Most new businesses fail. But most of those failures would have been preventable if the semi-scientific method had been applied from the start. In this video, you will learn how to use this new method to start and scale a profitable business today with minimal cost. Anyone can use this method to create a successful business. At the end of this video, I’ll recommend a book that will help you better understand and implement this concept as an aspiring entrepreneur. Before we get to it, be sure to subscribe to After School Africa for more insightful videos like this.
How Smart Businesses are Created Today
A smart business or a startup is essential ‘an organization formed to search for a repeatable and scalable business model.’ The task of the entrepreneur is to discover a viable business model while operating in a climate of extreme uncertainty and then amplifying that model.
You see, the only way to succeed in today’s business world is to learn faster than your competitor. The faster you can learn about your business, the better you are positioned to succeed. The semi-scientific method is the real-world approach to building a profitable business using validation, finding a profitable business model and scaling your business. This is the new approach smart businesses and entrepreneurs are adopting to increase the chances that they will succeed. While the concept is best suited to technology-powered businesses, it has a wider application for almost any type of business.
It is about learning what your customers really want — and learning it quickly. It’s about continuously testing what you think your customers might want and adapting based on the results — and doing this before you run out of money. Here is how it works.
Finding a solid business model
To find a sustainable business model using the semi-scientific method, you have to – like a scientist – create a hypothesis; that is an assumption. For example, Airbnb’s assumption was that people will be willing to share their homes with strangers. Amazon’s assumption was that people would buy books online. IrokoTV’s assumption was that people would watch Nollywood movies online. My friend’s assumption was that people would order a particular local dish online at a premium price.
If business was a scientific endeavor, this is where scientists start building theories, researching, speaking to colleagues and a bunch of other things, which won’t get them closer to finding out if their hypothesis is valid.
Instead, in this case, you only have to be semi-scientific, because you just have to throw your assumption out into the real world to get immediate feedback. This is not the time to start writing a 25-page business plan. You want to validate your assumption.
For Airbnb, the step was creating a simple website called Air Bed and Breakfast, and putting up their bed space for rent. For IrokoTV, it was licensed a few existing Nollywood movies and uploading it on YouTube. For my friend, it was creating a simple food ad on Instagram.
The importance of this step is to get people to pay for, sign up or engage with your service as quickly as possible. You could tell your friends and colleagues about your idea and they’ll say, “Wow, great idea. I’ll like to buy it when it’s ready”, but that doesn’t validate your assumption. A random polite comment from a colleague is not valid data. Instead of calling your friend, and researching for months, find and ask people to use your product.
Zeppo, an online shoe company started by creating a simple website and uploading pictures of shoes. When people ordered, they sourced the item from stores and deliver it to them. In essence, you are looking for evidence of demand before investing in building the complete product.
Test frequently and learn quickly
This is part of the semi-scientific approach where you differentiate between what is valuable to your business and what is wasteful. This requires you to create at least 2 versions of your product, and show both of them to the same amount of people. From the result of both tests, you can figure out which one people prefer. This is called split-testing or A-B testing. It allows you to figure out what your customers value, and what they don’t want or need. My friend created three combos of her local dish and ran an ad for each of them. The result gave her insight into what people want on their package.
Imagine how hard this was a few years ago, where the only way to do this was to create physically different products, ship it to 1,000 customers each, and ask each customer for feedback. That will involve heavy cost and manpower. Today, with digital technology, you could get a graphic designer to come up with 2 designs, run a poll or ads on Facebook or Twitter and gain insight from the result. Split testing is a very effective method of eliminating what is unnecessary and focusing on what will make your product most efficient.
Bottomline Metrics Vs Vanity Metrics
Vanity metrics are data that create an impression about performance but are just for fancy. For example, 1 million page impressions on your website are of no use if no visitor converts to a customer, subscriber, or user? Instead, entrepreneurs need to focus on metrics that add to the bottom-line; that is real metrics that can inform decisions.
Many businesses and entrepreneurs waste precious time on vain metrics like the number of Facebook likes and comments. It’s a vanity metric you must never indulge. Don’t buy followers, subscribers, or likes. Getting lots of page views to your ad or website is great, so is having lots of followers on Twitter. But none of those validates your assumptions. The only metrics you should measure your success with are the ones who tell you if your idea is profitable or not.
Are people recommending you? How many? Is the rate of recommendation growing or declining? Are existing customers coming back to buy more? Is the cost of your Facebook ads lower than your customer lifetime value? These are the kinds of metrics you should look at because they are what keep you in or out of business.
Social media flattery doesn’t pay the bills. You have to be honest with yourself and only give credit to the metrics that matters; like orders, conversion rate, user activity, engagement, retention and virality.
Be Comfortable Pivoting based on Market Feedback
You can spend 6 months building up your business plan and doing market research, stuck in “analysis paralysis”, invest money, hire a team, then launch your product and spend 6 more months, convincing yourself “it takes time”. Or you follow the semi-scientific method to view your idea in a magnifying glass, run tests and learn from the results quickly.
Ultimately, the semi-scientific model is all about starting small, learning big, testing your proposition in the market and adapting to the feedback you’re receiving. But what if after running your test, you discover your initial assumption is not working? What if you discover that changing direction will be a better decision than continuing with the original plan? Then that’s perfectly ok because you have learned quickly, without wasting a lot of resources, that your assumption needs more creative thoughts. It’s ok to pivot or to stop what you are doing and re-evaluate. Failing quickly is better than failing later.
This is practically how most successful businesses today started. You may discover that your assumption was wrong or need some modification. Sometimes, it could mean abandoning the idea entirely. The advantage of this method is that you get to learn this quickly, with minimal investment, then make adjustments as you progress or just move on to something else.
This video is inspired by the book, The Lean Startup by Eric Ries. This book is about learning if the assumption about a business idea is valid – and learning it quickly. It’s about learning what your customers really want — and learning it quickly. It’s about continuously testing what you think your customers might want and adapting based on the results — and doing this before you run out of money. If you are considering starting a business, you should get this book.
I hope you found this video helpful. Remember to like and share it with someone. If you are yet to subscribe to After School Africa, now is a good time to hit the subscribe button. Until next time, YOUR SUCCESS MATTERS!