How to validate ideas and build new businesses

Innovation is at the core of most successful German Mittelstand companies. However, many of those companies lay their focus on improving their core offerings as opposed to looking into business model innovation. With an R&D budget way above the German average, they traditionally are still hesitant to invest heavily into developing new business models. 

Nevertheless, this trend is clearly changing. At the moment, we observe more and more Mittelstand companies launching new digital business models. Some of them become very successful, others fail. Management's main job in this process is to identify good ideas, validate them quickly, and eventually turn them into viable businesses.

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‍Overview and Framework

At wattx, we usually start with a small team and follow a clear step-by-step approach in order to robustly validate our ideas. There are several frameworks that can be applied to structure both the idea validation as well as the venture building process. Of all the frameworks out there, we have settled on the Double Diamond (see below) as it has proven to be best applicable to our projects in practice. The Double Diamond is characterized by its ‘divergent’ and ‘convergent’ thinking: In the beginning, many ideas are generated through extensive research, before refining and narrowing them down to the best ones. This process is repeating itself twice in this model - firstly, to validate the problem definition with actual users and, secondly, to create the best solution for the identified problem area.

During the process of actually building the solution, it is important to always test and improve the product upon receiving feedback. We do this by following the Lean Startup methodology of Build-Measure-Learn. 

However, more important than a sophisticated process is the proper execution of the project, a dedicated and committed team working on it, and the courage to make mistakes. In the following, the four required phases, as depicted in the illustration above, are explained in further detail by providing concrete examples of what needs to be done in each.

In the beginning, it is necessary to learn more about the general field of interest and identify problems that are worth solving. This phase usually starts with some simple desk research which should be focused on the intended user and on general market trends. 

Once a general understanding is created, user interviews should be conducted. We suggest talking to at least 5 users per identified target group in order to get a detailed understanding of what problems and pains they encounter in their day to day. It is important to ask open, unbiased questions and let the interviewee talk as much as possible. 

After having conducted desk and user research, you should now be able to describe the problem(s) faced by the industry.