During the 6th week of our project we focused on analyzing the results of our market research, and also the first iteration of our whole project and concept. We introduced the results to our Professor Janne Halme, who gave us a few good remarks on how to move forward. Furthermore we created a new questionnaire to work as a basis for our second iteration.
This week we have:
- Had a meeting with the professor
- Planned the following iteration
- Realized that we are a Lean Startup
The Future and stuff – Monday 23.10
Last week there was some questions about the purpose and business model of our platform. So on Monday morning, we decided to clarify our targets related to that. First of all, we decided that it’s out of our scope to define the exact company form or if we are going to sell our platform to third party facilitator. In this course, we will design a concept and a monetizing model around it. Concept will work regardless the exact corporate structure. Ultimately, we plan to facilitate the platform ourselves instead of selling it to other companies, but that is not our main concern now.
On Monday, we also decided to loosely follow Lean Startup principles since it is very close to what we are doing anyway. This definition allows us to have more clear and unified view about what we are actually aiming for and how. Especially, it clarifies the definition of iteration. One iteration consists of three phases: build, measure and learn. In build phase, we make some hypothesis that we then aim to validate through customer interaction. Based on that information from customers, we then modify our hypotheses and repeat the loop. The iterations proceed from abstract problem definition into more detailed hypotheses of the optimal solution. The end goal of the process is thus to verify that we really build a product or service that solves an existing customer problem in a way that maximizes their value in every level of abstraction.
Meeting with Janne & Reflection – Friday 27.10 & Sunday 29.10
On Friday, we thought it would be only proper to let Janne H. & Janne H. have a one-on-one meeting regarding feedback on our coursework thus far. Our team member Janne Holopainen introduced what we had done, while our project supervisor Janne Halme played devil’s advocate and questioned some of the things we had done, as well as pointed out important flaws in our process so far.
Regarding our first iteration of market research, a series of physical interviews, Janne had quite a lot of feedback. In the first part of the interview, we asked the interviewees to order some aspects of investing and borrowing by importance. He pointed out that the phrasing of our interview questions was quite vague – asking things like “how important is extensive dispersion” or “how important are small loan expenses” might come across differently to different people. What we should have done is asked about the same values in a more concrete way. The importance of “small risk” and “high profit” would have meant essentially the same things, but would have been much more self-explanatory to the people being interviewed. Another piece of feedback we received was that we should have done a bit more reading up on how to conduct market research properly, and this is true: in many ways our first iteration of market research left much to be desired.
Despite all of its flaws, some important realisations surfaced from the interviews. Firstly, we realized that people are much more interested in investing their money than borrowing money, although I think we failed to get our interviewees to understand how the borrowing process would work. One other assumption we had in the start was debunked: people are not interested in “buffer-thinking”, that is, keeping their account balance at a set sum automatically by borrowing money if their balance dips below the buffer limit they have set.
On a more general note, Janne posed some important questions about our assumptions so far, and some things that we have not considered enough. For example, what would this service be classified as in legal terms? Are we a bank? An investment fund? Perhaps something more akin to an online gambling site? These are things we must dig into, and figure out how each of them would limit our possibilities and what regulatory burdens they would impose.
Another important question was “is this service actually useful for anyone”? Our first round of market research gave us confidence that the investment side of the service would have demand, but the question remains: is anyone interested in borrowing small amounts of money? This is an important question that we seek to answer with our second round of market research specifically aimed to find out the demand for microloans across several different age groups and demographics.
The last big issue that was brought up was that we didn’t have a crystal clear picture of what our profit mechanism would be. We had been thinking about just taking a set percentage of the interests in loans facilitated by our service, which seemed like the obvious way to go, but we hadn’t really done any real calculations related to that. The question opened our eyes to other possibilities as well: we could, for example, take a set percentage out of all of the profits lenders make via our service. These decisions ultimately effect things like our liquidity – if we encourage investors to withdraw their funds vs. keep them in our service makes a big difference. The coming week we aim to get some proper calculations done, so that we can objectively compare these two (and other) alternatives.
Market Research Results & Analysis
We briefly introduced the results of our Market Research 2 (N=26) in the previous blogpost, but thought it was necessary to provide a more in depth review and analysis of the results.
For investors diversifying the investment seems to be most important factor. This could be due to the reasoning that diversified investments are less risky. This is a feature that we are thinking to implement in our concept, since we’ve had the idea of a “pool”, where investors would invest their money, and from where money would be loaned to borrowers. Second important factor for investors is that investing is free and that there are no service costs.
For loan-seekers low interest rates are the most important factor. This is good news for us, since in our concept we have thought that low interest rates is one of our key assets, which we accomplish through accurate risk defining provided by data from borrowers account data. However, we are not able to offer low interest rates for everyone. Since the interest rate is personal for every customer, it will be highly dependent on each customer’s own risk estimate. This feature of price positioning of our loans will lead to that our loan offers are not appealing to everyone, but particularly for those with good financial credibility. Second and third important factors for borrowers are flexibility in loan terms during agreement and also after the loan has been taken.
When we started creating the concept, we thought that PSD2 would enable automated processes that would be beneficial for borrowers and investors. On the borrower side these processes include paying back loans automatically, when the borrower has money on their account, and also taking loan automatically when their balance is low. On investor side we thought, that investors money would be invested automatically. However, our research showed us that possible customers are not that interested in these kinds of automated processes and they are not so important.
Reflection and Analysis of First Iteration
First of all, at this point we defined the term “iteration”. The present view made us understand that this was actually already the second iteration for this course. The first was done on week 40 with the first contact with the potential customers.
Despite the over-optimistic vision of the possibilities with PSD2, we can nail this. The only difference we had to make based on the vision we had before the researches, was about the automation. It wasn’t possible to automatically transfer money without transaction, from and to a person’s bank account.
Our first two iterations have been quite successful. In our first iteration we managed to verify the existence of the problem and demand for a service to solve it. This conclusion was made in week 40 after our first market research. Our prototype was helpful in order to successfully carry out the second iteration, since it helped us approach the customers and give them some idea about our proposed solution for their problem. That helped us to gather a lot of important information about our customers’ preferences. Another very important factor that we want to point out is our fluent teamwork. Every individual member has been highly self-oriented within their time limitations, which has made it motivating for everyone to do their own part every single week.
There has been some concerns about the heterogenous of the target group of our second interview, since there were fewer loan takers than expected answering the questionnaire. We need to do at least another market research for different audience to confirm the usefulness of the platform also for the borrowers. We don’t consider this a huge problem due to the fact, that the money lenders are thought to be the more critical side of these two (after all they are the ones providing the capital for the platform). Also, the data we collected might be slightly subjective because of the form of the questions. Some of our questions were a bit ambiguous and we needed to explain them for our interviewees. That might have introduced some bias, since we can’t guarantee that our explanations were unified.
The Next Steps
Second (Third) iteration
We will continue with two iterations. During the next iteration we will do a BMC and some analysis and also some financial calculations to support our concepts ability to create value. For this iteration we are going to split into two subgroups; other subgroup will work on the BMC and the other subgroup will start doing the financial calculations. The second iteration will also include a third market research that will be done to more broad target group. Before this market research we will examine some scientific research on best practices of market researches.
At this moment our idea is that the third and last iteration will include some legal analysis on questions like would we be a bank? Is our service comparative to gambling and internet casinos? How will taxation affect our business?
Third (Fourth) iteration (and the last one)
The focus and content of this last iteration is still likely to change, since we have not yet got results from our second iteration, that can possibly change the direction of our focus.