How To Test a New Line of Business Quickly

Today only the lazy wouldn’t say that in the event of a crisis, any business must adapt to new realities quickly. One way to do this is to change direction. But the question is: how to “guess” where to redistribute the remaining money? There may not be a second attempt. The answer is simple: conduct several cheap and quick experiments, identify a successful idea, launch it. Let me tell you more about this algorithm in the article.

Who am I?

Andrey Grigoryev, CEO at the PAD team. For several years now, we have been helping to become richer and more recognizable to such brands as Presium, Pikabu, СityMobil, EpicGrowth, and many others. We assisted several startups with having their ideas tested. Some of them have already managed to enter the market and get investments, some of them are currently going through the stage of creating the product. This part of the experience is described in this article.

Step 1 — Unit Economics

The calculation of unit economics is a tool that helps to understand whether it will work out, taking into account all the costs of the product and customer acquisition. It will be a litmus test for ideas ready for the real test. In an ideal scenario, absolutely all expenses should be included in the calculations, but in the event of a crisis, part of the responsibilities can be distributed between current members of a team. If, as a result of unit analysis, you understand that you will work in the red, the idea should be improved or completely rejected.

To make the necessary calculations, we draw up a simple table in Google Sheets or Excel (credits for Arkady Morenis for the template). For example, let’s have a look at a children’s furniture store (currency — Russian rubles):

We tabulate all estimated costs: employee salaries, taxes, customer acquisition, logistics, and so on. After all the manipulations, we see that in order to break even, we need to receive 2 orders per day. All other orders would be our profit. You can immediately assess whether it will be potentially possible to provide such a volume. This is quite an interesting and realistic forecast. Let’s move on.

Step 2 — Competitor Analysis

An important but not mandatory stage in the event of a crisis. The main thing about it is the improvement of our proposal. If there is time for analysis, then we act, no — skip it. In short: pretend to be a client, receive their offers, highlight what we don’t actually have and then finalize our own.

Decided to find out the details? Let me explain. First of all, we’ll come up with a legend, especially if the “intelligence” is in B2B. We decide in advance what kind of life situation we have, who we buy the product for, etc.

The next step is to draw up a table where we enter the criteria for analysis. This is necessary to understand which information to hunt for, what to ask, what to pay attention to. The following points may be in the list: where is a business introduced on the Internet (website, social networks); what do they have on the website and social networks; what do they offer there; where you can leave a request; time and method of order processing; what is the goal of their sales manager; form and essence of the final proposal. The list changes at your discretion, depending on the specific product.

Now we are ready to communicate with competitors. The only thing to remain — leave a certain number of applications. Everything is simple here: we search for the necessary projects in search engines, social networks, ask friends, click on advertising. Then we arrange dialing, write messages and find out the competitor’s offer.

If you think that the idea has not yet been brought to life by anyone, pay attention to indirect competitors. People always have something to do and where to spend money. For example, if you sell books, your competitors are not only bookstores but also cafes, movie theaters, even Netflix. A person has limited time and money. Therefore, you have to constantly choose what to do at your leisure and where to spend the money. Even indirect competitors can provide us with some interesting features.

We are currently testing a new service for the analysis/development of a product in terms of marketing. To do this, we conducted small research, compiled a list of competitors, and contacted them:

Our product appeared to be a bit different from competitors. It turned out that basically, we will compete with full-time specialists, rather than other teams. This information helped us to improve the proposal.

Step 3 — Hypothesis generation

Hypotheses are our assumptions regarding test results. They will help us both in assessing the success of the experiment and in finalizing the project, for example, in the final choice of cost.

A little less than a year ago, we were approached by a company that wanted to test the idea of a mobile app with an AI coach. After the test, the team released the product. Recently we have conducted an advertising campaign for their MVP. We started by generating the following hypotheses:

• Pre-order will cost more than $ 2.5.

• Price testing demonstrated that the $ 50 annual subscription is preferred (there were three options — $ 50, $ 100, and $ 150).

• Pre-orders for Android will be cheaper than for iOS.

  
  

During the test, these hypotheses were our benchmark for campaign success. We put them forward on the basis of unit economics, competitor analysis, and our own experience in promoting similar products. How to put forward a hypothesis? After reformulating Wikipedia’s variation, I identified several criteria that a hypothesis must meet:

1. It is based on preliminary research and has a chance to be confirmed.
2. It can be reliably verified experimentally.

I recommend putting forward hypotheses in this way:

1. Who will buy and what will he buy from us; why he will choose us instead of the usual way of satisfying needs.
2. How much will it cost us to attract a client or at least to get a request?
3. Which channels will work best.

After formulating the hypothesis, we need to decide how to verify our assumptions.

Step 4 — Choosing a channel for testing

There are several ways of testing hypotheses:

1. Interviewing with the target audience on the product.
2. Creating a landing page and traffic launch.
3. Direct sales to your own customer base.
4. Questioning and polls.

We will focus on one of the simplest and fastest ways — testing traffic to a potential audience. To do this, create a landing with an allegedly finished product or with information that the product is under development and add a proposal to fill out a questionnaire (truncated CustDev-interview) in order to receive a bonus in the future.

At the end of 2019, we were approached by a company that wanted to produce snacks that would partially replace regular meals. The team had a landing page where we brought traffic:

Personalized food ration based on your metrics Order Balance your diet For long and healthy life

By clicking the “Order” button, a potential customer proceeds to the following form:

Order Please, fill out the form below to get a link to the questionnaire, which will help us to develop a personalized diet for you. Name Phone number E-mail Send By clicking the button, you’re agreeing to processing your personal data.

Afterward, the customer is contacted by the manager, who sent the questionnaire.

We prepared an advertising campaign: a pool of creatives (unfortunately, according to the NDA, we can’t show them), identified target audiences (people who often have a bite to eat and find an alternative to nutritious food: marketers, couriers, journalists, IT specialists) — and launched the campaign in Instagram and Facebook. As a result, we achieved:

• Spent — 700$
• Impressions — 126 488
• Clicks — 2245 (0,31$ per click)
• Requests from website — 138 (5,07$ per request)
• Completed forms — 32 completely filled questionnaires of 40 questions (21$ per complete questionnaire).

The results totally satisfied the company. They received a large amount of information and launched a test batch of the product into production. Thus, they managed to test the idea for several thousand dollars instead of creating a product that might be irrelevant, spending the x10 budget.

Once again, step by step:

1. Find an idea we want to bring to life. Before spending the last money, go to the next item.
2. Build up the unit economics of the project and consider whether we can pay off and pull the necessary volumes. The numbers have converged and even instilled us with hope? Move on!
3. If there is time for it, analyze competitors. We call and write to everyone who would take money and time from our future, but already beloved and desired customers. We improve our offer based on the experience of competitors.
4. Generate the initial hypotheses for the test. According to them, we will evaluate the prospects of the idea.
5. Choose a testing channel. Let’s say the most convenient for us appeared to be targeted advertising on social networks. Prepare a platform where we will bring the traffic. Then we launch an advertising campaign on our own or find a team of professionals. Test the idea and don’t waste money. As you are well aware, there are still lots of ways to part with a tidy sum.
6. You have an idea that is interesting to people. At least that’s what the numbers say. It’s time to proceed to creating an MVP or changing direction.