What does it take to successfully run a business model test before scaling up? How can you position your product effectively in different types of markets?
Understanding your sales approach and market positioning is crucial before expanding your business. The process involves testing your sales strategy with early adopters and determining how to shape public perception of your product based on your market type.
Let’s explore the essential steps to validate your business model and create a winning positioning strategy that resonates with your target customers.
Testing Your Business Model
After you’ve found your customer base, it’s time to run a business model test to see if it resonates with that base. Steve Blank explains that companies often jump the gun and hire large sales staff at this stage despite not yet having a solid business and sales model. This stage is not about selling: Rather, it’s about developing a sales plan that will be successful once you finish customer development and begin selling in earnest.
(Shortform note: In The Mom Test, Rob Fitzpatrick offers some advice on how to test your business model with your customer base. The Mom Test is a set of rules designed to elicit honest feedback from potential customers, helping entrepreneurs gauge whether their product truly meets customer needs. These rules are: 1) Don’t pitch your idea, 2) ask questions about the past, and 3) listen more than you talk. By applying these principles during the testing phase, companies may gather more reliable and actionable insights than simply attempting to sell an unfinished product. This could help refine both the product and sales strategy before scaling up, leading to a more successful launch and reducing the risk of premature expansion.)
Blank advises that, for this step, you’ll develop your sales materials and plan, and then test it out by attempting to sell your (currently unfinished) product to early adopters. These are people at high levels of a company who have decision-making power and are willing to take a risk on the product you’re promising them. You need only a few of these to test your sales on; this step isn’t about generating an immediate profit but about making sure you can sell the product.
(Shortform note: Blank doesn’t go into detail about why early adopters should be people at high levels of a company, but we might look to Geoffrey Moore’s Crossing the Chasm for a possible explanation. Moore writes that before a new product is widely adopted by a mainstream market, it’s tried out by early adopters, who he defines as leaders looking to use new technologies to gain a competitive advantage. If they adopt the product, other, more mainstream customers are likely to follow their lead. Blank may be advising the same strategy—reaching out to people who seek out novelty for leverage and who can influence a wider swath of customers with their approval.)
Blank explains that this is also the stage where you need to decide how you want to shape public perception of your product and your company—a practice known as positioning. Based on what you’ve learned in step 1 and from your preliminary sales to early adopters, decide how you want the public to view your product in comparison to competitors. The way you do this will depend in part on your market type.
(Shortform note: In Positioning, Al Ries and Jack Trout provide some additional advice about how to position your product and company. They argue that positioning is not just about the product, but about occupying a distinctive place in the mind of the prospective customer. This aligns with Blank’s emphasis on deciding how to shape public perception. Ries and Trout suggest that effective positioning often involves being first in a category or creating a new category altogether. This perspective can guide startups in developing their positioning strategy during the customer development process.)
Positioning by Market Type
There are four startup market types: 1) new market, 2) existing market with a new product, 3) resegmented market with a cheaper product, and 4) resegmented market with a specialized product. Depending on your market type, you can determine how to shape public perception of your product. However, it’s not until Step 3 that you’ll begin implementing your positioning strategy.
Blank writes that when positioning your product in a new market, you need to explain what purpose your product serves on a basic level: What issue is it going to help your customer with, and how?
(Shortform note: In Play Bigger, the authors note that positioning in a new market can be especially easy when you clearly communicate to customers the problem you’re going to solve for them. This is because, in a new market, you’re often identifying a problem customers didn’t even know they had, and once they become aware of it, they feel compelled to solve it. When you help customers recognize an underlying problem or unmet need, and then position your product as the only solution, you can dominate your new market and even make older markets obsolete.)
For the other three market types, your customers will already understand the purpose of the product, so the goal is to demonstrate how it’s superior to competing products.
- For a new product in an existing market, clearly delineate how your product is better than competitors.
- For a resegmented market with a cheaper product, explain how the lower cost will provide the customer with a greater value.
- And for a resegmented market with a specialized product, explain the unique value your product offers your customers that existing products don’t.
| Applying Porter’s Competitive Strategies to Positioning by Market Type Blank’s advice for positioning your product in an existing or resegmented market aligns with another of Michael Porter’s recommendations in Competitive Strategy—namely, the competitive strategy you choose for your business. Porter describes three such strategies, each corresponding to one of Blank’s three markets, as well as advice on how to implement each strategy. Positioning a new product in an existing market aligns with Porter’s strategy of offering something unique to the market. Porter suggests conducting market research to identify ways you can differentiate your product and your company from your competitors. Positioning a cheaper product in a resegmented market aligns with Porter’s strategy of setting lower prices. To achieve these lower costs without lowering your quality standards, Porter recommends cutting operational costs by streamlining internal processes, negotiating lower prices from suppliers, and maximizing cost advantages through tactics like bulk purchasing and more efficiently using resources. Positioning a specialized product in a resegmented market aligns with Porter’s strategy of targeting niche markets. To capture niche markets, Porter advises identifying customers whose needs aren’t being fully met and aligning your product to meet those needs, then marketing your products in a way that speaks directly to that group. |
Assess Next Steps
Before moving on to customer acquisition, confirm that you’ve accomplished what you need to in testing your business model. If you’ve identified flaws in your sales plan, failed to come up with a sales model that you can repeat and expand, failed to identify how you want the public to perceive your product, or noticed any other issues in your plan, don’t move on to the next step. Instead, run a business model test again or even return to identifying your customer base.
(Shortform note: The customer development process reflects the scientific method in many ways. Both processes are iterative, meaning they rely on continuous review and repetition of steps when necessary. The more you repeat a step, and the more you review the results of each step, the more your knowledge will grow, which can lead to greater insights and innovations as well as a greater understanding of each phase in the process. So while it may seem daunting to start over at the beginning, the nature of this process means that each step will likely become easier each time you do it.)
