How to Test a Business Idea: Step by Step

Helping Web 3 entrepeneurs to shape their business models

The Web 3 industry, despite its groundbreaking potential, faces significant challenges in creating products with robust business models. While the technology itself offers revolutionary possibilities, from decentralization to user-owned data, many ventures falter by focusing solely on the technological capabilities without addressing the practical needs of the market.

As an excersise and with the idea to help Web 3 entrepeneurs to overcome this challenge, during the 2023 LABITCONF event we focused on gathering information about the main barriers and benefits that web3 users face when dealing with this technology.

From the conclusions of that activity, we discovered:

• There is a lack of products or services that support ventures: One of the biggest barriers is the difficulty in developing web3 products and the lack of support to do so. Therefore, we believe there is a great opportunity to develop web3 products and services focused on training and development, regardless of the level of knowledge.
• There is room for the development of new businesses and products: Web3 technology is revolutionizing the way people and companies interact, offering a great opportunity for the development of new businesses and products. It is changing how we think about business and offers new opportunities to innovate in business models that leverage decentralization, user data ownership, and the creation of decentralized applications.

With this in mind, and considering the current reality linked to the oversupply of similar products without a differential value proposition, for the 2023 edition, we worked on an activity that continues the work done the previous year and adds value to the ecosystem. We took into account these three points:

1. The lack of services that support ventures
2. The possibility blockchain offers to innovate in business models
3. The oversupply of similar products

Based on that, we created a business model that covers these three needs → a web3 startup incubator, whose goal was to show how business hypotheses can be validated before building something that no one needs, using a concrete example.

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How to Test a Business Idea: Step by Step

Initially, good and bad ideas look exactly the same. Continuing down that path without distinguishing them can lead us to build something that no one needs. That's why, before using resources and time to implement an idea, we first need to validate it.

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Organize

A business model describes the basis on which a company creates, provides, and captures value. So the first step is to detail all the necessary aspects for the idea to work. At Paisanos, we use the Business Model Canvas tool for this.

The BMC is a tool that allows you to visualize your business model comprehensively according to three main parts:

• If it meets a real need or desire of a group of people
• If it can be built
• If it is economically viable

At this stage, we have no evidence to support our business model and its validity, so the Business Model Canvas allows us to extract the main hypotheses of our business idea based on desirability, feasibility, and economic viability so that we can clearly visualize the assumptions we need to test.

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Prioritize

To be strategic in validating our business model, it is key to segment the hypotheses and understand which ones are more important. The second step is to use a prioritization matrix that allows us to understand which assumptions are most relevant and those we have less evidence to confirm or not that we are on the right track when validating our business model.

Experiment

Now we come to the practical stage. Experimentation is a method where controlled, planned, and systematic tests are conducted to evaluate how certain changes or actions affect the project's outcomes or goals. In other words, it is about failing fast and cheaply, testing different paths to find the best one for the success of our business model.

Having clear what is going to be tested, the next step is to validate the previously prioritized hypotheses through different experiments, some with clearer and more reliable evidence than others. The important thing is to gather information to reduce the risks and uncertainties about the business model.

Now, having reviewed the theory, let's return to the example. At Labitconf, we conducted 4 experiments to test our web3 startup incubator model:

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1) Survey

The survey is a type of experiment that allows us to collect quantitative data to understand user preferences and needs, identify problems and areas for improvement, and make informed decisions about the design of a business.

For this instance, we used cell phones to survey people who visited our booth, telling them about the value proposition of our initiative to validate it.

Results:

Nearly half of the people surveyed were web3 entrepreneurs, one of the customer segments we were trying to validate, of which 57% believe they need support to validate or consolidate their business idea. Our key data for validating one of our hypotheses was that: 58% think the support from the web3 community is sufficient to develop their business.

Of those without experience in web3 entrepreneurship: almost 80% would be willing to pay a fixed monthly fee for access to asynchronous content and courses to help with their business idea.

Both groups, entrepreneurs and non-entrepreneurs, highlighted the following contributions of an incubator focused on web3 startups:

• Technical advice
• Legal and accounting support
• Access to financing
• Network of contacts
• Technical personnel

92% would be willing to pay for this incubator, 56% of these would do so through an agreement to develop the project with Paisanos after closing the first investment round, and the other 44% through an equity percentage of the project.

Conclusions

With this survey, we validated:

• Economic viability: The vast majority of those who want to develop a business idea are willing to pay for a program that supports the development of their startup with expert mentors and specialists in different areas.
• Desirability: 42% of entrepreneurs and 80% of those who want to start entrepreneurship believe they need help outside the web3 community to develop their initiatives.

💡 With this data, we can take a first step towards the economic viability of our business model. In terms of desirability, we were able to corroborate - at this initial stage - that most new entrepreneurs are interested in getting help for their initiatives.

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2) Interview with web3 entrepreneurs

The interview is a type of qualitative experiment that allows us to gain a deep understanding of user experiences and needs, obtaining first-hand insights. Based on the hypotheses to be validated, we asked the following questions:

• Hypothesis: Web3 entrepreneurs prefer to work with the community in the field, not in an incubation program.
  • Question: Do you think web3 project entrepreneurs need expert industry support to succeed in their businesses? Why?
• Hypothesis: Entrepreneurs do not join programs that work on the blockchain unless there is an industry expert in the same.
  • Question: Would you value the participation of blockchain world leaders and experts in an incubation program? Why?
• Hypothesis: Web3 entrepreneurs lack advice on how to approach businesses in their industry.
  • Question: What resources or sources of information do you currently use to stay updated on ways to create and scale businesses on the blockchain?
• Hypothesis: Web3 project entrepreneurs do not need specific training on blockchain.
  • Question: Do you know of a web3 specialized incubation program? What factors would influence your decision to join or not join such a program?

Results:

Interviews with web3 entrepreneurs:

• All interviewees agreed on the need for support when undertaking a project.
• All interviewees valued the presence of leaders in the incubation program.
• The most used source of information is Twitter, although entrepreneurs also use blogs and streaming channels to stay updated.
• The prestige of who provides the training or resources and the payment method are decisive points for joining or not joining an incubation program.

Conclusions

• Hypothesis: Web3 entrepreneurs prefer to work with the community in the field, not in an incubation program → Incorrect. Entrepreneurs agree that an incubation program is essential as it provides support and training from industry leaders.
• Hypothesis: Entrepreneurs do not join programs that work on the blockchain unless there is an industry expert in the same → Correct.
• Hypothesis: Web3 entrepreneurs lack advice on how to approach businesses in their industry → Correct.
• Hypothesis: Web3 project entrepreneurs do not need specific training on blockchain → Incorrect. Many agree on the need for support as long as the incubation does not financially harm the startup.

💡 Through this experiment, we can conclude that Web3 entrepreneurs need and seek specific support and training in their businesses, confirming another instance to validate the desirability of our initiative.

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3) Sticker Voting

Voting is a quick and massive experimentation tool that allows us to gather information about user opinions and preferences.

• Hypothesis: Users with blockchain knowledge prefer projects related to that technology.
  • Question: On a scale of 1 to 5, how much would you prefer to get involved in projects related to blockchain compared to other projects? (1 = Not at all, 5 = Very much)
• Hypothesis: It is very difficult to obtain information to educate oneself in Web3.
  • Question: On a scale of 1 to 5, how accessible do you consider the existing information on how to create and scale web3 business? (1 = Not accessible at all, 5 = Very accessible)
• Hypothesis: Users without entrepreneurial experience would value an incubation program with comprehensive support to validate their businesses.
  • Question: On a scale of 1 to 5, how much would you value an incubation program that offers comprehensive support to validate your business? (1 = Not at all, 5 = Very much)

Results:

57 people participated as follows:

• 25 prefer blockchain technology when getting involved in projects.
• 40 consider access to information regarding web3 to be not very accessible.
• 39 would value an incubation program.

Conclusions

• Hypothesis: Users with blockchain knowledge prefer projects related to that technology → Correct.
• Hypothesis: It is very difficult to obtain information to educate oneself in Web3 → Correct.
• Hypothesis: Users without entrepreneurial experience would value an incubation program with comprehensive support to validate their businesses → Correct.

💡 This activity allowed us to see the large number of people who find it difficult to educate themselves and seek information related to Web 3, confirming the user's need for a clearer and more accessible source. Additionally, the idea of an incubator was something that many found interesting and valuable, thus validating the desire of users for support like the one we proposed.

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4) Spontaneous Enrollment

Early adopters are a specific group of users who are the first to try and adopt a new idea, product, or service. They are individuals or companies willing to take risks by adopting early innovations and are motivated by the desire to gain exclusive benefits, competitive advantages, or simply the excitement of trying something new.

To validate how many people were concretely willing to join our value proposition, we designed an experiment where our target customers would proactively take the initiative and complete an action. We conducted this experiment through a QR code with a call to action to join our initiative.

Results:

Eight people signed up for the incubation program directly and proactively, which gives us the opportunity to continue gathering feedback, validating hypotheses, iterating our business model, and growing our project.

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Final Conclusion

In just two days, we were able to quickly and cheaply understand which key points of our business model were validated and which were not, all without the effort of developing a single line of code or investing large amounts of time and money. We reduced risks and interacted firsthand with our customer segment.

The results we obtained in this edition of Labitconf 2023, in our dynamic of experimentation and validation of web3 business models, support the idea that a web3 startup incubator with an educational focus is viable and desired in the market.

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Next Steps

Now we must take advantage of these insights to refine the proposal and scale the project with a focus on the needs and desires of web3 entrepreneurs. It is very important to keep in mind that, despite the valuable information these early validations provide, these are only the first steps to take. The journey to bring our business to life is just beginning 💡.