The failure to diligently develop and vet their business model is one of the classic mistakes of new ventures. In this short article, I am covering some basic steps innovators can follow in order to get ahead of the curve and commercially de-risk their project:
Step one: Write down the crucial elements of your business model
- Customer segments
- Value proposition
- Market size
- Pricing + reimbursement strategy
- Sales + distribution model
- Launch plan
Step two: Identify your biggest risks
Risks are bad if likelihood times impact gives you a comparatively large number. So either somewhat bad things that happen often, terrible things that happen seldom, or something in the middle.
See my recent slideshare here for some more hints of what typically goes wrong. You can mitigate those risks by going through your business model design step by step and rating your confidence level in each of its elements. For example: Are you confident that the UK is a good target market? Are you sure you are able to quantify your value proposition for a relevant share of the market? etc.
Step three: Write down your key assumptions
Once you have identified your gaps and/or areas in which your confidence in your business model is lowest, write down smart assumptions that your business model is based on. Be specific enough so you can clearly falsify any hypothesis’ you are formulating, otherwise you will just be tempted to stick with your own gut, which is more prone to psychological errors than you’d like it to be. In other words: The assumption of „a serviceable, obtainable market of 2BN“ can not really be measured that easily. But „7/10 GPs will signal interest and potentially sign an LoI at a price of XYZ €“ is straightforward to validate.
Step four: Test, learn, and build traction
Make a spreadsheet and write down whom you are going to ask and what you are going to do to get to the bottom of your assumptions. Don’t fall into the trap of wanting to just reaffirm your beliefs - be open-minded and accept ANY result that comes from this step. Ask customers, industry veterans, your competitors, clinicians, patients, Google, etc. Dig deeper where you sense contradictions or if you feel like you didn’t just quite get to the bottom of things.
I have seen some startups do 100 interviews before deciding on whether to move forward with a business idea or not. And I have seen startups do three and stop. Which one do you think has a better chance of securing LoIs and even pre-orders prior to its next funding round, and which one do you think is more likely to get funded?