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5 Surprising Ways To De-Risk Your New Idea Using Google Adwords - Part 2 of 2

In my earlier post this week, I described 2 ways you can use Google Adwords to test a new idea.  In that post I talked about testing your positioning and how your new idea stacks up against the competition.  Let me expand the concept further with 3 more aspects you can test.

Think about using Google Adwords to also test the following:

1. Pricing -- Once you have the positioning refined, you can start testing pricing assumptions.  Most entrepreneurs make a lot of assumptions about their pricing. Instead of assuming, do some high speed A|B testing and ONLY vary the price across multiple ads (keeping the refined positioning constant).  For example use the positioning copy that you wrote and tested, then write several ads along with different pricing -- e.g., "Only $9.99/mo" "Only $4.99/mo" "Only $19.99/mo". Now look for pricing trends in the click through rates.  You can also test different prices tied to different benefits to see if changing your positioning/benefits changes perceived value and what customers would be willing to pay.
2. Demand -- Will you run the ads and have "no clicks" or close to no clicks?  What will demand be like?  How quickly will you run through your ad budget?  This will help you understand if you have the positioning and pricing right, and tied to the right keywords.  It will also help you understand if you have a viable idea.
3. Cost of Customer Acquisition -- You'll learn a lot about how much you have to pay per click to get visitors to the landing page (they are NOT customers yet as they are not buying, just visiting).  It's a start.  It's not the total cost of customer acquisition (just SEM costs as of today) but if you can be clever and get people to the site for 5 cents, that's a lot different than if it costs you 50 cents or a $1.

Testing on Adwords is not perfect, but you'll usually learn a lot quickly and spend very little money.  And, you can do it before a single line of code is written, a prototype of your product is built, or you have rolled out your new service.  After Adwords testing is complete, it may be a good time to start speaking with potential customers.

Want to know more?  Some great articles on testing with Google Adwords can be found here, here, and here.

If you give the Adwords testing approach a try, please join the conversation by reporting back in the comments section with your experiences and refinements. Enjoy!

5 Surprising Ways To De-Risk Your New Idea Using Google Adwords - Part 1 of 2

I am doing work with a team on a new product / company idea.  This idea would be both consumer and business facing.   We want to test quickly the positioning and value proposition for each target customer's point of view.

Instead of doing formal focus groups or initial lengthy primary research interviews, we'll start with a more informal process that will deliver results quickly and inexpensively.  This is not perfect, but a great place to start in the de-risking process.  It's quick, easy, and capital efficient.

You too can use a similar process on a new idea you have.

Use Google Adwords to test the following aspects for each target customer.  When people click on your test ads, you can drop them to a placeholder landing page.

1. Positioning -- Put together a series of ads where you vary the positioning (e.g., key benefits or differentiators) of the new idea and see which positioning gets the most clicks.  You can quickly test various positioning concepts and instead of guessing which positioning will resonate best with the targets, let the crowd decide.  Also, you'll find out what benefits are most important to your target customers by looking at the click through rates of the different ads and seeing which rank the highest.
2. Competition -- Write a set of ads that simulate your competitors' positioning and then write a set of ads showing your positioning (highlighting your differentiators) and hopefully show solid lift based on your differentiators. If you don't see lift, you'll have to brainstorm and try to refine.  You can capture great data here to use later if pitching for investment money.

Later in the week I'll post again with 3 more uses of Google Adwords for marketing testing including testing price points, gauging market demand, and learning more about your cost of customer acquisition.  Stay tuned...

De-Risking Your Business Model: A How To Guide

I recently presented to the current crop of companies at DreamIt Ventures -- a pre-seed fund that helps great people with great ideas build great companies.  DreamIt is based in Philadelphia and is very similar to Y Combinator.

During the last few months at DreamIt, many speakers have discussed how early stage companies need to de-risk their business plans, and one of the DreamIt founders, David Bookspan, asked me if I could come in and talk about how to actually do it.  So, I put together a presentation for DreamIt with categories of risk to think about with specific checklists and "how to's" for de-risking particular classes of risk common to many types of business.  The presentation is embedded at the bottom of my blog post.

For more great reading on de-risking, Josh Kopelman of First Round Capital has 2 excellent blog posts here and here.

Thanks to Brett Berson, an awesome summer intern at First Round Capital for his quick edits and feedback as well as his comments and input he offered during the talk.

Please comment below and feel free to add your ideas on how to de-risk, and let me know if / how these techniques work for you.

Finally, don't forget to de-risk the next time you get in your car.  Wear your seat belt!  It's one heck of a value proposition! ;-)

New additions to blog post made 30 July 2008, based on a comment below from James Nelsen:

There are similar techniques to de-risking that I did not point out in my original blog post.  Thanks to James Nelsen for pointing out the Wharton technique of Discovery Driven Planning (DDP).  This is an excellent technique that you can use for de-risking and more information can be found on it here.  Another great technique is called Assumption Based Planning, and that de-risking technique can be found here.  Thanks James!

Derisking Your Business Model Dream It July 2008 V2.1

view presentation (tags: barshbiits.com sbarsh steve@barsh.com barsh.com)

Why Many Entrepreneurs "Miss The VC Boat" and What To Do About It

I am going to do this quick 15 minute presentation at Supernova 2008 on Wednesday, June 18, 2008 in San Francisco.  Here is the presentation via SlideShare.  I'll blog the details of what's behind the slides at a later date...

The point of this presentation is that over the last few months I've seen many early stage companies making the same mistakes, and these are mistakes that I don't typically see covered in the blogosphere.  So, I wanted to move the ball forward and share a few tricks/techniques that I think nearly any early stage company can use immediately.

Let me know what you think.

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