How to Test Your App Idea’s Business Model

App ideas. They’re viewed as today’s golden ticket. But, as we all know the golden ticket was only the beginning of the journey for Charlie & Willy Wonka.

How do you know if your app idea can go beyond that golden ticket moment? You need to start collecting all of your ideas into a clear plan. In this article, I want to discuss 2 tools that you can use to start evaluating whether your app idea has legs or not.

Note that this is not a complete guide, yet. I will be building more articles to make it complete over time. I’ll update this page as I go.

1. Conduct a Workshop

We use workshops to put the customer first. A workshop is a face to face meeting designed to help you answer questions about who your app will be serving and clearly define its value proposition. This is the single most important part of starting up. If you are not clear on who you are serving and why they would find your app valuable then you simply don’t have a business.

You can start this process yourself, at home or in your own business. Try starting by defining “who is my ideal customer” and then “what is the job to be done” in relation to my app.

Let’s use Uber as an example.

Uber Customer Profile: City Traveller

Notice that I gave my customer profile a name, “City Traveller.” This helps in the workshopping process because I can start to attach my thinking to something concrete. Beyond a name, you’ll be wanting to define more about your ideal customer. So a “city traveller” might be defined as:

  1. Young professional (25-35).
  2. Above average annual income.
  3. Busy & time poor.
  4. Short trips to and from regular locations.

These above indicators are a great starting point, but you now need to define “what is the job to be done.” When we say “the job to be done” we mean, when a customer uses your app, what job do they have at hand? Do they have to buy groceries? Walk the dog? Quench their thirst?

All of these examples are jobs. Jobs that we as customers need to complete. Helping a customer complete a job is the primary function of business. Apps are businesses. Therefore, your app needs to provide products or services that help customers complete a job they encounter on a regular basis.

Uber assists customers who need to get from point A to B with a convenient and cost-effective service.

Now that you’ve defined your customer profile, you can use the profile as you continue throughout the workshopping process to ensure your decision making is in the best interest of your ideal customer.

2. Test Your Business Model

Let’s imagine that you’ve used your customer profile to devise a list of all the features, functions & marketing tactics you need to implement in order to create a unique value proposition for your ideal customer. Now, you’ll need to test your business model. You need to know whether the financials stack-up. You need Excel and a little market research to figure it all out.

Where do you start? Start with the inputs. Consider that your app is a set of inputs and outputs. Customers will input time and attention, data, transactions, photos, video, etc. Your app will process all of this info and produce an output, such as a delivered item to their front door, a network connections or other forms of mutated data to provide value to customers.

So when you start with the inputs, you need to consider, what do my customers want to put into the app and what will it cost me to transform these inputs into outputs. These aspects make up the underlying inputs and outputs of your business model.

Let’s continue to use Uber as an example. Uber’s input revenue generators are:

  1. Number of Customers;
  2. Average Number of Trips per Customer per Week;
  3. Average Distance of Trip per Customer; and
  4. Cost of Trip per Kilometre.

Uber’s input/output costs are:

  1. Payments made to drivers;
  2. Credit card transaction fees;
  3. Marketing/advertising fees; and
  4. Hosting/bandwidth fees.

Note that I am very aware that this is a simplification of the Uber business model and the above inputs/outputs do not constitute a complete model of the business. I am using a well-known example as a means to help people with app ideas get started modelling their own business.¬†Use these input revenue generators and input/output costs to start building a simple cashflow model in Excel and you’ll be well on your way to understanding whether your business model makes financial sense.

Summary

These two points are key in getting your app idea off the ground. They’ll give you a sound understanding and help you clearly communicate to yourself and key decision makers what your app does and why people will find it valuable. The next step is to get out into the world and test your model, speak to ideal customers and a professional app agency that can help you with design, development, marketing and everything in between. Above all else, be careful not to spend too long planning! If you spend too long planning you’ll drive yourself mad on the detail and end up never knowing whether the market covets your golden ticket as much as you did when discovering it.

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