How do you know you have a good business idea?
I’ve been working with Nakuru Youth with Disability in Action for over a month now. Based in Mwonga, a rural residential suburb of Nakuru, the group has decided to start a Computer College to raise computer literacy in their local community. The Computer College will be tailored towards those who normally don’t have access to IT education (the unemployed, the disabled, and stay at home mothers), with accommodated spaces for the disabled, low tuition fees and a playing area for children.
While this initiative would undoubtedly be a constructive community project, I was skeptical on whether it could be a viable business. Not only are the targeted customer groups struggling financially but we also had doubts on how many disabled and unemployed actually lived in the village. Up until this point, we relied on the word of the group. According to them, there was a high demand for a computer college in the area.
However, we needed more rigorous evidence of customer demand than word of mouth. It is easy for someone to say they would be “interested” in a computer college, but what does this really mean? This gives us no accurate estimate of how many people will be at the door on the day of the launch (in one month’s time) and how much each of these people will be willing to pay for the service. In short, we needed a way to filter out the talkers from those who would actually pay.
Therefore, we decided to create a sign up list for those who wished to reserve a subscription for the computer college. The prospective student of the college would simply write their name, phone number and give a down payment of 50 kenyan shillings (knowing the full tuition fee would be 2000 shillings). A week later, the group came back with 20 people signed up and 1000 ksh in hand. When I asked the group why they stopped at 20 (according to them, there was about 70 people interested in the college), they told me that many people did not want to pay money for a subscription to a computer college that currently owned no computers.
The 20 signatures that the group did manage to get were obtained purely out of trust; one thousand Kenyan shillings of customer validation out of thin air, with no prior start-up capital. This was a testament not only to the group’s reputation in the community but also to just how much the villagers actually desired a computer college. Fifty shillings is worth a lunch in Kenya. To forgo this amount in a situation of deprivation for the prospect of a computer college in a month’s time shows not only lofty hope but also a real desire to sacrifice time and money to attain knowledge in IT.
This kind of customer validation, where money is actually handed over is so crucial to have before investing in a business. Up until that point, the customer base is only a projection; overinflated (or underestimated) by the assumption of the entrepreneur and the impulsive responses of the interviewees. You don’t always need a fully fleshed out prototype to do this either. Sometimes it’s as simple as a sign up sheet.