Innovative startups often have to adapt existing business models or invent completely new ones. As a result, creating the right model can be a tricky and costly experience. By experimenting in certain situations, startups can get important feedback to modify or validate their business model.
In general, a startup's experimentation of business models takes on one of two forms: small scale tests or pilot projects. Researchers from Grenoble Ecole de Management recently studied two startups that used experimentation to develop their business models. Neva Bojovic, a PhD student at GEM and one of the co-authors of the study, shares with us: "Experimentation enabled these startups to eliminate business models that didn't fit their ecosystem and validate an appropriate model."
This can be an important tool to help convince potential investors, partners, suppliers or customers
Using small scale tests
During the creation phase, startups interact with numerous partners, experts and potential clients. This is the ideal time to implement small scale tests in order to check various components that impact a business model such as price, services offered or quality expectations. To initiate these tests, startups can engage in exchanges with partners, experts, potential clients or other stakeholders.
"For example, a simple small scale test implemented by one of the entrepreneurs we studied was to experiment with different prices. His product was new on the market and he didn't know what price to set. By asking potential customers, he realized that different customers would be willing to pay different prices. As a result, he adapted his business model to take this factor into consideration," explains Neva.
Implementing pilot projects
The second option to test a business model is to implement a pilot project that involves all of the players in the value chain from suppliers to customers or users. The goal is to create a live experiment that enables the startup to test its business model in the real world.
"One company organized an experiment in a retirement home during which nurses and retirees could use the company's device for a duration of six months. These types of tests are generally appropriate for companies that have already raised capital and can deliver a working service or product. However, in some cases, startups may also wish to invest a little more during their creation phase in order to test a prototype in real conditions," adds Neva.
Whether a startup implements small scale tests or larger pilot projects, both options can help increase visibility and legitimacy. "This can be an important tool to help convince potential investors, partners, suppliers or customers," concludes Neva.