Business model validation checklist

To drive growth, organisations need to find new ways to provide value to customers; either through new products and services, launching into new markets or adding new features to existing propositions. At the same time, innovation is both costly and risky, which means it’s important to validate an idea as quickly as possible to determine further investment.

Among the many parts of business model validation process, two key areas stick out:

  • User need – are there enough people willing to pay for the product or service?
  • Viability – can the product or service be delivered cost effectively, whilst generating a profit?

Methodologies like Lean Startup provide ways to quickly carry out validation – the key principle being to start testing your value proposition with your audience as soon as possible – and this checklist complements the validation process; providing a range of questions to think through as you assess the user needs and viability of your ideas.

Assessing the need for the service

Value proposition

This section looks at the value you are planning to provide to the user, either through a ‘pain reliever’ that solves a problem for them or a ‘vitamin’ that provides a desirable (but non-essential) benefit.

Can you clearly and concisely state the user problem that needs to solved or the gain to be achieved?

What solution are you proposing to help the user?

What are the key features of the solution?

How does your solution solve the problem?

How will you know that the solution has solved the problem?

Target audience

A clearly defined target audience makes it possible to estimate market size and undertake sufficient market research to find out if users will be willing to pay and/or invest their time to use the service. The more specific you can get about your audience, the better.

Do you have a picture / profile / persona descriptions of what your key users look like in terms of background, occupation, gender, age, social status, etc?

Can you describe the segment of the market you are targeting?

Can this segment be broken down into a sub-segments for more precise targeting?

What is the level of demand?

What is the size of the market?

How much investment (either in terms of money, time, effort, personal information) are they prepared to commit to solve their problem?

Assessing the viability of the service

Operations

The ability to deliver a service efficiently and effectively to the user is a key consideration in terms of assessing its viability and there are a number of operational activities to consider which impact the cost model and user experience.

What materials, people and digital resources (i.e. data) are required to deliver the service?

What level of production / manufacturing / delivery management is required for each unit you sell

How will users access the service (e.g. online, through an intermediary, direct, in store, via sales reps, receive at home)?

Are there any logistics or travel / accommodation needs to take into account?

For physical products, will you require storage space as you build up an inventory of materials and products?

What office space will you require? Where will this be located and will there be any specialist equipment required?

What measures will you put in place to ensure the quality of the product or service you are providing? 

Who will carry out the quality assurance testing?

How will refunds and complaints be managed?

How will user feedback be used to improve the service?

What dependencies will you have on suppliers or external digital resources? How will you manage the risk of losing access to a supplier?

What systems and processes will you need to develop to provide the solution effectively and ensure a high quality user experience?

People

Having the right people in your team to develop and deliver the service will make a major difference to your success; but finding and retaining good people to work with is one of the hardest challenges of any organisation. To help with this, it is good to have a clear idea of the sorts of obstacles you’ll encounter and the skills / aptitude required to overcome them.

What are the key activities required to provide your service to the user (often referred to as a value chain analysis)?

What skills are required to execute these activities (e.g. industry or technical knowledge and experience)?

How will you engage and integrate people into your team (e.g. as employees, contractors, business partners, maybe a mixture of all three).

Where will your team be located (co-located, remote-working, a mixture of both)?

Competition

Assessing the competition gives you the information you need to judge the viability of the market as a place to make money (e.g. too many strong competitors will impact profitability) and will inform the way you position your service to differentiate it from competitors. 

Assessing for too little competition is also important, as this can suggest the market is too small to make money in (not enough people willing to pay to solve the problem or users not understanding / knowing that such a solution is available).

How is the problem currently being addressed?

Are there any direct competitors (offering a similar solution)

Are there any in-direct competitors (offering solutions that have been modified or adapted to solve the problem by customers?

What is your assessment of the competition, e.g. strengths and weaknesses?

What is their price point and positioning?

Are there any non-direct competitors (where customers spend their money to solve a completely different problem)?

Positioning

Differentiation enables a service to stand out from the competition and build a loyal customer base. Classic approaches to differentiation include cost leadership (selling large volumes at low prices, e.g. supermarkets, low cost airlines), quality and premium pricing (think Mercedes or Apple iPhone) and going niche to cater for a very specific target audience.

Where does the competition sit on the landscape?

How will your service be differentiated?

Price

Price plays a huge role in the positioning, competitiveness and profitability of the service you are offering and deserves a lot of attention. The starting point should be an understanding of the profit levels you require to ensure the service is viable from a business perspective. For non-profit organisations, there is still a need to ensure the cost per user does not become excessive, as somebody will still be paying for it (e.g. government, charity organisations, etc).

What profit levels will make it worthwhile for you to provide the service?

Cost to develop the service?

Cost to deliver the service?

Cost to market the service?

Local / national taxes?

How do your prices compare with your competition?

Brand

Brands play a very important role in raising the profile of your service and communicating the value proposition to your target audience, helping them to choose your service over a competitor. Key questions to consider for your brand strategy are:

How will you make the brand stand out from the competition (e.g. memorable name, visual identity, owning a strong purpose or cause)

What message will your brand communicate to your users (e.g. value for money, high quality, exclusivity, environmentally friendly)?

How well do the previous checkpoint items (value proposition, audience, operations, people, positioning, price, etc) align with and support the brand message you aim to communicate?

User acquisition, retention and recommendation (growth)

Ideally your service will have growth ‘baked in’, which means it delivers a level of value that is so good, it encourages users to recommend the service to their peers, reducing the dependency on advertising and other forms of promotion (Google’s rapid growth after launch was driven by the better search results it offered, compared to other search engines available at the time). 

However, in the crowded marketplaces of today, where the user’s attention is sparse, all services (even those offering exceptionally high-value) can benefit from branding and marketing activities to support growth.

The following questions will help you to think about the potential marketing costs and activities that will be required to increase revenues from your service:

How will customers know about the product / service?

What marketing channels will be used?

Are there any PR opportunities?

How can word-of-mouth be generated?

How will you onboard new users to your service quickly and easily?

Once a user has engaged with your service, how will you convert them into a paying customer?

How will you encourage users to keep on using your service and not go to a competitor?

What will drive users to recommend your service to their friends, family, colleagues or customers?

Business is complicated

Lets face it business is complicated. Plans and blueprints don’t really cut it nowadays, so instead we need to experiment and adapt to discover a sustainable business model. The items in this checklist are not supposed to be checkboxes that when ticked will guarantee a great business, instead they are questions to help you explore and develop valuable products and services for the future – happy validating 🙂