- Posted by Graham Dockrill
- On November 26, 2018
- 0 Comments
- advice, business, entrepreneur, idea validation, market research, research, start-ups
Not all ideas make good businesses. One of the most important tasks to undertake in any start-up or established company going into a new venture is validating your market.
The sharing economy has disrupted the taxi industry, the accommodation sector and is now being applied to other verticals, some with more success than others. A recent Chinese start-up which rents out umbrellas has ‘lost’ 300,000 of its inventory in just over three months from its inception. Only a few weeks after starting up operations in 11 cities across China, Sharing E Umbrella announced that it had lost almost all of its 300,000 umbrellas. Based out of Shenzhen, the company was launched in early 2017 with a $1.5M USD investment.
The concept was the same as bike sharing start-ups around the world, which have been hugely successful in some of the largest cities across the globe. Customers download an app on their smartphone and pay a deposit of USD $3.00 for an umbrella. You then pay a few cents every half hour for the duration of the hire.
It’s bad business that nearly 300,000 umbrellas went missing. The fundamental question to ask is “what problem is being solved?” This needs to be answered, “why are we ‘sharing’ umbrellas?”
After some research, company founder Zhao Shuping reportedly said he was inspired by the success of other sharing start-ups, specifically the bike sharing economy of China. A four billion dollar market as reported by the Economist in 2017. Shuping was convinced that “everything on the street can now be shared” given the right technology and systems.
A lost umbrella costs the company around USD9.00. That aside, Shuping plans to flood the market with another 30 million umbrellas by mid-2018. The umbrellas were probably taken home by people, suggested Shuping in an interview with a Chinese website. He added that Sharing E Umbrella plans to rely mainly on profits from adverts, some of which may be printed on the umbrellas themselves.
Umbrellas in China are generally quite cheap; the ones distributed by Sharing E Umbrella would have stood out. They were well made and good quality. From personal experience around the world, the ones you usually get at subway stations tend to be small and very simple.
A basic goal of sharing start-ups like Uber and Lyft is to make ‘sharing’ a ride cheaper than owning a car. This can be an attractive proposition. Cars are expensive to own and also to maintain. In cities like New York you either pay a small fortune for parking or resign yourself to dealing with a dystopia of alternate-side parking rules. Most cars are also under-utilised. As Lyft co-founder and president John Zimmer loves to say, the average vehicle is parked 96% of the time. For the infrequent driver it makes sense to spend money on public transit and ride-hailing apps instead of sinking it into a car that hardly ever gets used.
Bike-sharing programs, that took off in China this year, have a similar appeal. Owning a bike isn’t as expensive as owning a car but the costs can still add up, especially with repairs and maintenance and the constant possibility that your bike might be stolen. The designated parking spots that often accompany bike-sharing programs also take care of the perpetual problem of where to park. The beauty of a program like Citi Bike in New York, the ‘Boris Bikes’ in London, or richly valued Chinese bike-sharing startups Ofo and Mobike, is that instead of investing in your own bike, you pay a small fee to use one and outsource the parking, care-taking, and maintenance.
Unfortunately the same logic does not apply to umbrellas. An umbrella is not a particularly expensive thing to buy nor does it require any maintenance. You might want to rent one on-the-go if it started raining and your umbrella were at home, but renting hardly seems likely to replace umbrella ownership in the long run. Umbrellas are not like cars or bikes. We don’t need to ‘share’ them.
Idea validation is the process of testing and validating your idea prior to launching your business, its name, tagline, product, service or website. This is like the research and development process big companies use to test product ideas before they’re released to the general public. Idea validation can involve anything from information-gathering interviews to special landing pages on the web. The entire purpose is to expose the idea to your target audience before you build and release the final product.
5 Steps to Idea Validation in the Real World
Step 1: Brainstorm internally
You need to have some starting ideas to present to your potential clients. In the case of umbrella rentals it could be 4-5 different features of the business or business model (you’re charged the full amount if you don’t return your umbrella for example).
Step 2: Don’t ask family and friends
Your friends and family will be biased, they will often support you no matter what. While getting positive reinforcement and encouragement in your start-up is an imperative component of an entrepreneurs success, it can be also be deadly. Don’t ask family and friends for validation, most will tell you what you want to hear.
Step 3: Choose your interviewees
Build a persona of your perfect client, make a list of say 15 potential customers you can reach out to and interview for ten minutes in person or over a Skype video. In person is always preferable. A natural back and forth conversation is essential. It’s hard to see or feel hesitation, excitement or a ‘wow’ expression over the phone.
Step 4: Conduct your informal interview
The first thing you want to do when conducting your informal interview is thank them for their time and tell them how their time will help you offer something that your customers will actually want.
Don’t go into ‘selling mode’ – don’t sell to your research pool. Put them at ease and remind them of how much their feedback is valued and will influence your business. People like knowing that their opinion matters. Present your ideas and ask for feedback as you go, don’t be afraid to give several options and see which ones they like the best.
Step 5: Review and decide
The last step is to review all your feedback and decide what worked best for your potential clients.
When you decide based on the feedback you received, remember that it’s about the customer, not you. Sometimes you will have to give up what you think is best for your business based on what you learned.
Graham Dockrill is an internationally recognised thought leader and keynote speaker. His passion for entrepreneurship and start-ups, coupled with his considerable skills and experience, sees him adding value to businesses in the UK, USA and Australasia. Graham conducts market validation for SaaS and technology companies around the world. Contact Graham to find out how he can help validate your idea and market opportunity.