Technology and innovation have spurred great business opportunities. However, the market environment is also changing under their influence. Users, in turn, have also become more demanding of businesses and brands they patronize and use tools for these purposes. It is no longer possible to satisfy audiences with solutions created using simple app builders.
Today, it’s not enough just to know how to make an app – it is necessary to thoroughly test your new business ideas, no matter how “breakthrough” they seem to you. In this article, we have compiled the most effective economic and research methodologies that will help you distinguish good business ideas from doomed-to-fail ones.
Market and Competitors Analysis
Before you venture into mobile app development, you need to understand what economic environment your product will release into, and what has already been done before you. To do this, we suggest using three classic testing models of small business ideas that will help you assess the economic situation around you.
If you already understand that you’re going to build an app in a highly competitive environment, then it makes sense to start with Michael Porter’s Five Forces model. As part of this approach, you should analyze:
What is the threshold for entering a certain market due to the presence of strong competitors?
How likely is your application to be replaced with another? We especially recommend that this item be carefully worked out in the case of android app development, as it is the most popular operating system.
- How solvent are your potential buyers?
- How do existing market solutions compete with each other?
- What is the market power of suppliers?
PEST involves the ability to analyze the current market situation and your potential competitors as well. Using this methodology, you analyze political, economic, social and technological factors, and you can also include environmental and legal categories as well.
This is another classic methodology for analyzing and testing your business idea. Within its framework, you can highlight your strengths and weaknesses, as well as discover opportunities and threats.
Target Audience Analysis
After you have analyzed the market situation, competitors, and also ensured the value of your entrepreneur ideas from these points of view, it's time to move on to analyzing your target audience and testing their response.
This is the most effective way to work directly with representatives of your target audience, as you get the opportunity to collect the most lively feedback, ask questions and test hypotheses in real-time. This is also a good way to test your MVP without significant costs. For example, when you want to make sure that you created an attractive app design.
If you have several null hypotheses or business ideas, it makes sense to create surveys for each of them, where the answer options will be your hypotheses. When you analyze the results, you can get the most reliable answers from the audience, and determine which of your hypotheses turned out to be the most correct and promising.
Questionnaires differ from polls in that users will answer questions on their own, without your prompts. This approach can get you fresh insights regarding your online business ideas since users will not be limited to clearly defined response criteria.
Business Model Testing
The following methodologies will help you test your business model directly.
Business Model Canvas
The Osterwalder template is considered the most effective and comprehensive tool for creating and testing business models. This allows you to create a canvas on demand, test canvas ideas, and develop unique value propositions.
This template contains nine interconnected blocks divided into four main areas of business:
- Customer interaction
- Financial efficiency
This model allows you to develop a comprehensive look at the idea of your business, and find bottlenecks before you begin to take real action.
This approach to testing a business model provides a direct answer to the question of how to create an app with minimal investment but maximum efficiency. The essence of the LEAN startup approach is to gradually move from a minimal set of functions to product scaling based on feedback from real users.
However, it makes sense to apply this approach to app development only if you conducted a thorough analysis of the market and competitors at the initial stage, and create an MVP with full confidence that you will satisfy a certain need of users and make it better than competitors.
Google Design Sprints
The Google Design Sprints methodology is designed to assemble and immediately test the maximum number of useful ideas at each stage of application development. For example, if you have several hypothesis examples within the same sprint, you can do hypothesis testing using one of the methods listed above. For example, if you have hypotheses about which functions are best included in MVP, then you can test each of them using the LEAN startup methodology.
This is a rather unconventional and very creative approach to testing an idea, but its key feature is that any idea should exalt the user's interests over any other interests.
In short, this approach consists of five stages:
- Empathy. At this stage, it is necessary to feel the client’s problem very deeply.
- Focusing. The purpose of the focus is to formulate a question to which you will seek the answer in the next step.
- Generation of ideas. This is the most creative part when you need to generate maximum non-standard ideas.
- Prototyping. The goal is to create a pilot project that will help test the viability of an idea.
- Testing. At this stage, it is necessary to get feedback from users and evaluate the overall success of the idea.
- Hypothesis Testing
This method works when you need to find the truth between the null and alternative hypotheses. As in the previous case, you can test hypotheses using any of the methods that we mentioned for testing among the target audience, or use the LEAN startup method if you need to test the best features of the product or various values examples.
Service design is about the internal process that unfolds in your application as soon as the user begins to interact with it. The service design approach can be compared with the development of the client’s path – only directly within the application and with the ability to deviate from a given route.
Using this method, your task is to consider such an internal structure of the application so that its use is as convenient as possible. Further, everything is standard – launching the MVP, analyzing, adding new features, analyzing again, and continuing this circle until the product is absolutely perfect in the eyes of your users.
This method works for an already launched product and allows you to find the underlying reasons why certain processes do not work out the way you would like them to. Gap analysis is carried out according to the following algorithm:
- Identify the gap or problem of your business that you want to solve.
- Define the indicator you want to achieve.
- Compare the ideal picture with the current situation and describe it in quantitative terms.
- Find the root causes of your problem. To do this, you will again have to return to all the testing and analysis methods that we have listed and determine the most suitable methodologies for finding the root causes of the discrepancy between expectations and reality.
- Develop a plan to fill this gap. For example, if you determine that the problem is with the design of your application, go back to Google Design Sprints again, develop new hypotheses and test them before implementing them in your project.
Metrics You Need to Use to Evaluate the Result
Testing a business model does not make sense without results that can be expressed in a clear mathematical way. After you have developed a specific feature or idea and moved on to the testing process, you need to monitor and analyze the following indicators:
- Customer Acquisition Cost (CAC)
- Retention Rate
- Customer Lifetime Revenue (CLR)
- Return on Advertising Spending (ROAS)
Still need help with your business model testing? Feel free to share your ideas with us, and together we will be able to overcome all the path – from alternative hypothesis testing to the best business to start!