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The First Mile - Experiment Cookbook

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Use fourteen experiment “recipes” from The First Mile Experiment Cookbook. Recipes are organized by the rough amount of time and effort they take to execute.

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The First Mile - Experiment Cookbook

  1. 1. © 2019 Innosight Consulting, LLC and/or its affiliates 1 EXPERIMENT 1
  2. 2. © 2019 Innosight Consulting, LLC and/or its affiliates 2 EXPERIMENT Recipe Table Of Contents If you have hours: 6 10 4 5 8 9 3 7 Make a Phone Call Build a Reverse Income Statement Run a Thought Experiment Build a Back-Of- Napkin 4P Model Build a MacGyver Prototype Talk to Potential Customers Conduct Desk Research Walk Through a Transaction If you have days or weeks: 11 12 13Run a Focused Feasibility Test Build a Detailed Financial Model Prototype the Purchase Experience Prototype the Business Model Run a Small-Base Usage Test Conduct an Operational Pilot If you have months: 14 15 16
  3. 3. © 2019 Innosight Consulting, LLC and/or its affiliates 3 EXPERIMENT LOW DEGREE OF CERTAINTY HIGH DOES ANYONE WANT IT? Said Shown Used Purchased Repeated Advocated CAN WE DO IT? Dreamed Drawn Prototyped Piloted Delivered Scaled IS IT WORTH IT? Envelope Model Transaction Model Business Model Unit Economics Validated Line of Sight to Profitability Profitable Business Recipe Summary THE FIRST MILE CERTAINTY TABLE Hours Days/Weeks Months 1. Desk Research 2. Thought Experiment 3. Back-Of-Napkin 4P model 4. Phone Call 5. Transaction Walkthrough 6. MacGyver Prototype 7. Customer Conversation 8. Reverse Income Statement 9. Focused Feasibility Test 10. Detailed Financial Model 11. Transaction Test 12. Business Model Prototype 13. Small-Base Usage Test 14. Operational Pilot 71 2 4 11 13 14 1 42 6 8 9 11 12 14 1 3 4 1085 12 14
  4. 4. © 2019 Innosight Consulting, LLC and/or its affiliates 4 EXPERIMENT Recipe 1: Conduct Desk Research Some critical uncertainties can be addressed by conducting straightforward desk research. Desk research identifies areas where customers and investors are spending time and/or money, technologies that can unlock a market, and business model insight from comparable efforts. Patent Filings VC Investments Answer Sites Resources: • S-1 and 10-K filings: www.sec.gov • Analyst calls: www.seekingalpha.com • Patent filings: Sagentia • Answer sites: Quora • Venture capital investments: CrunchBase • Consider multiple sources • Find ways to connect directly to experts or potential customers • Analyze comparable public or to-be-public companies • Follow the footnotes – look at references and connections KEYS TO SUCCESS
  5. 5. © 2019 Innosight Consulting, LLC and/or its affiliates 5 EXPERIMENT Recipe 2: Run a Thought Experiment Thought experiments are wonderful ways to learn because they don’t cost anything and force you to take an external perspective on key strategic issues. Best conducted by a small group, they identify hidden rate-limiting assumptions, operational risks, or potential competitive response. Think expansively and use simple analogies or tools to aid thought experiments. War games help understand ways in which you can influence the strategy so that it looks unattractive to competitors. It can also help you develop systems that spot competitive moves early. Performance Map • Put yourself in the shoes of current and potential competitors and imagine how they might respond to your idea • War games can be run to assess the degree to which internal forces might react to an idea • Consider the use of a tool such as a simple performance map • Involve external participants to get fresh perspectives • Use projection techniques – either view the world through another person’s eyes or imagine a future condition • Dream of what ultimate success would look like, then walk back to today KEYS TO SUCCESS
  6. 6. © 2019 Innosight Consulting, LLC and/or its affiliates 6 EXPERIMENT Recipe 3: Build a Back-of-Napkin 4P Model The 4P calculation captures the idea's potential: To hit an annual revenue target, multiply addressable population, penetration, price per purchase, and purchase frequency. This deceptively simple calculation provides a quick sanity check on the revenue potential. The deep thinking that goes into creating complicated spreadsheets for ideas can be very useful, but it also can be a way to mistake motion for progress. Make sure you can answer the simple questions before you worry about the complicated ones. Helps answer questions such as: • What channel would support the price? • Is it an occasional or frequent purchase? • Targeting a niche or mass population? • What kind of support would be necessary given the purchase frequency? • Define the target market as narrowly as possible (not “if we got $1 from every person in India”) • Research analogies to gain greater confidence in assumptions around pricing and purchase frequency KEYS TO SUCCESS
  7. 7. © 2019 Innosight Consulting, LLC and/or its affiliates 7 EXPERIMENT Recipe 4: Make a Phone Call Industry experts can provide grounding around operational assumptions and information around how others tackled similar problems – details that may not be uncovered through public sources or traditional research. Connect with someone who has experience in what you are seeking to do. Some will share for free while others may expect to be compensated. A couple of hundred dollars to get deep expertise may be well worth the money. Before meeting the expert, make sure you think about what specific questions you will ask. Resources: • LinkedIn networks • Local academic institutions • Alumni networks • Retired executives: http://www.score.org • Gerson Lehrman Group • Use modern social networking solutions • Don’t be afraid to cold-call someone –people love to talk about their area of expertise • Ask people whom else they recommend speaking to about the topic KEYS TO SUCCESS
  8. 8. © 2019 Innosight Consulting, LLC and/or its affiliates 8 EXPERIMENT Recipe 5: Walk Through a Transaction Customers have to translate into revenues that can support the costs of delivering the offering. A simple way to test an idea’s economic viability is to think about specifically how the first dollar of revenue will be earned. This identifies business model weakness, e.g. unmotivated sales channels. This approach can highlight a weak link in an idea. For example, the amount required to motivate a sales partner may make something either too expensive for a consumer or unprofitable. Ask the following questions: • How will customers obtain the offering? • When will they pay for it? If they don’t pay for it, who might pay? • Where will customers obtain it? • How will the offering get to customers? • Is there anyone else who will get a piece of a transaction? • Consider the perspectives of all stakeholders • Use other experiments to increase confidence that elements like unit costs and payments to distribution partners are grounded in reality KEYS TO SUCCESS
  9. 9. © 2019 Innosight Consulting, LLC and/or its affiliates 9 EXPERIMENT Recipe 6: Build a MacGyver Prototype Prototypes increase confidence in feasibility, provide an early read on production costs, and create material to share with customers in experiments. They test unpredictable interactions between components of a product that are invisible on paper. • You can create a simple product prototype for very little cost using craft materials such as paper, pipe cleaners and felt • Or, you can spend several thousands of dollars to create one that is a closer approximation, using a prototyping service such as Mfg.com. • Focus on speed rather than aesthetics; avoid endless tinkering to get it “just right” • Try multiple methods (e.g. Drawing, web mock-up), with a focus on spending as little as possible (<$1,000) • Avoid getting fixated on a single approach and keep it rough so you don’t fall in love with something that’s going to change KEYS TO SUCCESS Form factor mockup created with boards of wood and a handful of nails to test usability Form factor created by soldering pieces of metal; functional but with rough edges Made of strong fabricated plastic; more aesthetically and functionally sophisticated Prototyping – Pop-up Laundromat Example
  10. 10. © 2019 Innosight Consulting, LLC and/or its affiliates 10 EXPERIMENT Recipe 7: Talk to Potential Customers Talking to prospective customers provides direct feedback from customers on the idea and indirect learning about operational issues. It can be a great way to learn both about whether an idea connects with a customer as well as what it will really take to pull it off. Talking to ‘real’ customers is very important as there may be contextual nuances that may be missed with just traditional research. • With some basic skills in Photoshop, SketchUp, or even PowerPoint, you can build low-cost visual collateral • Another option is a site like UpWork • Bring supporting material – ideally a “MacGyver prototype” and an advertisement/brochure • Don’t be worried about reaching a statistically significant population • Don’t overreact to either positive or negative feedback KEYS TO SUCCESS Visual prototypes to gather customer feedback include mock ads or brochures, low- or high-fidelity websites, video demos, and 2D or 3D renderings.
  11. 11. © 2019 Innosight Consulting, LLC and/or its affiliates 11 EXPERIMENT Recipe 8: Build a Reverse Income Statement A Reverse Income Statement surfaces key operational uncertainties and pinpoints the most critical financial assumptions. It is a good discipline to map out the relationship between key variables, and to identify weaknesses and key strategic uncertainties. • Look for analogs and benchmarks, which help determine if assumptions are reasonable • Run scenarios to see what happens when assumptions change • Ensure alignment around “root” of the tree (desired revenue, profit, etc.) • Have no more than three “sub” assumptions for any area — there will be more, but try to keep it simple • Drive deep enough to surface operational assumptions (e.g. number of sales-people, manufacturing facilities, customer support representatives) KEYS TO SUCCESS Reverse income statements help you think about what it will take to get to a stated revenue goal.
  12. 12. © 2019 Innosight Consulting, LLC and/or its affiliates 12 EXPERIMENT Recipe 9: Run a Focused Feasibility Test A focused feasibility test provides market-grounded information about a single key operational assumption instead of multiple areas simultaneously. This kind of test is usually simple and is used to answer important but basic, fundamental questions before building more sophisticated systems. • Typically used to answer basic but important operational questions, e.g. can you mail a DVD using the regular postal service without getting it mangled? • A number of online tools can help run these kinds of tests, such as ‘challenge websites’ (open innovation/crowd-sourced solutions) • Focus, focus, focus — be as specific as possible about the unknown that is being addressed • Embrace the “good enough” principle —the goal isn’t to scale a business but to learn if it could be scaled • Get as close to the market as possible KEYS TO SUCCESS In the 1990s, Netflix founder Reed Hastings mailed a CD to himself in an envelope to see if the postal service could complete a delivery without damage. The test cost less than $5. TVinContext offers contextual ads during the viewing of TV shows. Turner incorporated several focused feasibility tests, including having interns tag moments in TV shows and movies to demonstrate sufficient points of context.
  13. 13. © 2019 Innosight Consulting, LLC and/or its affiliates 13 EXPERIMENT Recipe 10: Build a Detailed Financial Model • The model should go through several iterations • Pay more attention to the assumptions than the ultimate answer • Run ‘what if’ analyses to identify the most critical ones, and use the output to inform other experiments • Be as comprehensive as possible… • …but don’t fall into the trap of assuming that an awesome spreadsheet is an awesome business • Ground financial assumptions in the best available internal research and comparable analysis KEYS TO SUCCESS A detailed financial model helps sharpen thinking about the financial intricacies of the idea. However, they are not actual answers; focus instead on assumptions. While financial models shouldn’t be treated as gospel, the process of developing the income statement, balance sheet, and cash flow statement helps pinpoint the most critical financial assumptions and forces sharpening of the thinking about the nuts and bolts of the idea.
  14. 14. © 2019 Innosight Consulting, LLC and/or its affiliates 14 EXPERIMENT Recipe 11: Prototype the Purchase Experience Prototyping the purchase experience is also known as a transaction test. It provides rich insight into operational assumptions and furthers understanding of drivers of purchase, the customer consideration set, and more. This is particularly useful for novel concepts versus traditional research as customers lacking a reliable frame of reference for a new product poorly project their use for it. Good vehicles for transaction tests include kiosks, mobile trucks, and home testing. • Optimize around learning, not revenue • Embrace creative mechanisms, such as using competitors’ products • Ensure that there are means (e.g. customer diaries) to gather feedback on both the purchase process and post purchase use KEYS TO SUCCESS Observe customers at the deployment: How do they interact in the environment? What is the first thing they see and touch? Where are you setting up? How will you gather feedback? If you are using home testers, gather feedback at regular intervals while the experience is still fresh in their minds. Laundry Kiosk Razor Rave pop-up van and kiosk
  15. 15. © 2019 Innosight Consulting, LLC and/or its affiliates 15 EXPERIMENT Recipe 12: Prototype the Business Model • Focuses on how a business model fits together to see if it is worth scaling • Some critical assumptions can be addressed only in a pilot of the model • Certain issues, such as supply chain or regulatory issues, often emerge during the running of a business model prototype • Ensure that you have sufficient scale to learn about key business model elements • Isolate learning on critical business model unknowns to minimize investment and risk KEYS TO SUCCESS In May 2009, Kraft bought a truck through eBay, converted it into a high-quality food truck, and started selling DiGiorno pizza in corporate parks. A business model prototype develops a richer view of the economic viability of the business model while surfacing ‘unknown unknowns’ that appear only when the interdependent elements of a business model are put together. It focuses on how pieces of a business model could fit together. DiGiorno’s ‘Mobile Morsels’ pizza truck
  16. 16. © 2019 Innosight Consulting, LLC and/or its affiliates 16 EXPERIMENT Recipe 13: Run a Small-Base Usage Test • Useful when trying to figure out if there is a compelling solution to an important problem, rather than revenue or profits • When testing, consider running tests in multiple locations, simulating natural environments for the test, and balancing verbal and written data • Create multiple mechanisms to learn about consumer use (e.g. diaries, web surveys, discussion groups) • Focus primarily on use to avoid over-loading the test and obscuring key learning KEYS TO SUCCESS Usage tests run in 2010 by the Innosight team for a global telecommunications client; software prototype was tested in 5 different cities (Boston, Phoenix, Chicago, Los Angeles, Atlanta) with ~90 testers Small-base usage tests provide learning about what happens with repeated use. Getting prototypes into consumers’ hands so they can feel and experience the idea gives insight into what the most critical unknowns are around consumer behavior.
  17. 17. © 2019 Innosight Consulting, LLC and/or its affiliates 17 EXPERIMENT Recipe 14: Conduct an Operational Pilot An operational pilot is meant to essentially be a small scale version of the envisioned business. It is a fully integrated experiment that identifies what it takes to maximize customer demand, optimize the delivery model, and fine-tune key business model elements. • Operational pilots bear strong similarities to business model prototypes but typically require more investment as they are subscale versions rather than controlled efforts to learn • They are riskier, so should ideally be run when there is reasonable confidence in the opportunity and the team is seeking to learn how to optimize the opportunity when they launch it • Seek to mirror the planned scaled business as much as possible to maximize learning • Ensure that you have exhausted other mechanisms to learn, given relatively high levels of investment and risk KEYS TO SUCCESS The ‘Healthy Heart for All’ program was a pilot run by Innosight in collaboration with Medtronic in 2011. It involved direct marketing, consumer device financing, diagnostic camps, and actual pacemaker implants in hospitals across a range of Indian geographies.

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