Stage 4 validate
So far, everything in your business model is in the form of assumptions or hypotheses. You need to test and validate these as quickly and effectively as you can. Only testing your hypothesis and validating it, wholly or partially, or invalidating it is progress in the real world. The aim in early innovation is to maximize the learning per hour or dollar spent; where you start testing really matters!
4.1 Generate Assumptions
Before you can start testing and prioritising your core hypothesis, it is vital to generate all of the assumptions that you have about your new business models. Everything is just a guess until validated. Once you have identified all of your assumptions, it will become clear, which of those are “critical” – the ones that must be true for your business model to be a success. Several assumptions can be found at every building block of your business model:
- Your customer and market
- The problem(s) you can help them with
- How you get, keep and grow customers
- Your channels
- You and your partners’ capabilities
- Your competition
- The macro environment
- Investment etc…
Significant Assumptions Matrix
Using the Significant Assumptions Matrix allows you to categories your assumptions based on their importance and significance for your envisioned business model. Using this tool, you will be able to evaluate your assumptions. For each assumption, you must decide whether it is based on a reliable fact, an educated view, or a wild guess. Furthermore, you must try to determine the potential impact of each assumption (whether true or false) on the success of your business model. You want to establish whether the effect will be severe, moderate or minor. The grid provided, allows you to place each assumption in the correct place in relation to these possibilities.
Brainstorm individually, all of the assumptions you have about your chosen Business Model Option (1 assumption per post-it note)
One at a time, place your assumptions in, what you believe to be, the correct box on the matrix based on its severity and how well educated an assumption it is
Once each team member has done so, cluster any similar assumptions that fall into the same box
All assumptions that fall into the top right box are going to be your focus for testing and validating as they will have the most severe impact if incorrect and are based on wild guesses, so need to be investigated
Identification of your most significant assumptions – the ones that must be true, or else have a severe impact on the success of your new business model and must therefore be tested and validated as soon as possible.
4.2 Define Experiments & Tests
Once you have identified your most critical assumptions, they will be just that until you validate them. Having these assumptions validated will determine whether you can implement and scale your business model. Do not take this lightly. Therefore, in this stage, your task is to design experiments that will allow you to test these critical assumptions quickly. You need to be able to measure and quantify your results. This cannot be done in the comfort of your office. It is necessary to get out of the building to talk to your customers and other key stakeholders, to observe what they do and why. You want to prove or disprove something as quickly as possible (i.e., fail fast so you can learn from it and define further tests).
Test & Learning Cards
You must validate your business ideas with customer experiments/tests before scaling them and record your learnings from each experiment.
Cards source: Strategyzer
The Test Card forces you to make the following things explicit:
- What needs to be true for your idea(s) to work (aka hypothesis, assumption, or simply guess)?
- How are you going to test if that hypothesis is true or false?
- What are you going to measure to (in)validate your hypothesis?
- How does success look like? What’s the threshold?
The Learning Card forces you to explicitly articulate:
- Which hypotheses you went out to test
- What you observed, discovered, or learned in the field
- What you deduct from those observations (i.e the insights you gained from the experiment)
- How you’ll act upon this learning (e.g to improve your business model and value proposition ideas)
Using a single test card for each assumption, write out what you ‘believe’.
Design a lean and simple experiment to test each assumption and establish how you aim to measure the outcome of each experiment.
Record your results on the learning card.
A series of lean and simple experiments designed to get a yes/no as quickly as possible in relation to each significant assumption with recorded results. The outcome of each of these experiments will determine what changes you may need to make and whether you need to iterate previous steps in order to get to a fully validated business model.
4.3 Iterate Business Model
There are many different business models for any one product, service or business idea. The interplay between current state business model, context, vision, and ambition provide opportunities to test significant assumptions, engage with key stakeholders and explore multiple and various value exchanges. The main challenge with launching an innovative new circular business model or value proposition is that the market (system) is largely linear by design. A design, measure, learn iterative approach will help you find the way to design and develop an establishing circular business model or at least catalyse and flush out the systemic barriers or enabling context to your innovation. Look at your circular business model innovation journey as a film-strip of change as you note the changes to your first business model canvas to the one that is validated in the market.
Iteration of Previously Used Tools
At this stage, iteration is crucial if you’re to ensure that your business model is fully validated before taking it to market. This is key to ensuring optimum conditions for success.
Repeat each of the above steps until you believe you have explored, tested and validated every critical assumption that you identified upon iteration and have developed your model to accommodate these results.
A fully tested, developed and validated business model, ready to take to the market.