How you test your assumptions will depend on the specifics of the assumptions. For example, check your cost projections by seeing how much vendors charge for supplies. Perhaps the most important assumptions to test are cost targets and how enthusiastic key customers are for your product. Testing assumptions compliments the market-based research that you’ve already done. The combination of this data will position you to create a product that can succeed in the beachhead market.

Test Key Assumptions

The pricing process starts here, but pricing is likely to change several times as you go through the steps and experiment with different price points. Identifying specific dollar amounts won’t happen until a bit farther down the road. Ultimately, you want to estimate the lifetime value of an acquired customer and the cost of customer acquisition. This will be a step in the direction toward those goals.Price should be based on how much value the customer gets from your product, not on how much it costs you to produce the product.

Set Your Pricing Framework

The persona you’ve developed is useful, but you need to identify other customers to make sure you aren’t being too specific with the persona. This isn’t too likely to happen if the persona is created correctly, but just in case, identify 10 potential customers that fit the description of your end user. These people should all be like each other and similar to the persona. (If you can’t find ten 10 customers to participate, reconsider your beachhead market.)Contact the people on this list and let them know you’re seeking information, not sales.

Identify Your Next 10 Customers

Once you know who will make the decision to purchase your product, you need to understand their decision-making process so you can make your product fit that process. How long will it take for delivery and payment, from the time you present your product to the purchaser? How much will it cost for you to acquire new customers? Finally, what, if any, obstacles stand in the way of making the sale?Get the answers and articulate them so that investors and lenders are assured that you’re solidly grounded in reality. A map of the process of acquiring a customer can be a helpful tool.

Map the Process to Acquire a Paying Customer

Once you’ve identified a beachhead market, see if you can narrow it down further until you’ve identified a segment that meets these conditions:<ul><li>All the customers buy similar products.</li><li>Customers have similar sales cycles and expectations, so they can be served by similar strategies.</li><li>Customers are networked somehow so that information and opinion can be shared among them.</li></ul>

Identify The Segment

After having identified your target market and your end user, you’re in a good position to estimate the Total Addressable Market (TAM). TAM is the amount of revenue you’d make if 100% of the market became customers.To calculate this, start by figuring out how many people there are who fit your end user profile. Then multiply this number by how much each user is worth. The resulting figure is the TAM.The sum you expect the customer to spend in a year X multiplied by the number of estimated total customers = TAM.

Total Addressable Market(TAM)

Start by identifying your assumptions. Look at each step of your framework. List the places where you’ve made conclusions based on your research. Pay special attention to your assumptions about gross margins. Other important areas to evaluate are your customer lists and the DMU.Break down the assumptions into small, testable components. Don’t worry about how you’re going to design the test, otherwise you might be tempted to pass over assumptions that will be difficult to test. Just focus on identifying the key assumptions.

Identify Key Assumptions

In this step, you describe what your business gives to customers that other companies cannot provide. This is your company’s core. The core is what differentiates you from everyone else; it’s what you do better than everyone else. Your core is usually something that’s hard or impossible for others to duplicate.Every company has its own products and faces unique circumstances, and so there’s no formula to follow for identifying your core. Consider, however, some examples of things that can be core.

Validate Your Core

List up to a dozen of the best, most interesting market opportunities for your product. (A market opportunity includes a specific end-user and one or more applications.) Then, answer the following questions:<ul><li>Can the customer afford the product?</li><li>Can the customer be reached directly, without going through an intermediary?</li><li>Does the customer have a good reason to buy your product?</li><li>Can you deliver your product now?</li><li>Is there competition?</li><li>Once you get this segment, can you get other segments?</li><li>Is the market a good match for the goals and values of the founding team?</li></ul>

Narrowing The Field

It’s good to remember that free isn’t a viable model. Some startups figure they’ll get the users on board first, and decide how to monetize the platform later. Sometimes the idea is that users will ultimately pay for enhanced features. These things are not business models. You need to know before you start how you’re going to make money and where the money is coming from.

Design a Business Model

You are creating a new kind of business that’s never been attempted before. By necessity, you make a lot of assumptions about your product, your market, your customer. Now, you must systematically go through and test them all.Start by identifying your assumptions. Look at each step of your framework. List the places where you’ve made conclusions based on your research. Pay special attention to your assumptions about gross margins. Other important areas to evaluate are your customer lists and the DMU.

Calculate the Cost of Customer Acquisition (COCA)

It’s important to verify that your customer will be able to buy your product, so you need to identify who will make the purchasing decision for the end user.There are three main roles in the Decision-Making Unit (DMU):<ol><li>The champion is the person who wants to buy the product. Often, this is the end user, but sometimes there’s more than one champion.</li><li>The end user is the person who will actually use the product.</li><li>The primary economic buyer is the person who pays or signs off on paying and is usually the one who has the ultimate decision-making power.</li></ol>

Determine the Customer’s Decision-making Unit (DMU)

Lifetime Value (LTV) is the average profit you’ll make on a new customer and includes factors such as revenue streams, costs, customer retention rates, and so forth. The LTV, along with the Cost of Customer Acquisition (COCA) can give you an idea of how much is to be made in your beachhead market. If your COCA is too high, you likely won’t make money, no matter how high your sales volume.

Calculate Lifetime Value (LTV)

The minimum viable business product (MVBP), will actually be one more step in validating assumptions. It will integrate your assumptions into a single system test to verify the minimal product for which a customer will still pay.MVBP requirements include:<ul><li>The customer gets value from using the product.</li><li>The customer pays for the product.</li><li>The product is good enough to start a feedback loop, helping you change and improve the product so you can make a better product.</li></ul>

Define the Minimum Viable Business Product (MVBP)

You might think that after all this great research you’ve done, your product is a guaranteed success. But people aren’t rational beings, and all the research in the world won’t change that. Before you sink more money into it, put the MVBP in front of the customer. See if your assumptions work in the real world.Where you decide to price your product doesn’t matter as much as showing that your customers will pay for it. Now you can start accumulating data on how much they like the product.

Show That “the Dogs Will Eat the Dog Food”

A beachhead market is like a beachhead in war, like the invasion of Normandy. The allies picked Normandy; they picked one place from which to launch their attack and spread out from there. In the same way, you want to pick a market and win your early battles there.So, of the six to 12 market opportunities that you identified, pick one. You might find you have a lot of decent options in picking your beachhead. You probably want to start in a small market with little or no competition, if that’s possible.

A Benchhead Market

In creating your MVBP, you put some of the features on the back burner. Now you can put some of those features back in. When you add features in, be sure they meet high standards of quality. Of course, nothing is perfect, and new products do tend to have bugs. You want your product to be as good as possible, however, so that people think positively about it right from the get-go.

Develop a Product Plan

In the short term, you’re trying to whip up demand for the product and fill existing orders. Your product is new, so you’ll have to spend lots of energy communicating directly with the client, explaining the product to them. Medium-term sales strategy includes focusing on client management to retain existing clients and create additional sales opportunities for them. In the long term, you’ll continue to fulfill orders and client management, and adjustments will have to be made as competitors emerge.It is also important to map the sales process

The Three Sales Strategies

Customers are the single most important factor for a business, so build your company around customers, not products. There are limits, however, to letting customers guide your decisions. You needn’t chase after every potential customer on the planet.Create a profile of your target customer. And Tthe universe of potential customers includes end users (primary customers) and economic buyers (secondary customers). Often these are the same entity, but not always. Focusing here on the primary customer, conduct a market segmentation.

Market Segmentation

When the customer buys a product, they are expecting to receive some sort of value from it. The quantified value proposition measures this value, focusing on the customer’s needs, not on technology or features. In other words, it shows how the customer will get value from the product, expressed as a tangible metric. It will help you quantify how well the product aligns with the persona’s top priorities.To calculate the quantified value proposition, start with the persona’s top priority (or priorities). Your product should provide value that addresses this priority

Quantify the Value Proposition

If network effect is your core, you will dominate your field by reaching a critical mass so that it doesn’t make sense for customers to go elsewhere. The value of a network is related to how many people are on that network. The company with the most users becomes the most valuable. New customers gravitate to the biggest, most valuable company, ignoring a positive feedback loop.A company that features outstanding customer service retains a higher portion of customers compared to the competition. This reduces churn, which reduces expense.

The Network Effect

There are two kinds of follow-on markets:You can sell new products to your same customers, which is known as upselling. Because you have a substantial amount of information about these customers, it would be cost effective to sell them more products.The other option is to sell the same old product to new customers in adjacent markets. Doing so allows you to leverage resources that you already have. You might want to make some tweaks and change the packaging, but your core is the same.

Calculate the Total Addressable Market Size for Follow-on Markets

Through primary market research, learn as much as possible about how your customer will use your product and what they think of it. Start by mapping out how your persona uses your product. It’s important to see this from your customer’s point of view, not just your own.Do a full lifecycle use case. Explain how existing products aren’t currently meeting the persona’s needs. Describe how a customer first finds out about your product. Explore how they buy the product, use the product, and whether they tell their friends about it. Be as detailed as you can possibly be.

Full Lifecycle Use Case

Now that you’ve defined and analyzed the customer, you can turn your attention to the product. Some argue that considering the product should come earlier in the process, but if you want your product to be a success it will, first and foremost, have to appeal to the customer. So, even if you start with an idea for a great product, you should still begin by identifying your beachhead market and end user, and developing the persona.Create a high-level product specification, a visual representation that shows what the product will look like.

High-level Product Specification

With the competitive position chart, you analyze how well both you and your competitor fulfill your customers’ two highest priorities. You want to show that you meet the customer’s priorities better than the competition and better than other existing products. If you can’t demonstrate this, then you should probably reevaluate your market selection and your core.Create a graph to compare your persona’s two top priorities, using the x axis for the persona’s top priority and the y axis for their second highest priority.

Chart Your Competitive Position

Start by brainstorming a wide variety of market opportunities. Even at this early stage, start talking to customers to see what they think. Analyze your potential market, and look at the industries where you can market your product. Write a list of people in that industry who might benefit from your product.

How To Start

Each customer has two roles: the end user and the decision-making unit.The end user is the person who’ll use the product, usually a member of the household or the organization that bought the product.The decision-making unit is the person or people who make the decision to purchase the product, and this designation can be broken down further into more roles:<ul><li>The champion wants the customer to purchase the product.</li><li>The primary economic buyer has the power to authorize the purchase.</li><li>Other people who might affect the purchase include people such as influencers etc.</li></ul>

The End User Profile

Create a persona to serve as an exemplar. The persona represents the primary customer for the beachhead market, making it easier for everyone to think and talk about the kind of customer you are trying to reach.Use an actual person on which to model your persona. Some companies use a composite of several different people, or they create a very generic sort of persona. But it’s better to choose a real person because then you don’t need to guess what they really think or how they really live their lives.

Profile the Persona for the Beachhead Market

The Cost of Customer Acquisition (COCA) asks how much will we spend on acquiring new customers. It’s easy to optimistically underestimate this expense, but be as real as possible when you go through this calculation.There are important factors to include in your calculations: sales staff salaries, brochures and website costs, tradeshow exhibits, advertising, etc. Costs also include those sales and marketing efforts that were unsuccessful in securing customers, not just those that successfully reached new customers.

Map the Sales Process to Acquire a Customer

There are basically three different reasons that people start new ventures:
<ul>
<li>They have an idea; they thought of a way to improve something or to make a positive impact on the world.</li>
<li>They have a technological breakthrough; they have a new gizmo that changes how people live or work.</li>
<li>Finally, they have a passion; they know they want to be an entrepreneur, even if they don’t know yet exactly what their product will be.</li>
</ul>
Some say that an entrepreneur needs to identify a customer pain, a problem that the customer will pay to fix. But it isn’t strictly necessary to start this way.

Starting A New Venture

There’s nothing magic about being a successful entrepreneur. It’s a learned skill, and in Disciplined Entrepreneurship, the author details 24 steps to a successful startup.

The essential companion to the book that revolutionized entrepreneurship Disciplined Entrepreneurship Workbook provides a practical manual for working the 24-step framework presented in Disciplined Entrepreneurship. Unlocking key lessons and breaking down the steps, this book helps you delve deeper into the framework to get your business up and running with a greater chance for success. You'll find the tools you need to sharpen your instinct, engage your creativity, work through hardship, and give the people what they want—even if they don't yet know that they want it. Real-world examples illustrate the framework in action, and case studies highlight critical points that can make or break you when your goal is on the line. Exercises and assessments help you nail down your strengths, while pointing out areas that could benefit from reinforcement—because when it comes to your business, "good enough" isn't good enough—better is always better. Disciplined Entrepreneurship transformed the way that professionals think about starting a company, and this book helps you dig into the proven framework to make your business dreams a reality. Delve deeper into the 24 steps to success Innovate, persevere, and create the product people want Internalize lessons learned from real-world entrepreneurs Test your understanding with exercises and case studies The book also includes new material on topics the author has found to be extremely useful in getting the most value out of the framework including Primary Market Research, Windows of Opportunity and Triggers. The book also introduces the Disciplined Entrepreneurship Canvas to track your progress on this journey. Starting a company is a serious undertaking, with plenty of risk and sacrifice to go around—so why not minimize the risk and make the outcome worth the sacrifice? Author Bill Aulet's 24-step framework is proven to build a successful business; the key is in how well you implement it. Disciplined Entrepreneurship Workbook helps you master the skills, tools, and mindset you need to get on your path to success.

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The essential companion to the book that revolutionized entrepreneurship Disciplined Entrepreneurship Workbook provides a practical manual for working the 24-step framework presented in Disciplined Entrepreneurship. Unlocking key lessons and breaking down the steps, this book helps you delve deeper into the framework to get your business up and running with a greater chance for success. You'll find the tools you need to sharpen your instinct, engage your creativity, work through hardship, and give the people what they want—even if they don't yet know that they want it. Real-world examples illustrate the framework in action, and case studies highlight critical points that can make or break you when your goal is on the line. Exercises and assessments help you nail down your strengths, while pointing out areas that could benefit from reinforcement—because when it comes to your business, "good enough" isn't good enough—better is always better. Disciplined Entrepreneurship transformed the way that professionals think about starting a company, and this book helps you dig into the proven framework to make your business dreams a reality. <ul> <li>Delve deeper into the 24 steps to success</li> <li>Innovate, persevere, and create the product people want</li> <li>Internalize lessons learned from real-world entrepreneurs</li> <li>Test your understanding with exercises and case studies</li> </ul> The book also includes new material on topics the author has found to be extremely useful in getting the most value out of the framework including Primary Market Research, Windows of Opportunity and Triggers. The book also introduces the Disciplined Entrepreneurship Canvas to track your progress on this journey. Starting a company is a serious undertaking, with plenty of risk and sacrifice to go around—so why not minimize the risk and make the outcome worth the sacrifice? Author Bill Aulet's 24-step framework is proven to build a successful business; the key is in how well you implement it. Disciplined Entrepreneurship Workbook helps you master the skills, tools, and mindset you need to get on your path to success.

Set Your Pricing Framework

Similar ideas to Set Your Pricing Framework

6 common pricing strategies for small businesses (part 1)

2. Value Determines Price And Costs Are A Choice