Weekly Accelerator Updates

Week 2: Getting Organized

Week 2 Recap

  • Self-Guided Learning Resources
  • Getting organized
  • Advanced Hypothesis Testing
  • Additional Resources

Self-Guided Learning Resources

Last week, we covered a lot of ground in our 3-day entrepreneurial bootcamp. For some of you, the jargon could be overwhelming. We have some self-guided learning resources that might help you learn the jargon.

Getting organized

This week marks the true start of TVA2024. Between now and the Midpoint Presentations, you will review every aspect of your business, culminating in the creation of the following deliverables:

The discipline of creating these artifacts will help you up-level your business fundamentals and, more importantly, identify areas in your business that needs work. That, and preparing an updated 5-minute pitch for your enterprise by the midpoint, is very much worth the investment.

Introducing the Scrum

Starting this week, you will be doing Weekly “CEO” scrums. This is an accountability ritual borrowed from the 15-minute Daily Scrum or Standup based on the Scrum methodology, which came out of the Agile Software Development Process. Each team takes turns sharing the following in 3 minutes or less.

  • What we did last week
  • What we will do this week
  • Where we will need help

The weekly cadence is just right for a 10 week program. Sharing it with peers keeps you accountable and helps you find ways to help each other.

Connecting with mentors

By this time, the Full-Time Cohort has been connected with your dedicated mentors. Check out the mentor guidelines (linked from the Landing Page), which includes a link to the official Tufts University Conflict of Interest policy. This ensures the educational nature of your interactions while you are taking part in a DEC-sponsored program and activity.

Advanced Hypothesis Testing

We have spoken about using lean experimentation to test your hypothesis. Here is a recap on some of what we covered.

Lean experimentation fundamentals

A Lean Experiment is a structured way for entrepreneurial teams to test their hypotheses. Here’s how it works:

  • State a testable hypothesis. For example: you might want to test your hypothesis that your economic buyer might be intrigued enough to sign up for an infosession.
  • Define the Minimum Viable Product (MVP) with which you can test this hypothesis. For example: This could be a landing page that describes your offering, with a call to action to sign up for that infosession.
  • Define the experiment. For example: you might send a personal email to 100 potential economic buyers, describing your solution and offering an infosession on your new product or service, with a link to the landing page where people can read more about your solution and sign up. You might consider scheduling an automated follow up email in 3-5 days to remind them to sign up.
  • Specify the duration of the experiment. For example: you might give your potential economic buyers one week to sign up.
  • Currency. This is something you might extract in lieu of real money. For example: The economic buyer’s email is a kind of currency (more on this later).
  • Metrics. This is the behavior you are measuring. For example: you might log the email open rate, read rate, click-through rate, and sign up rate to the infosession (using only the last metric for your experiment, counting actual sign ups for the infosession).
  • Threshold. This is the last and most important element: you must state the “pass” threshold on the metrics you are collecting that will allow you to consider your hypothesis to be validated. For example, you might state that 5 sign up’s out of 100 emails sent means that your hypothesis is validated and you can persevere and move on to the next experiment.

Writing a good hypothesis

Ben Yoskowitz, author of Lean Analytics, has a great format for this:

I believe [target market] will [do this action / use this solution] for [this reason].

The reason why this works is because it forces the entrepreneur to develop clarity around key concepts that matter.

  • Target market: What is your target market? if you cannot state that you cannot find people from within that market to test your hypothesis.
  • Observable action: What observable and measurable behavior do you think you can elicit from your target market? This is utterly critical because by now, you will have done a lot of detailed interviews and you will know a lot about your customer – but all of it is through their words. People will often say one thing and do something else. On the other hand, if your hypothesis involves an observable action, you can set up an experiment and try and get your research subject to do that action. Whether they do it or not gives you much more accurate data about the likelihood that you are on the right path.
  • Reason for action: Why do you believe your target market will do the action? This you can check AFTER your target market does or does not perform the action to see if you are right or not. Stating it up front clarifies your assumptions about why it is that your target market will do the things they do and again, this is critical knowledge that can guide you towards problem-solution fit.

The Riskiest Assumption Test

When you think about your hypotheses, you will often come up with a very long list. Which one should you tackle first? That’s where the riskiest assumption test (RAT) comes in.

The RAT is the assumption that, if proven wrong, will make the whole venture fail. A lot of people define the RAT in a broad term that requires building the venture to test it (and it takes months if not years). That is the wrong approach. The right approach is to write out all your hypotheses, see which one is the riskiest, then see what you can do about deconstructing that RAT into its components and then see which component is the riskiest… and rinse and repeat.

Purchase Intent Testing Deep Dive

 

One specific area to apply hypothesis testing and Lean Experimentation techniques is to test for purchase intent. Here is how it works: You show the target customer your product concept, then you make an offer that is framed in the context of exploring a purchase, and see if they engage.

Making an offer and extracting “Currency” or “Payment”

You typically will be structuring a series of experiments in which your offers go from low commitment (“sign up to be notified”) to medium commitment (“register for an infosession”) to high commitment (“join our beta”, “preorder” or “buy”).

Key within this methodology is the idea of extracting “currency” or “payment”. At the lowest level of commitment, an email address is a type of currency since no one wants junk mail. At the highest level of commitment, you actually collect money from your customer which goes into your bank account.

Example offers and currencies: B2C

Following are some examples of offers and corresponding currency that you might try to extract from your potential customer for B2C businesses and increasingly B2B / B2G businesses that has a self-guided due diligence and fulfillment option.

  • An offer to sign up to learn more – the currency is the email address.
  • An offer to sign up for an infosession – the currency is again the email address. If the person actually attends the infosession, you have just validated the person’s interest and they have become a qualified lead.
  • An offer to join a free private beta – the currency is their email and time. Note that free betas tend to get less engagement than paid betas because the customer does not have skin in the game.
  • An offer to pre-order your product – the currency is their email (and if you can make it happen, you can collect their payment information). The commitment level is much higher if you can collect the payment information.
  • An offer to join a paid private beta. The currency is email and payment. This is often the first true indication that the new venture has a financial future – if the value presented to the customer is high enough they will gladly pay to try out your product.
  • An offer to buy your product at the correct price. This is the ultimate test. If you offer the product at the target price and you can get people to buy it – congratulations, you have acquired true paying customers and you are well on your way to building a viable business.

Example offers and currencies: B2B

For B2B, a lot of times it takes months to close a deal. For that reason, the following intermediate steps are important indications of validation of purchase interest and intent.

  • Being introduced to your economic buyer’s administrative assistant. For B2B businesses, this is often the first sign of potential purchase intent – because nobody wants to book meetings with people they don’t want to see.
  • Getting a meeting scheduled with a major stakeholder. Succeeding in negotiating a meeting time is a big validation point.
  • Actually scoring the meeting with the stakeholder. If your stakeholder does not cancel on you and made time to see you – that is a great indication of interest.
  • An offer to sign a letter of intent (LOI) or memorandum of understanding (MOU). This largely applies to B2B businesses – getting your prospective economic buyer to put down their intention to do business with you on paper is a huge validation point.

Be careful about crowdfunding

Many new tech ventures have successfully launched a crowdfunding campaign on Kickstarter and Indiegogo and validated that they can drum up interest from the backers on these types of platforms. This can work to your advantage – there are case studies where startups raised a big round with a good valuation after exceeding their crowdfunding goals by a large margin.

However, you need to be aware of two things.

First, crowdfunding is almost never a good first source of revenue for a new venture.

  • This is because the money raised typically comes with perks that generally involve delivering the product or service in some finite time frame.
  • If you run a campaign and then try to bring your solution to market, your timelines can be very delayed from your backers’ expectations and this could backfire badly.
  • The best time to launch a crowdfunding campaign (especially for tangible products requiring mass production) is AFTER you secure initial funding, built your supply chain, and are about 6-9 months away from being ready to fulfill a first order in the expected quantities you need to distribute to your backers, if you were successful.
  • If you run into unexpected delays (which happens about 100% of the time for new ventures) and run late, your backers will get angry and that is never a pretty picture.

Second, a successful crowdfunding campaign simply means that your message resonates with the backers on these platforms. These backers are typically from the tech sector, and they trend young, male, highly educated and tech savvy. If your target customer does not match this demographic, one of two things can happen.

  • You may not meet your campaign goals and you would have spent all that energy for naught.
  • Worse, you could garner interest from backers and exceed your goals – thinking that you have validated purchase intent from your target market – and then fail to replicate that outside the crowdfunding platforms, because you have not done the work to validate purchase intent in your real prospective customer base. In that case you will have moved some units but you will not have built any knowledge that helps you build a viable business.

Crowdfunding, like VC funding, government grants, credit card debt and the like, is one of many ways to raise cash and run experiments. As long as you know what it is good for, you can use these platforms to your advantage.

Additional Resources