This is also where AP Business starts to feel like building something. The validation steps here come back in the Business Canvas Project, so it pays to understand them now.
The key ideas
Entrepreneurs and where ideas come from
An entrepreneur is a person who develops a new business and takes on its risks and potential rewards. Existing companies come up with new products too, using the same methods.
There are three ways to find an idea. Watch, interview and survey likely customers to spot needs. Do market and technical research to find gaps in what is on offer. Build new skills by experimenting.
A student notices classmates at the climbing gym keep dropping their chalk bags and asks twenty climbers what annoys them most, which is observing and interviewing. Market research would check whether other brands already solve it. Technical research would test whether a magnetic clasp survives chalk dust. The adhesive behind Post-it notes came from experimenting with a glue that did not stick well, until someone found a use for it.
Why launching a product is risky
A new product needs financial resources (money and credit), physical resources (equipment, materials, space), and human resources (people and their time). All of them cost something, and nothing guarantees that revenue will cover the costs or produce a profit. That chance of not getting the money back is the risk.
A food truck owner needs the truck, a kitchen permit, ingredients, and a cook. She pays for all of it before selling a single taco, and a slow few weeks can still end in a loss.
Why people take the risk anyway
People start businesses for three main reasons: the chance of profit later, the satisfaction of solving a problem, and the chance to follow a passion. All three are valid, so read the scenario to see which one it supports.
A founder building a budgeting app for teens hopes to build a profitable company. A teacher starts a free tutoring service because she hates seeing students struggle alone. A chef opens a ramen shop because she loves ramen.
The design-thinking process
Entrepreneurs follow a sequence. First they observe, interview, or survey customers to identify a problem. Then they validate it by gathering evidence that the problem exists, can be described clearly, and is felt by several potential customers rather than one person.
Next they develop a possible solution by brainstorming, sketching, and prototyping. Last, they test a minimum viable product, or MVP, which is the simplest version of the idea with only its core features. An MVP can be a sketch, a written description, or a model. The goal is to learn cheaply before committing real money.
A student hears three friends complain about splitting dinner bills. She surveys thirty more students and finds most share the frustration, which validates the problem. She sketches two app layouts, then shows paper mockups of three screens to ten classmates. The mockups are her MVP. Dropbox did something similar by releasing a short demo video before the full product was built, and the signups showed people wanted it.
Key terms
- Entrepreneur
- a person who develops a new business and takes on the risks and potential rewards.
- Market research
- gathering information about customers and competitors to find a gap or opportunity.
- Technical research
- investigating whether a product idea can actually be built with available materials and methods.
- Financial, physical, and human resources
- money and credit; equipment, materials, and space; and the people and labor a business needs.
- Risk
- the chance that the resources spent bringing a product to market are not recovered through revenue or profit.
- Validation
- proof that several real people share the same problem and describe it the same way.
- Prototype
- an early, rough version of a solution used to explore or test an idea.
- Minimum viable product (MVP)
- the simplest version of a product idea, with only core features, used to get feedback.