In the last blog, we talked about how rarely a new product or service is created to meet the market’s needs, and how the combination of business model innovation and design thinking can be leveraged to overcome this. Even with these tools, however, you can’t build a company to scale unless you commit to learning lessons the hard way and letting the market be your guru.

Often referred to as the invisible hand, the market is seen by some as the omniscient force that runs the world (of business that is). Never spoken to or heard from, it ebbs and flows (or booms and busts) in natural cycles over time.

Over the years, a number of people have decided to ignore the market and play by their own rules. The group shares the same thought, consciously or not: their invention is so exceptional that the market will change to suit their needs (or their product). Ignoring the market has allowed many to stay up in their cozy ivory tower, where their idea is like a warm blanket. When they come down to share their creation with the world, the market provides a cold, hard landing to help the realities set in.

There is no shortage of examples to prove this point, but perhaps the most prominent one in recent memory was WebVan, an online grocery service started at the height of the dot-com bubble. Relying on the revenue projections from a fairytale business plan, the WebVan Group managed to burn through $830-million in 18 short months to try and convince people that online grocery shopping was the revolution they had been waiting for. The problem, naturally, was that very few people were ready for or wanted the WebVan revolution to take place. Many other companies have gone by the wayside in similar fashion — it happens on a daily basis in the startup world.

Ignorance is bliss until the day you face the music, and in no realm is that more true than entrepreneurship. Staying inside your head, dreaming and hyping your own idea, is like skydiving off a cliff without a parachute – the view is phenomenal until you hit the ground. Equip yourself with a parachute by opening yourself up to market feedback right from the outset and let the market forces guide you.

It takes some tenacity and courage, but getting out there is the key to building a successful business. It’s the first step toward letting the eternally wise market determine whether a business can be built around your idea.

So how does one start?

  • It starts with a value proposition. For people to be able to assess a new product, idea or service, they have to understand what it does, why it exists and what makes it unique. Clear, concise communication of the value proposition is the first step.
  • Next, build something off of the value proposition. Whether it is as simple as a rough sketch to illustrate the concept or a complete prototype, create something that people can see, touch or feel.
  • When you have something tangible, it is time to listen, ask questions and encourage different viewpoints, even if they conflict with your own. Staying open and facilitating an honest dialogue is the key.
  • If the response is great and there is some measureable progress, move to the next step. If not, make some changes and try again until you have something concrete to build from.

Obviously this process is slightly oversimplified, but the core idea is easy to understand: get out there and validate your idea with a reasonable amount of feedback before investing time and money into it.

No product or service will make it in the long term without the market’s approval. You need to ask the right questions and take the necessary measures to see if an idea really has what it takes to build a business around. The best thing you can do is the simplest — put your idea out there and let the market be your guru.

Check out the final part of our series on Spurring Innovation, when we take a look at Wesley Clover to analyze their model of innovation and the success it has yielded in the marketplace.

Intro: Bucking the Trend – Spurring Innovation in Canada

Part I: Inspiration from Abroad

Part II: Why Failure is a Misnomer

Part III: Catalyzing Creativity and Breaking Down Silos

Part IV: Design Thinking and Business Model Innovation – A Dynamic Duo

Part VI – Does Wesley Clover have it right?

Summary: Saddle Up and Go

+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary

Trends and Research – Summary

PLAN – the Business Model

In the last few weeks, we have discussed the wisdom behind writing a business plan and identified some good questions to start with before creating the plan. In this blog, we compare the process of building a business to that of building a house, and look at why it is important to understand the market landscape before the business is built.

Would an architect build a house on ground that couldn’t support it?

One would certainly hope not. In the same way, it doesn’t make sense for an entrepreneur to build a business in a market that can’t sustain it.

Back in the day, it wouldn’t have been uncommon for someone to find a piece of land, slap up a few boards and call it a house. Nowadays, however, that wouldn’t fly. What we do see a lot of these days, however, are businesses being slapped up like a rickety, old shack on a cliff, ready to be blown over at any moment. Entrepreneurs everywhere startup their venture without any real knowledge about the landscape they are building on.

Before we go any further, we need to clarify what market knowledge is. What it isn’t, is a Gartner market report and a few positive reviews from close friends. What it is, is deep, validated insights derived directly from the market. To reach this point isn’t easy, it requires some tact and determination.

So how does an architect gain knowledge of the landscape they are building on?

They put on their hard hat, roll up their sleeves and get out there. While a shack that moves with the wind may have been considered good enough a hundred years ago, it won’t fly now. Architects develop a great understanding of the landscape they’re building on before the house is built. With this on-the-ground knowledge, they are able to create a detailed blueprint that dictates how the house will be constructed.

In the same way, entrepreneurs need to put on their hard hat, roll up their sleeves and get out to survey their market landscape. This means getting to know your customers and your competition, the two major forces that shape your marketplace. Talking to customers, learning about the competition, and scoping the trends that affect the environment around the business, these are all essential steps in ensuring that the landscape is properly mapped out. These insights are then used to formulate the business plan, which details how the business will be built.

With a blueprint in his hands, an architect has an idea of the big picture direction of the housing construction, which he can share with contractors and construction crews. It includes what materials to use, where to build things and what dimensions to build each item. With this information, it is easy to estimate all the costs and expenditures associated with the construction. Similarly, an entrepreneur needs a business plan to lay out the long-term direction of the business and communicate to employees.

Let’s just imagine what would happen if an architect built a house off of a lousy blueprint because he didn’t survey the landscape. Sure the house would get built and people would move in, but inevitably problems would start to arise. Without any knowledge of the landscape, it would be very difficult to identify the source of such issues and small things would turn into big problems.

The same disastrous results can happen to the entrepreneur who doesn’t know about their marketplace. Unforeseen problems will arise that can’t be properly understood, leaving the entrepreneur in a weak position when they are forced to deal with them. Suddenly, these small issues get bigger and bigger, until it all comes falling down.

At Lumos, we understand that knowing what to do and how to do it are two separate things. There are several tools and ideologies for how to go about this process, but sometimes they make it even more confusing. The best thing you can do is get out there, experiment and learn. Knock on a few doors, fire off a few emails or put up a website. The key is to develop your insights and gain traction based on real industry feedback.

And remember, excessive market research can actually do more harm than help. Our blog on the blind men and the elephant is a great lesson about why you need to just put it out there and get the market’s reaction. If you’re sitting in the ivory tower, endlessly dreaming, planning and researching an idea, get out.

In the future, we will be digging into greater depth on some of these topics, including ways to research the competition and find new customers. Until then, put on your hard hat and get out there!

+ Business Model Breakdown: Crowdfunding
+ Strategy Sessions

Crowdfunding Strategy – Summary

Trends and Research – Summary

Read about our collaborative Process

+ Twitter : @LumosBusiness

+ Pinterest : Visualize Trends

+ Discuss : OPEN forum

+ Google + : Hangout

+ RSS : Subscribe

In Part 1 of “The Street Smarts for a Scalable Business Model” we talked about thinking big and getting creative as preliminary steps for building scalable business models. Today we will get more in-depth and talk about ways to assess the feasibility of a scalable business model and go about phase one of validating the initial vision.

Undoubtedly, any great idea is the by-product of some incredible intuition by an entrepreneur. It becomes quite obvious, however, that although there are many great ideas out there, very few of them actually get implemented successfully. Simply put, the majority of businesses fail and very few businesses that set out to reach big targets actually hit them (0.5% on average). In my mind, there should be greater emphasis on the business model rather than the idea itself, in order to ensure that there are strategies in place to help the initial idea gain traction.

So let’s assume that you have gone through the imagination and creativity stages to come up with an idea that has big bang potential and a preliminary strategy to match it.
Now it is time to conduct a feasibility study and begin validating the initial vision. The actual time spent conducing a feasibility study is not of paramount importance. What is important, however, is ensuring that key questions are understood before moving forward on any opportunity. For example:

How many potential customers exist in the marketplace could more effectively get the job done using your product or service?

In order to answer this question, an entrepreneur needs to know two important things:

1) What customers in this market need to get the job done
2) How the experience created by their product or service addresses this need

There needs to be some fundamental understanding of the customer and what they need to get the job done, not an attempt to simply place something in front of them that they say they want. Beyond that, it is important to have a grasp on how many people there are doing this particular job and what products or services they use to get the job done currently. For some, it may be very simple to get answers to these questions, while for others it may take months of research. But for all, it is essential to know the marketplace on a fundamental level.

Once this core understanding is obtained, the opportunity needs to be reexamined in a strategic context. If building an understanding of the market helps us validate that the opportunity has big bang potential, then we need to ensure that the required strategies are feasible to execute. Creative brainstorming is good to get the wheels turning for any idea, but a business model needs to be rationalized in more concrete terms. This includes looking at costs, cashflow and resources required to execute a given strategy. For example, a certain strategy may be necessary to reach customers in a specific market, but the costs to acquire a customer using this strategy would put a squeeze on margins and dampen the whole business model.

Overall, it is important to examine the marketplace and ensure that the strategy to reach that market remains feasible. To build a scalable business model requires a focus on not just creating value, but finding ways to deliver and capture that value. This places an equal emphasis between market opportunity and strategic planning, so that no idea is taken to market without at least some idea as to how things will play out. Obviously things will change greatly as soon as market entry occurs, but the entrepreneur needs to have thought the business out and envisioned the basic structure of the business before any sort of operations begin.

Conveniently, we can help with each and every step of feasibility analysis for your business model. Stay tuned for Part 3, as we talk about validating customers in ways that proves the business is scalable.

Part 3: Customer Validation

+ Download a copy of the business model canvas (click here)

+ Building Blocks – PLAN – the Business Model
+ Strategy Sessions

Crowdfunding Strategy – Summary

Trends and Research – Summary

Read about our collaborative Process

+ Twitter : @LumosBusiness

+ Pinterest : Visualize Trends

+ Discuss : OPEN forum

+ Google + : Hangout

+ RSS : Subscribe