Innovation coaching: Testing New Business Ideas the Owlet way
At Strategyzer we often use the Owlet team video from the International Business Model Competition in 2013 to illustrate how to de-risk new ideas, cheaply and quickly. Let’s unpack together the most important principles to follow when testing new business ideas.
When we train business teams on how to execute innovation sprints and show them the Owlet video (a pitch that led the Owlet team to win the International Business Model Competition in 2013) we start by apologizing to the audience. What could a group of innovation professionals like themselves with access to corporate knowledge and a wealth of resources really learn from inexperienced students? We tell them that they will probably not learn much, but we show the video anyway. Of course, this is a set-up as there is so much to learn in this 10 minute video!
In this post, I want to highlight key principles of testing new business ideas that are superbly illustrated by the Owlet video.
Trust the testing process, not your vision!
Success in innovation and entrepreneurship is based on solid testing. Notice how little time the Owlet team spends on selling their initial vision and business idea.
Instead, they focus on explaining how they de-risked their most critical hypotheses by running a number of experiments, getting solid evidence and insights and finally acting accordingly — even when it meant letting go of core aspects of their initial idea.
So, within the first couple of minutes, the Owlet case already illustrates two convictions of ours:
1. Don’t fall in love with your initial idea!
2. Innovation is a constant iteration between design and testing.
Test desirability first!
When you start testing your hypotheses, should you start with desirability hypotheses, feasibility hypotheses or viability hypotheses?
So many teams we work with are drawn to testing feasibility hypotheses first. We always strongly advise them against this.
You want to know why? Because so many startups and teams work on products nobody wants.
Innovation teams can avoid all the wasted time, resources and effort by applying one simple principle: start with testing desirability hypotheses!
If the tests show that your business idea has traction then keep going. But if no one wants your product or service then you have learned something valuable without having to spend much time, resources and effort.
By starting with market risk, i.e. desirability hypotheses, the Owlet team was able to learn within a week that their initial business idea — selling a wireless pulse oximetry device to hospitals — would never work and pivot their value proposition accordingly. In the course of 6 weeks they almost entirely de-risked the desirability of their business idea, even before building anything. Pretty impressive!
Here’s another blogpost on how to systematically reduce the risk of new business ideas, if you’d like to dive deeper.
Evidence trumps opinion
Almost every innovation team we work with starts testing with customer interviews. While customer interviews are great for discovery, they are tricky for hypothesis-based testing. For a team with limited interviewing experience it is easy to go off track by mistaking opinions for facts.
Our constant coaching challenge in these situations is to push teams to go beyond interviews and select several experiments with a call-to-action. Only these type of experiments will give teams solid evidence on which to base their action.
“Be careful, what people say and what people do are two different things” we tell our teams, “don’t only do customer interviews”. They nod politely but it is hard to swallow, and they don’t really believe our advice to mistrust the data coming from customer interviews. Until we show them how Owlet tested the pricing of their product.
When asked for their opinion, people told the Owlet team they would expect to pay $92 for their product and would never spend more than $214.
But in pricing A/B tests, isn’t it interesting that the optimal price to maximise conversion proved to be $299? Much higher than any price the Owlet team had heard in customer surveys.
Their pricing tests demonstrate that “what people say and what people do are two different things”, and even shows us that it sometimes plays to your advantage.
You don’t need more time and money to test your business idea
After just 24 weeks and having spent $1150, the OWLET team had de-risked 2 business models enough for further investment. When I hear a team complain that they don’t have enough time or money for testing, I don’t argue but I invite them to watch the Owlet video again. “If a random team of students can de-risk their business idea in 24 weeks,” I tell them, “then there should be no reason why a team of professionals with access to so much more corporate resources couldn’t do it.”
Tell your story with the Business Model Canvas
If you watch the video, notice how easy it is to follow the story. The Owlet team uses the business model canvas to show how they de-risked the most critical hypotheses of their business idea and it just flows, even when they are sharing complex learnings.
Most teams we work with have the default temptation to build a fancy PowerPoint deck to impress their jury or investors. But we insist that evidence, not a fancy PowerPoint, is what matters most. And the Business Model Canvas is the obvious tool to tell the story and showcase the gathered evidence. If they need any convincing, we show them a typical “cognitive murder” pitch next to the Owlet video. They can put themselves in the shoes of decision-makers and decide for themselves which team they would invest in.
In my work with innovation teams, I also use Owlet to benchmark each team’s progress midway through an innovation sprint. Funny enough, I have not yet met a team able to make more progress in those first few weeks than Owlet. If I ever meet a team that can progress as fast as Owlet, I will have no other choice than to enrol them in the next International Business Model competition.
On a final note, let’s acknowledge that it takes time to build and scale a business as the Owlet story between 2013 and today shows. And that’s the last learning from this case.
The first few weeks are important of course, but there are many more weeks afterwards that are equally important in the long journey from idea to business. I wish you all the best in the next phases of your entrepreneurial journey.
This article was initially published as two posts on the Strategyzer blog. There are many resources available on the Strategyzer website (blog posts, online course, book) if you want to go further on the topic of testing business ideas.
* All images taken from the 2013 International Business Model Competition Owlet YouTube video
