A ‘pilot program’ is an activity planned as a test or a trial. In the context of startups, a pilot is done to test the untested dynamics of the business.
In any business, especially in a startup stage, entrepreneurs have to start with certain assumptions. These assumptions could be about percentage conversations, cost of customer acquisition, repeat purchase rates, etc. They could be about processes and competencies e.g. ‘one person can handle 25 transactions in an hour’. Or the assumptions could be about the business case. E.g. We will make a gross margin of 35%. The objective of a pilot phase is to test and validate some of these assumptions, so that the final go-to-market business plan can be adjusted on the basis of validated assumptions.
Below are a few things that are tested in a concept test stage/pilot phase:
- The concept – the power of the idea itself: Do the consumers/customers see the value proposition in what you offer?
- The business model: A business model is about ‘who will pay how much and to whom’. Each element of this should be tested in the pilot phase. i.e. are the consumers/customers seeing the value proposition as you meant it to be, how much are they willing to pay – is there price sensitivity, and if so, how much.
- The assumptions for your business case: As mentioned above, list all the possible assumptions you have made in your business plan and see if there is a way to validate those in your pilot. In a pilot, some of the operational outcomes may NOT be as per your plan. However, it is expected that in the initial phase your operations will be inefficient and that cost and operational efficiencies will improve as your business matures.
- Understanding operational challenges: Entrepreneurs often tend to underestimate the operational complexities and challenges of managing a business. While startups often manage operations with a limited number of people who are stretching themselves beyond practical limits, it is often not sustainable in the long run. A long-term business case cannot be made on the basis of the enthusiasm and give-it-all commitment of the founding team. A business case has to be based on what is practical and sustainable with an average set of people managing your larger teams.
- Testing processes and operational capabilities: Processes help organizations scale up. Processes are nothing but just a set of guidelines on managing activity and handling situations. Processes are usually centrally planned and locally implemented. Processes. They reduce the dependence of individual brilliance, and instill a discipline that results in operational efficiencies and consistency of experience. It also allows individuals to be clear on how a certain activity/situation is to be handled. The quality of processes can make or break an organization. Not only should processes be implemented, but they should also be measured and evaluated periodically to ensure that inefficiencies and redundancies are eliminated. In a startup, it is critical to define some processes, but yet be flexible to adjust processes quickly as soon as you see some processes becoming bottlenecks or inefficient. It is therefore important for startups to test these in the pilot phase.