Reflections on leaning a business idea

By Aditya Dhanrajani

Last week, our class spent 2 hours in a business model exercise where we explored some of our classmates’ startup ideas/products. The idea was to elaborate on the business models of these startups, identify the key hypotheses that the startup was hinged on and explore potential tests that could be run to (dis)prove those hypotheses. Given this was the first time I went through this process I realized that some parts of the process were surprisingly more consuming and had larger implications than I would have anticipated.

Nailing down the business model is key and it drives everything.

Being able to articulate a crisp business model that encompasses, the customer value proposition, got-to-market strategy, technology/operations and the profit formula is a challenging but necessary task. The progression of the four elements of the business model feed into the next. The customer value proposition defines the customer which dictates how we get to them, which influences how we setup the product which defines how the startup makes money. This ensures that at the end of the definition exercise the business idea is elaborate beyond a few bullet points and more importantly consistent.

Identifying key assumption and fleshing out corresponding hypotheses is difficult.

I think the devil is in the detail here. It is easy to say that the key assumptions behind a business model are that the product specifications are sufficient for customers and users are willing to pay for the product. But given limited resources which one does an entrepreneur test. Defining the hypothesis to test is the next challenge. Simply saying the product specifications are sufficient is not testable or falsifiable. It needs to include a clear metric that can be used to declare a hypotheses true or false. I think fleshing out hypotheses is a discipline that an entrepreneur should force upon oneself as sometimes it provides feedback for the business model definition.

Avoid over-thinking tests?

In the team exercise I found myself complicating some of the tests needed. I realize it was because I was too fearful of the hypothesis breaking down under boundary conditions. It was like writing a for loop with several if-elses in it; it just increases the processing time. This is something I am still not clear on but I think initially the test should be simple and should aim at testing the mean. Later if doubts arrive boundary conditions should be tested. The risk in this line of thought is that the boundary condition might invalidate the business model completely. For example do we test our servers to handle our expected volume of 1000 users or max it out at 2000 users. In the beginning the entrepreneur has no clue how many users are going to be using the product.

I think this exercise would be useful to entrepreneurs even after their startup is off and running as it helps act as a touchstone. Getting a team around a white board to go through this helps reinforce the teams vision and provides an opportunity to consciously refine ideas. The whole concept of doing it in a team ensures that the ideas are pushed by each others varying perspectives. What is key is for the team to hold each responsible and drive discipline in the process and dig deep into some of the key questions.