This is a practical guide that contains a library of hands-on techniques for rapidly testing new business ideas. 'Testing Business Ideas' explains how to use experimentation to transform your bright idea into a profitable business venture. It will help you to save precious time and money by testing how feasible, desirable, and viable your plans are. It will help you to dramatically reduce the risk and increase the likelihood of success for any new business venture. This book shows leaders how to encourage an experimentation mindset within their organisation and make experimentation a continuous, repeatable process.

This is written by David Bland and Alex Osterwalder. David J. Bland is an author and founder based in Silicon Valley who helps companies find growth using “Lean Startup” methods, design thinking, and business model innovation. Alex Osterwalder is a lead author of the international bestsellers Business Model Generation and Value Proposition Design; #7 on the “Thinkers 50” list; passionate entrepreneur; and in-demand speaker.



Key Learnings

In the world of business, a good idea isn't enough. Instead, you'll need lots of good ideas. Then, you can carefully select the most promising concept to take forward. Once you've decided on a direction, it's time to test your chosen ideas and concepts by using reliable, cost-effective experiments. This is the best way of finding out whether your idea works in practice as well as in theory. It's important to know your hypotheses. When you formulate a hypothesis, it's useful to know what kind of questions you're asking. There are three different types of hypotheses that broadly address three questions. Feasibility hypotheses concern questions surrounding whether it is possible for you to get a venture up and running with the resources and constraints you have. Viability hypotheses will answer questions about the profitability of your idea. Finally, desirability hypotheses will address questions around whether your target audience actually wants your product or service.


Table of Contents

Design
  • Design the team (p. 3)
  • Shape the idea (p. 15)
Test
  • Hypothesize (p. 27)
  • Experiment (p. 41)
  • Learn (p. 49)
  • Decide (p. 59)
  • Manage (p. 65)
Experiments
  • Select an Experiment (p. 91)
  • Discovery (p. 101)
  • Validation (p. 231)
Mindset
  • Avoid Experiment Pitfalls (p. 313)
  • Lead Through Experimentation (p. 317)
  • Organize for Experiments (p.323)


Design

Design the team - The best teams are diverse, open-minded, and entrepreneurial

If you're going to test your business ideas, you'll need a great team in place. Creating a great team starts with great design, and the best entrepreneurs proactively design their teams. They think carefully about bringing together people who have cross-functional skill set that encompasses all or most of the competencies that a fledgling business needs.

Cross-Functional Skillset
A cross-functional team has all core abilities needed to ship the product and learn from customers. A common basic example of a cross-functional team consists of design, product and engineering.

Commonly Required Skills to Test Business Ideas
  • Design
  • Product
  • Tech
  • Legal
  • Data
  • Sales
  • Marketing
  • Research
  • Finance

Entrepreneurial Experience
It's not a coincidence that successful businesses benefit from those who already have entrepreneurial experience.

Diversity
The best teams tend to be diverse. They are filled with people from a range of backgrounds - of different genders, ethnicities, ages, and careers. Diversity is so important because a successful business has an impact on people's lives and on society as a whole - and society is made up of people from all walks of life. If the business team doesn't reflect this reality, then their decision-making and their testing will contain inherent biases.



Team Behaviour

Team behavior can be unpacked into six categories that are leading indicators of team success.

Successful Teams Exhibit Six Behaviours
  1. Data Influenced - You don't have to be data driven, but you need to be data influenced. Teams no longer have the luxury of burning down a product backlog of features. The insights generated from data shape the backlog and strategy.
  2. Experiment Driven - Teams are willing to be wrong and experiment. 
  3. Customer Centric - To create new businesses today, teams have to know "the why" behind the work. This begins with being constantly connected to the customer. 
  4. Entrepreneurial - Move fast and validate things. Teams have a sense of urgency and create momentum toward a viable outcome. This includes creative problem-solving at speed.
  5. Iterative Approach - Teams aim for a desired result by means of a repeated cycle of operations. The iterative approach assumes you may not know the solution, so you iterate through different tactics to achieve the outcome.
  6. Question Assumptions - Teams have to be willing to challenge the status quo and business as usual. They aren't afraid to test out a disruptive business model that will lead to big results, as compared to always playing it safe. 



Team Environment

Teams needs a supportive environment to explore new business opportunities. They cannot be held to a standard where failure is not an option. Failure will occur and the goal is to learn faster than the competition and put that learning into action. Leaders need to intentionally design an environment where this can occur. 

The Team Needs to be:
  • Dedicated - teams need an environment in which they can be dedicated to work. Multi-tasking across several projects will silently kill any progress and preferably a small team.
  • Funded - It's unrealistic to expect these teams to function without a budget or funding. Experiments cost money. Incrementally fund the teams using a venture-capital style approach, based on the learnings they share during stakeholder reviews.
  • Autonomous - Teams need to be given space to own the work. Do not micromanage them to the extent where it slows down their progress. Instead, give them space to give on accounting of how they are making progress towards the goal. 

The Company Needs to Provide:
Support
  • Leadership - Teams need an environment that has the right type of leadership. support. A facilitative leadership style is ideal here because you do not know the solution. Lead with questions, not answers, and be mindful that the bottleneck is always at the top of the bottle.
  • Coaching - Teams need coaching, especially if this is their first journey together. Coaches, either internal or external, can help guide the teams when they are stuck trying to find the next experiment to run. Teams that have only used interviews and surveys can benefit from coaches who've seen a wide range of experiments.

Access
  • Customers - Teams need access to customers. The trend over the years has been to isolate teams from the customer, but in order to solve customer problems, this can no longer be the case. If teams keep getting pushback on customer access, they'll eventually just guess and build it anyway.
  • Resources - Teams need access to resources in order to be successful. Constraints are good, but starving a team will not yield results. They need enough resources to make progress and generate evidence. Resources can be physical or digital in nature, depending on the new business idea.

Direction
  • Strategy - Teams need a direction and strategy, or it'll be very difficult to make informed pivot, persevere, or kill decisions on the new business idea. Without a clear coherent strategy, you'll mistake being busy with making progress,
  • Guidance - Teams need constraints to focus their experimentation. Whether it's an adjacent market or creating a new one, to unlock new revenue teams need direction on where they will play. 
  • KPIs - Teams need key performance indicators (KPIs) to help everyone understand whether they are making progress toward a goal. Without signposts along the way, it may be challenging to know if you should invest in the new business.



Team Alignment

Teams often lack a shared goal, context, and language when being formed. This can be devastating later on, if not resolved during the team formation and kickoff. The 'Team Alignment Map', created by Stefano Mastrogiacomo, is a visual tool that allows participants to prepare for action: hold more productive meetings and structure the content of their conversations. It can help teams have more productive kickoffs, with better engagement and increased business success. 






Shape the Idea


Business Design

In the design loop you shape and reshape your business idea to turn it into the best possible value proposition and business model. Your first iterations are based on your intuition and starting point (product idea, technology, market opportunity, etc.). Subsequent iterations are based on evidence and insights from the testing loop. 

The design loop has 3 steps:
  1. Ideate - You try to come up with as many alternative ways as possible to use your initial intuition or insights from testing your idea into a strong business. Don't fall in love with your first ideas.
  2. Business Prototype - Narrow down the alternatives from ideation with business prototypes. When you start out, use rough prototypes. Subsequently, use the Value Proposition Canvas and Business Model Canvas to make your ideas clear and tangible. 
  3. Assess - In the last step of the design loop you assess the design of your business prototypes. Ask questions like "Is this the best way to address our customer's jobs, pains, and gains?" or "Is this the best way to monetise our idea?" or Does this best take into account what we have learned from testing?" Once you are satisfied with the design of your business prototypes you start testing in the field or go back to testing, if you are working on subsequent iterations. 
 

The Business Model Canvas

Use the Business Model Canvas to shape ideas into a business model so you can define, test, and manage risk. I helps define the Desirability, Feasibility, and Viability of an idea. 



Customer Segments
Describe the different groups of people of organisations you aim to reach and serve.

Value Propositions
Describe the bundle of products and services that create value for a specific customer segment.

Channels
Describe how a company communicates with and reaches its customer segments to deliver a value proposition.

Customer Relationships
Describe the types of relationships a company establishes with specific customer segments.

Revenue Streams
Describe the cash a company generates from each customer segment.

Key Resources
Describe the most important assets required to make a business model work.

Key Activities
Describe the most important things a company must do to make its business model work. 

Key Partners
Describe the network of suppliers and partners that make the business model work. 

Cost Structure
Describe all costs incurred to operate a business model.


The Value Proposition Canvas

Much like the Business Model Canvas, the same goes for the Value Proposition Canvas. This is another tool to help understand the customer and how your products and services create value. 



Value Map (Left side of the map)
Describes the features of a specific value proposition in your business model in a structured and detailed way.
  • Products and Services - List the products and services your value proposition is built around.
  • Gain Creators - Describe how your products and services create customer gains.
  • Pain Relievers - Describe how your products and services alleviate customer pains.

Customer Profile (Right side of the map)
Describes a specific customer segment in your business in a structured and detailed way.
  • Customer Jobs - Describe what customers are trying to get done in their work and in their lives.
  • Gains - Describe the outcomes customers want to achieve or the concrete benefits they are seeking.
  • Pains - Describe the bad outcomes, risk, and obstacles related to customer jobs.


Test

Hypothesise 

  1. Identify the Hypotheses Underlying Your Idea - To test a business idea you first have to make explicit all the risks that your idea won't work. You need to turn the assumptions underlying your idea into clear hypotheses that you can test. 
  2. Prioritise Most Important Hypotheses - To identify the most important hypotheses to test first, you need to ask 2 questions. First, "What is the most important hypothesis that needs to be true for my idea to work?" Second, "For which hypotheses do I lack concrete evidence from the field?"

Business hypothesis is defined as:
  • An assumption that your value proposition, business model, or strategy builds on.
  • What you need to learn about to understand if your business idea might work.

Creating a good hypothesis
When creating hypotheses you believe to be true for your business idea, begin by writing the phrase "We believe that..."

e.g. "We believe that millennial parents will subscribe to monthly educational science projects for their kids."

Be mindful that if you create all of your hypotheses in the "We believe that..." format, you can fall into a confirmation bias trap. You'll be constantly trying to prove what you believe, instead of trying to refute it. In order to prevent this from occurring create a few hypotheses that try to disprove your assumptions.  

e.g. "We believe that millennial parents won't subscribe to monthly educational science projects for their kids."

You can even test these competing hypotheses at the same time. This is especially helpful when team members cannot agree on which hypothesis to test. 

Characteristics of a good hypothesis
A well-formed business hypothesis describes a testable, precise, and discrete thing you want to investigate.
  • Testable - when it can be shown true (validated) or false (invalidated), based on evidence (and guided by experience).
  • Precise - when you know what success looks like. Ideally, it describes the precise what, who, and when of your assumptions.
  • Discrete - when it describes only one distinct, testable, and precise thing you want to investigate.



Types of Hypotheses
  • Desirable - "Do they want this?" The risk is that the market a business is targeting is too small; that too few customers want the value proposition, or that the company can't reach, acquire, and retain targeted customers.
  • Feasible - "Can we do this?" The risk is that a business can't manage, scale, or get access to key resources (technology, IP, brand, etc.), key activities or key partners.
  • Viable - "Should we do this?" The risk that a business revenue cannot generate more revenue than costs (revenue stream and cost structure).
Both the Value Proposition Canvas and the Business Model Canvas help identify the desirable, feasible and viable hypotheses.











To be continued...


Image source: Strategyzer Testing Business Ideas 

 


In 'The Serendipity Mindset - The Art and Science of Creating Good Luck', Christian Busch explains that serendipity isn’t about luck in the sense of simple randomness. It’s about seeing links that others don’t, combining these observations in unexpected and strategic ways, and learning how to detect the moments when apparently random or unconnected ideas merge to form new opportunities. Busch explores serendipity from a rational and scientific perspective and argues that there are identifiable approaches we can use to foster the conditions to let serendipity grow.

Drawing from biology, chemistry, management, and information systems, and using examples of people from all walks of life, Busch illustrates how serendipity works and explains how we can train our own serendipity muscle and use it to turn the unexpected into opportunity. Once we understand serendipity, Busch says, we become curators of it, and luck becomes something that no longer just happens to us—it becomes a force that we can grasp, shape, and hone. Full of exciting ideas and strategies, The Serendipity Mindset offers a clear blueprint for how we can cultivate serendipity to increase innovation, influence, and opportunity in every aspect of our lives.

Dr Christian Busch, is an internationally known expert in the areas of innovation and entrepreneurship. He is the Director of the Global Economy Program at New York University’s Center for Global Affairs, and also teaches at the London School of Economics. A cofounder of Leaders on Purpose and the Sandbox Network – and former co-director of the LSE’s Innovation Lab – he has worked with senior executives around the world.


Key Learnings

Optimism. Open-mindedness. Curiosity. Perseverance. Adaptability. These are some of the core qualities of the serendipity mindset. With this mindset, you can seek out and embrace the unexpected and use these unusual moments to make new and exciting connections. When you begin to see the world with this frame of mind, you’ll begin to see that each and every day is filled with the unexpected, and chances to spark new serendipitous ideas and innovations. This holds true for businesses as well. With a few changes to culture and environment, you can begin to set the stage for more innovation and fortuitous events to transpire.


There are several kinds of serendipity, but they're all different than "blind" luck of the draw - they're about creating "smart luck"

What is serendipity? The word itself dates back to 1754 when British writer Horace Walpole used it to describe a kind of discovery that was made unexpectedly, by accident, or through a certain foresighted wisdom known as 'sagacity'. This definition has more or less stood the test of time. However, think of serendipity as a positive occurrence, one made when your actions collide with chance. This means serendipity is different from pure chance, or luck on its own.

Generally speaking, there are three types of serendipity:

1. The first is Archimedes Serendipity. 
This is when you’re looking for a solution to a specific problem and the solution arrives in an unexpected way. The name comes from the story of how Archimedes solved the problem of King Hiero’s crown. King Hiero had hired a goldsmith to make a crown – and he’d given him a precise amount of gold to make it from. The goldsmith forged the crown, and it weighed exactly as much as the gold he’d been given, but King Hiero grew suspicious. What if it was a forgery? So Hiero called upon the brilliant Archimedes to test its authenticity. Archimedes thought it over. And during his brainstorming, he went to the public baths. Here, serendipity struck. Archimedes noticed how the water levels rose as people lowered themselves into the baths – and, in a flash, he knew how to test the crown. Gold is denser than silver. This means that, if a pure-silver crown and a pure-gold crown weighed the same amount, the pure-silver crown would be larger. And a larger crown would displace more water than a smaller crown. Thus, Archimedes correctly reasoned, if Hiero’s crown had been diluted with silver, it would displace more water than if it were pure gold.

2. The second type of serendipity is Post-It Note Serendipity. 
This is when a solution is unexpectedly found for a problem that wasn’t even being considered at the time. The name comes from the Post-It note. They were invented when Dr. Spencer Silver, a researcher for 3M, was trying to develop a new type of strong glue. One attempt fell short. It wasn’t very sticky at all. But Silver was curious to discover the potential for this weak glue. It eventually became the perfect ingredient for the Post-It Note.

3. The third type is the Thunderbolt Serendipity. 
As the name suggests, this is when you’re struck by a solution out of nowhere. You weren’t examining any specific problem or researching any particular solution. You were just going about your day when out of the blue an idea and exciting new opportunity presented itself.

Sometimes, serendipity might be a combination or variation of these types. But no matter what, these aren’t cases of blind luck. Hitting upon serendipity is something you can facilitate, as long as you have the right mindset.


Serendipity is usually about connecting dots that have previously remained elusive

How we interpret or look back upon serendipity is important. In fact, it can make a big difference in the likelihood of serendipity occurring in the future. For example, we shouldn’t think of serendipity as a singular event, even if it is one of those thunderbolt experiences. Instead, we should think of it as a process. Often serendipity is the result of seeds that were planted weeks, months, or years in advance. And it always requires something of you – whether it’s noticing a value that hasn’t been seen before, or drawing a conclusion that hasn’t been reached before.

One of history’s famous accounts of serendipity was the discovery of penicillin. One day, Dr. Alexander Flemming returned to the lab to find that some of the petri dishes had accidentally been left uncovered, sitting on a windowsill. He’d been working with an infectious bacteria and was surprised to find that the dishes had become moldy, and around that mold, the bacteria had vanished. Now, some doctors would have just focused on the mistake of leaving the dishes uncovered and gotten back to what they were doing in the first place. In fact, other scientists had already noticed that mold could kill bacteria, but they didn’t connect the dots and explore this any further.

But Flemming was curious. He saw the opportunity here. He was open to the possibilities and shared his ideas with trusted colleagues. This curiosity and openness was key to the serendipitous results. So, this is one of the first things to be aware of when it comes to cultivating the right mindset: being perceptive, curious, open-minded, and eager to see opportunities where others might see only negativity. This also requires an observant and perceptive attitude – the kind that not only notices something unusual, but can connect that bit of information with something else.


Being attuned and alert to serendipity means letting go of ingrained biases

Do you ever find yourself being a glass-half-empty type of person? It can happen to the best of us. In fact, having biases and preconceptions goes hand-in-hand with human nature, but that doesn’t mean it’s helpful in life. As far as serendipity goes, having strict, unbending preconceptions can be a big hindrance.

There are four biases that can stand in the way of serendipity:

1. The first is underestimating the unexpected. 
This is the kind of attitude where someone believes life is full of the predictable, the boring, and the expected. This attitude has been especially prevalent in the business world. Traditional strategy has generally centered around stability, and repeating what has worked in the past. But given the amount of data we now have access to, and how fast things are changing, it’s become clear that no matter how much you try to plan and prepare, the unexpected always happens.

2. The second bias is conforming to the majority. 
Again, this is a very natural bias to have. It’s safe and comfortable to stick to the majority opinions and ways of doing things. But this can easily lead to a self-censoring herd mentality that isn’t conducive to taking advantage of unexpected developments. Christian Busch works as a consultant for businesses, and one of his practices is to find a high-traffic spot somewhere in an office where he can sit at his laptop and eavesdrop on what people are saying. It might be next to a break room or the water cooler. It gives him a chance to get a sense of what the culture is like at the company. Is it one that promotes free-thinking or stifles it? If people are getting together and talking about how foolish it was for someone to speak up at a meeting and propose a new idea, then he knows this is a bad culture for serendipity and innovation.

3. The third bias is post-rationalism. 
A big reason for being skeptical about serendipity is that we tend to look back at an unusual occurrence and spin it into something predictable. This is related to “hindsight bias,” and it’s a very human thing to do. It’s more comfortable to think of everything that happens as being a sensible part of an ongoing narrative, not as a bunch of random, chaotic events.

4. The fourth bias is functional fixedness. 
This is when you develop skills or a certain expertise and that becomes the only way you want to do things. In other words, you want every problem to have one solution.


To stay alert and motivated, remain focused on a meaningful north star.

What motivates you on a day-to-day basis, money or something more meaningful? Maslow’s Hierarchy of Needs was developed by the philosopher Abraham Maslow over 50 years ago, but it’s left a lasting impression and continues to influence many of today’s social theories.

In short, Maslow’s hierarchy suggests that people are first motivated by basic things like food and shelter. Once that is covered, people are then motivated by sex and relationships, and only later on, when all the lower needs are met, are they concerned with loftier things like existential fulfillment. It sounds logical, but this is an idea that is currently being challenged.

There’s a good reason for people wanting to be purpose-driven rather than money-driven: it feels a lot better and is more rewarding in the long run. Putting your true values to the side in order to show up for your day job can be exhausting. It takes energy to hide your true self from nine-to-five every day. The better path is to be authentic, stay true to yourself, and find a way to mix purpose with a paycheck. This is important for serendipity as well, because an exhausted mind isn’t going to be eager to spot the unexpected and make valuable connections. Instead, it’s the focused mind – one that is fixed on a north star, or a guiding principle that cultivated serendipity.

Ideally, your north star is an ongoing purpose, interest, or curiosity that can continue to inspire you indefinitely. It could be as simple as helping those who are marginalised or disenfranchised.
With your north star in place, your serendipity will always have a purpose – you’ll always have a direction on how to act. So when the unexpected does arise, you’ll be well prepared on how to take advantage of it.


You can increase the chances of serendipity in simple ways.

Essentially, you want to create possibilities, and you can do this in a number of ways, no matter what your current circumstances are. There are many people who’ve sent out a mass email to everyone in their contact list, or to people they’ve never met, in the hopes of having a serendipitous result. You may be surprised to know how often this works. Other times, it may be a chance meeting in an elevator or in a Zoom conference, but such encounters require an optimistic willingness to take chances, be sociable, and introduce yourself. Patience is also required. Sometimes, it may take years before the business card you handed someone turns into a case of life-changing serendipity. 


There are easy steps for planting the seeds for serendipity to occur.

Having a strong and healthy network of diverse people helps plant the seeds for serendipity. This kind of network doesn't need to be massive, by it does need to be regularly maintained. While conferences and online platforms can be good for establishing casual connections, meaningful ones need to be kept in good condition through periodic emails, conversations, or some kind of communication to make sure they don't wither away.


Serendipity can take time to develop, so patience is often required.

Another characteristic of the serendipity mindset is grit, or perseverance. The road to serendipity is often paved with rejection, failed experiments, and near misses. Many entrepreneurs will tell you that they were turned away countless times before they finally found the idea that clicked with investors. You need tenacity. Not only because it can take time for the right opportunities to present themselves, but because it often takes time for your brain to connect those important dots. While having a good supply of diverse people around you can be a vital part of setting the stage for serendipity, it also takes patience and perseverance.


Fostering serendipity involves creating a safe space for the mixing of new ideas from diverse minds.

Increasingly, a lot of businesses are wanting to facilitate as much serendipity as possible. They know that things are changing fast these days and relying on stability and consistency just doesn’t make sense anymore. So, what kind of culture and structures do make sense? Basically, you don’t want the kind of company where people are ridiculed for coming up with new or ambitious ideas. You want to create a safe space, where people not only feel free to speak their minds, but where they can also feel free to experiment and fail without fear of being reprimanded or losing their jobs.

This kind of environment often needs to be inspired from the top down. So it’s up to the leaders to tell everyone that the company needs their voices and ideas in order to succeed. If serendipity is to occur, it’s going to require the free sharing of ideas.

Many companies are also forgoing the usual hierarchical structure to empower employees and get them to feel comfortable with making their own decisions. This is also a good move for fostering serendipity, as sometimes the window of opportunity for taking advantage of serendipitous moments is fleeting and requires quick action. 

Businesses are also taking down the walls that used to exist between different departments, and perhaps no company offers a better example of this than the animation studio Pixar. Understanding that mixing diverse ideas is key to innovation, the studio was purposefully designed to maximize cross-pollination between the three main departments – animators, executives, and computer scientists. Built around a central atrium, it forces these three departments to mix and mingle every day.

Ensuring your employees can interact and share feedback is vital. But it’s also important to listen to the customer. Don’t ignore feedback, even if it’s negative. With the serendipity mindset, problems, complaints, failures can be triggers for the most wonderful and creative outcomes.


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