(This guest post was written by Ashley Verrill of Software Advice.)
It turns out the old adage “if you build it, they will come,” shouldn’t always apply to starting a business, or at least that’s what entrepreneur Alistair Croll would argue.
The Solve for Interesting founder and “Lean Analytics” author explained why this business model has it backwards during a Q&A video we shot at this year’s SXSW Interactive Festival. Software Advice regularly reviews business intelligence and social media technologies, so we wanted to find out from Alistair how we could leverage these tools using the “Lean Analytics” concept.
“It should be ‘if they come, you will build it,'” he said.
Essentially, Croll suggests that companies test the riskiest part of their business idea first and fine-tune that concept, before they dump a bunch of money to build it out.
“Companies don’t know what they’re going to be when they grow-up, so until you’ve reached that point where you figure out what product you are selling to what market, the product is not the thing you sell, it’s the tool to find out what business you are in.”
To test an idea, Alistair said companies should identify one metric that matters most to the business — whether that’s site visitors, clicks or conversions — then leverage social and other data to test that metric against the most primitive version of your idea.
Seeing whether or not the needle moves, will tell you whether the risk in that idea is worth taking. Based on that response, you can make further changes and test again, then follow the same process until the right model is identified.
To describe how this works in practice, Croll cited the example of Airbnb’s professional photography. The rental-by-owner startup was growing fast, but still felt it could do better. So the founders came up with a hypothesis: if the rental properties had better, professionally-taken photos, they’d be rented more.
So the team created a curated “minimum viable product”—basically the very least they needed to do to try out the idea. They created something that looked like an actual feature, but behind the scenes, much of the work was done manually.
Then they analyzed the difference in rental rates between properties with professional photos and those without. As it turned out, those with better photos rented two to three times as much. Since their theory was proven by the data, they made it a part of the product, added more features to it, and hired full-time photographers.
Most investors’ concerns these days are less about whether you can build something—they probably believe you can—and more about whether anyone will care. By identifying the riskiest part of the business (which is usually whether you can garner sufficient attention) and then running experiments to overcome that risk, you’re much more likely to build a successful business and raise capital for your startup.
Ashley Verrill is a market analyst at Software Advice. She has spent the last six years reporting and writing business news and strategy features. Her work has appeared in myriad publications including Inc., Upstart Business Journal, the Austin Business Journal and the North Bay Business Journal. Before joining Software Advice in 2012, she worked in sales management and advertising. She is a University of Texas graduate with a bachelor’s degree in journalism.