Forget ‘Fail Fast’ — Here’s How To Test Your Startup Ideas Before Day 1
‘Test and Learn’ can be expensive. These steps will help you validate your business model before spending a dime.
If you’re working in startup world, you’ll already know the importance of testing your ideas.
Whether it’s the colour of your ‘Buy Now’ button, a choice between two advertising headlines or the imagery on your product pages, you’re probably already adopting Silicon Valley’s “fail fast” approach to building your business.
But what do you do when even the testing process could cost you a fortune?
In the hardware game, prototyping is a key step in the product development cycle. But trust me — it ain’t cheap!
It takes a huge amount of time, energy and cash — and when you’re starting out, you likely won’t have much of any of these to spare.
So when I was starting Nolii, I realised I needed to find new ways to test my assumptions before getting started.
How big was the market? Would people buy what I was making? How can I safeguard my business’ margins for sustainable growth in a competitive market?
Here’s what I did.
Keep (Or Get!) Your Finger On The Pulse
When you’re first getting started, it pays to understand the industry you’ll be entering into.
Like, really understand it.
Before starting Nolii, I’d been selling products in the mobile tech space for 10 years. I understood the competitive landscape, was familiar with every brand, and had investigated every technical spec.
I knew which products were selling and which products weren’t.
I also had a clear picture of how people shopped when they were exploring the world of mobile tech — it’s a market driven by impulse buying, with much of the sales volume coming through physical retail spaces such as the ones I had been running.
Your network will be important too. I can’t stress how important it is to develop relationships within the industry — buyers, retailers, account managers — and to understand their view of the landscape. Each of these people has an intimate knowledge of the current state of play, and can bring a vital perspective to your research efforts.
Most importantly, industry insiders will have informed opinions about the direction of your industry and can paint a picture of how things can be improved on for a brighter future.
If you don’t have the benefit of being entrenched in the industry you’re looking to enter with your new venture, finding ways to establish this network will help you in incalculable ways.
Finally, scour the vast world of blogs, forums and review websites for insight into how people feel about the existing products in the market. By understanding their frustrations, you’ll have a much clearer image of how your solution can add value to their lives.
Doing this research will also help you with the next step…
Learn What ‘Normal’ Looks Like — Then Go Against It
In every industry there will be an established view of what is ‘normal’.
When Common Projects first launched their minimalist low top sneakers in 2004, the existing view of ‘normal’ in the sneaker industry was defined by flashy fluorescent Nikes and BAPE high tops. Their iconically blank footwear have since grown into one of the world’s most coveted sneakers, with countless brands producing cheap knock-offs of their $400 designs.
By keeping your finger on the pulse, you’ll begin to see which elements of ‘normal’ are worth holding onto and which are the result of a failure to acknowledge the issues customers are facing.
Once you’ve isolated these elements, scale up the important bits while discarding those which detract from the experience or desirability of your offering.
The mobile tech industry is littered with cheap products which all look and perform the same as each other. The established view of ‘normal’ is a black plastic brick with a couple of outputs which get looser and looser with repeated use.
In 2016, I had begun to understand the process and principles of industrial design. Across industries, I was seeing a movement towards a refined simplicity which delivered acute value.
Industrial design is all about bringing functionality and humanness together.
I saw an opportunity to go against the mobile tech world’s view of ‘normal’ and create a brand which felt more human. One which applied the fashionably minimal aesthetics of brands like Common Projects and COS, and blended these with the value-adding user experience of Apple products.
Our next challenge — could we deliver products which met the rigorous standards of the industrial design world while meeting the pricing requirements of the mass market?
Understand The Value Chain
So, you’ve taken the time to understand the industry, the products, the customers, and what elements of your offering are truly valuable.
Here’s where you crunch the numbers.
To give yourself the best chance of success, you’ll need to get a clear picture of how your cost price and margins will break down. Only then will you be able to price your products strategically, and develop a manufacturing cost structure which will set you up for profit and future growth.
Because of my experience in the industry, I already knew that a retailer’s margin could be as high as 50%. But what else was there?
I started speaking to buyers, trying to understand what factors drove their decision-making when purchasing new products or ranges.
I quickly learned that buyers in the mobile tech world don’t often buy direct from the brands — they actually buy through distributors, and these distributors also take a margin for themselves.
I had no idea this was the case.
This told me that many of my competitors were giving away up to 70% of their revenue, and covering the rest of their overheads out of their remaining 30%.
And that’s despite the fact that the brands themselves are the ones fronting the manufacturing costs and taking on a majority of the risk.
So how do you break this down for yourself?
Product RRP — VAT (20%) — Retailer Margin (50%) — Distributor Margin (10%) — Your Profit Margin = Target Production Price
Once you’ve done this, you can to go back to your P&L and work out if you can manufacture and deliver your product or service for that cost — BOM (bill of materials), tooling, packaging, shipping, returns, taxes. It’s all in there.
When you have a clear picture about how your value chain breaks down, you’ll be in a position to price your product strategically to price maximum value to the buyers, the customers and to yourself.
Harness The Power Of Brand
Pricing aside, when I met the buyers I felt that there was a lot of frustration about what products were available to them. Previously popular brands had saturated the market, and most other brands were just offering variations on the established norm.
Buyers wanted new products which they, and their customers, could get excited about.
On the consumer side, there was a feeling that there wasn’t any value for their money. I realised that if we could deliver a better designed and more useful product, with a powerful narrative, priced anywhere close to the right margin model, then we could compete against bigger, more entrenched companies.
This is where the power of brand comes in.
I had read case studies which shows how Apple and Beats were able to negotiate a 20% retailer margin because of the power of their brand. They knew they had something compelling to offer, a story to tell, and this helped them in their negotiations at each step of the journey.
When you develop a compelling brand, you give yourself the best chance to build a stronger community. This can open up a more profitable D2C (direct to consumer) route, as well as giving you more control over your retailer margin model.
Also think about what you can do to support your retailers. Accessory brands were poor at supporting retailers with engaging content, marketing materials and clever promotional tactics. A strong brand creates stronger brand collateral which makes it easier for everyone involved to engage new customers and drive repurchase thanks to customer loyalty.
One caveat — building brand is expensive. You need to find a balance between developing strong distribution relationships as well as being able to build a brand, without compromising your vision.
Thanks for reading!
I’m Asad — a London-based entrepreneur with more than 10 years experience building companies in the mobile tech and fashion spaces.
Currently putting everything I have into Nolii.
Want to chat? Get in touch at asad@wearenolii.com
