Market validation – “get outside and ask customers questions”

By Peter Kerr 26/07/2012

No business plan survives the first customer contact Michael Elwood-Smith told a recent meeting of Wellington’s Lean Startup group.

Describing his presentation as a Business Model Canvas meets the Lean Startup, the Creative HQ adviser says “high growth, investable businesses need a repeatable, scalable business model.”

He combined thinking of a number of influential books over the past five years to produce this particular plan. His presentation can be seen here:

The start of this model is a search for customers – broken down to discovery and validation of those customers, with a pivot (or two or five) to discover and validate for a business’s particular offer.

The business execution comes down to customer creation and customer building.

What is most important; “it’s about the questions you’re going to ask as you go through discovery,” says Elwood-Smith. “Then it is about validating.”

He says a business model describes the rationale of how an organisation creates, delivers and captures value……..”but this is just a set of hypotheses.”

“There are no facts inside the building, so get outside,” and query people and potential customers he says.

The Business Canvas Model (see here can be used as a scorecard to track progress for such a search of a business model. This can be updated weekly as new insights are gained.

The following are a list of questions that can and should be asked Elwood-Smith says.

Customer Segments

  • Which customers and users are you serving?
  • Which jobs do they really want to get done?

Value Propositions

  • What are you offering them?
  • What is that getting done for them?
  • Do they care?


  • How does each customer segment continue to be reached?
  • Through which interaction and points?

Customer Relationship

  • What relationship are you establishing with each segment?
  • Personal?
  • Automated?
  • Acquisitive?
  • Retentive?

Revenue Streams

  • What are customers really willing to pay for?
  • How?
  • Are you generating transactional or recurring revenues?

Key Resources

  • Which resources underpin your business model?
  • Which assets are essential?

Key Activities

  • Which activities do you need to perform well in your business model?
  • What are crucial? (chuck out ones that aren’t core activities)

Key Partners

  • Which partners and suppliers leverage your model?
  • Who do you need to rely on?

Cost Structure

  • What is the resulting cost structure?
  • Which key elements driver your costs?

Elwood-Smith says this business model testing process is an opportunity to test and adapt.

It is based on the lean startup principles of building, measuring and learning, and agile sprinting within this framework.

As he commented in an aside. Building a business model on a piece of paper without going out to validate it means a new enterprise is almost certainly doomed to failure.

Only by asking people if they want something, and how much they’re going to be willing to pay for it can businesses get themselves to a scalable, repeatable size he says.