Are You Smoke Testing Your Business?

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A Smoke Test is a fantastic tool to help you figure out if a new idea is really as great as you first thought.

Originally an engineering term, Smoke Testing denotes an initial examination of a complex system to provide some assurance that things will not catastrophically fail. After a smoke test proves that “the pipes will not leak, the keys seal properly, the circuit will not burn, or the software will not crash outright,” the team can quickly say that the assembly is ready for more stressful (and usually expensive) testing.

In the technology industry this smoke testing has come to be widely understood as a process whereby a company seeks to quickly and cheaply test the viability of and demand for a new product.  Often a company  will quickly build a ‘mock’, semi-functional website for a new product and then purchase online advertising to direct traffic to the site . This is done with the goal of simply measuring the amount of interest in the new product, without having to actually build an expensive site (or even make the product in question!). I believe The Retail Smoke Test should be one of the most important weapons in the arsenal of the modern, ‘lean’ retailer.

The Tech Example:

Let’s say imaginary technology startup, Travely.com want to create a new kind of online travel guide app, targeted at 18-30 yr old backpackers.  They believe their target market is made up of Americans traveling to Europe and, as such, they send out travel writers to review hostels, bars and sites in Barcelona, Rome, Paris and London.   They launch their app with much fanfare only to find that the Paris and Rome guides aren’t really selling at all  – and they are receiving lots of requests for the newly trendy Berlin.

They have committed the cardinal sin of lean business thinking – they have wasted time and resources to gain learning they could have come by much more cheaply and quickly.

The Smoke Test :

Let’s say Travely.com survive their early mistake – their guides are popular enough to convince their backers to invest a little more and they decide to expand their coverage to SE Asia.    This time, instead of jumping straight in and building the guides, they place a ‘SE Asia coming soon’ banner on the homepage of their website.  Beneath this banner is a survey listing the ten most visited destinations in South East Asia.  The survey asks users to vote for the guide they’d most like to have.  Not only that, the survey offer users the chance to buy their chosen guide for a 50% discount, if they complete a pre-order.

After only a week and the effort it took to create a simple online survey, the Travely team now have the data to confidently invest in guides to Bangkok, Bali and Hanoi.  Most importantly, they do all of this without having committed any unnecessary resources.

So, How Does this Work in Retail?

Let’s say that imaginary grocery store owner, Jane is hoping to diversify her offering by installing a coffee machine.

Jane believes that offering coffee will both make her money directly through coffee sales and help her to attract morning shoppers on their way to work, who may then buy other items.  She has thought through the numbers and understands exactly how many coffees she needs to sell each day to cover the expense of the machine.  She has even factored in maintenance and running costs.  In fact, the only thing she hasn’t factored in is if her customers want and would buy coffee from her store.   She is, quite naturally, nervous of taking the plunge (pun intended).

The Retail Smoke Test:

Imagine, instead of simply taking the risk and purchasing the machine, Jane wants to find a way of testing the demand for her product. What would this look like?

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Let’s say Jane sets up a table in her store where she thinks the machine would sit.  She puts a large jar on the table, alongside a tray full of coffee beans.  Behind the table she sets up a sign with a picture of a hot steaming coffee and a sign asking – ‘Would You Buy Coffee Here? – Place a Bean in the Jar’.  After a two week period she has seen that there are, on average, thirty beans in the jar at the end of each morning. A good indication there is a demand for the product.

She wants to take the test to the next step but rather than buying the coffee machine, she goes out and makes a deal with her supplier to provide one canteen of coffee each morning for two weeks.  She puts up a sign outside the front of her store, again with the picture of a hot, steaming coffee and a sign saying ‘Hot Coffee Now Available!’ At the price she is buying and selling this coffee she is making no profit – but, sure enough, she sells more than thirty coffees a day.  Additionally, using her point of sale system she can easily measure the overall increase in sales on all her products during the period of her coffee trial.

She now has the data she needs to confidently go out and purchase that coffee machine (or not!)

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By Jason Richelson

Founder and CEO of ShopKeep POS  

Jason has spent his career starting and growing businesses in both the technology and retail space. Click here to find out more about Jason.