are testing your product or business model.

It is hard to take the view of not doing a detail paper work prior of launching a business model, avoiding red and black graphs and creepy statistics. However, it is not enough to tell truth but also to accept. It is your turn to do so.


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Ruhul Kader is a technology and business analyst based in Dhaka, Bangladesh. He is also the co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at ruhul@futurestartup.com

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