With all the planning you do for a startup, there is nothing more important than finding out early on if your target market will actually purchase the product or service you are selling at a price that allows you to make a profit. It doesn’t matter what your business model is, or how snazzy your website is, or how much your advisors believe in you; if you can’t generate enough revenues to cover your costs, ultimately your business will not succeed.
That is why early on in the business planning process I recommend that you create a sample of your product or service. Having a prototype will help you receive feedback about whether or not prospective customers will actually pay for what you want to sell. I’m a huge advocate of conducting surveys. At this juncture, you can send out a survey to people who might be prospective customers to get feedback on your idea. With the results, you can tweak your idea and let it help you shape how you create your product prototype or sample.
Regarding your prototype, if you can’t create it on your own, consider using a company like Manufacture NY, PRG Prototyping or Star Prototype. There will be some costs involved. At this stage, it’s about creating a basic product without all the ‘bells and whistles’ that you might deem important later on. Think of the most basic and necessary features that you want to convey to the potential customer. That’s your initial prototype for this learning phase. This way, when you have to refine it after user feedback, you can. Or, in some cases, you have to ‘throw’ it out and start over, which is okay too. This is all learning before you actually go live with your business!
For example, before we launched NuKitchen, we hired a chef to develop an initial set of meals with certain nutrition values. We then had him prepare actual portion-controlled sample meals that we gave away to prospective clients. We didn’t have to spend a lot with the chef, since he knew that were just testing the waters, but it still cost us several hundred dollars. It was an investment that was well worth it because we knew that once these potential customers could see, touch, smell, and taste the product, they would immediately feel a greater connection with our business. In many cases, just describing your product isn’t enough: customers really need to experience it to understand its benefits. This was certainly the case with NuKitchen. Giving sample meals to potential customers may have cost us some money, but we learned a lot from their feedback, and they provided an initial set of target customers once we were actually ready to start providing our delivery service.
Along with your prototype, you can also set up a basic website with a landing page to start capturing prospective customers’ emails. Many hosting and web service solutions offer free basic website templates that are already pre-formatted for this so it’s relatively easy to set up. I’ve used GoDaddy, but Google, Intuit, and a host of others offer this service at a low-cost. Secure a domain name, e.g., www.YourBusinessName.com, set up the homepage or landing page, and make sure that you include a way for folks to contact you, e.g, Info@YourBusinessName.com.
Now, if you’re starting a web-based business or business that is primarily relying upon the web for ecommerce or interaction, you’ll need to take a slightly different approach. While I suggest that you still set up a basic website with a landing page to start capturing prospective customers’ emails, you’ll need to do a bit more work on the technology side. If you’re a non-techie like me, you’ll definitely need to do this next exercise.
You will need to create ‘wireframes’ of your concept, which are mockups of the web pages and the user flow for the online experience. For example, with NuKitchen, since we were offering our product online, we wanted to show how a potential customer could come to our website, learn about our offering, and make a purchase. That’s pretty straightforward and probably applies to most ecommerce website experiences. There were several other factors that we had to consider, however, such as allowing the user to create an account, select their meals, and set up a delivery schedule. So, we had to create mockups for each of these pages and write out the business rules, which included the maximum number of meals a customer could select, the available days that meals could be delivered, and ability to filter meals by food preferences. While you can hire a web designer to help you, which I ultimately recommend, you should draft these mockups first by yourself so you fully understand the business and how it works online. There are free and low cost tools, such as iRise or Balsamiq to help you create these wireframes. As you get more customer feedback and revenue (or investment), you can invest in developing more features or other ‘bells and whistles’ for your platform. Keeping development to a minimum will save you time and money.
In summary, you will be able to learn a lot during this test period. Does this change any of your initial assumptions in terms of pricing or costs? How is your business model impacted? Can you still make a profit? In my experience, there is no better way to know if your price is right than to ask the customer!