What happens after the napkin test?
Last week I mentioned that I use the napkin test to flush out any bad business ideas immediately.
Although it sounds like a joke, I promise you that it will be one of the most valuable tools you use. If I would have used it from the very beginning, right when I graduated pharmacy school, it probably would have saved me $80,000 or more in bad business investments.
So don't laugh. It works.
Now let's move to the next step. What happens if the numbers on the back of the napkin look great, and by great, I mean a low break-even point and a nice profit at the end of each year?
Well most of us, including myself when I first started, would jump right in - setting up the LLC, getting our loan docs ready, talking to a real estate agent, etc.
However, after a few dismal failures, I've become a little wiser and added another tool to test my business ideas. I call it the "faux show."
Essentially you're trying to gauge interest by making it appear you're opening soon. Done correctly, you'll know within a week or two of testing if it hits a sweet spot in the market. If you hear crickets or get some generic feedback like "cool, sounds nice," you may want to hold off or go back to the drawing board and pivot.
It's one thing to have great numbers on the back of a napkin. It's another thing to have great numbers in your bank account month after month after month once you open. This second tool helps improve your chances of the projected numbers becoming real numbers.
Let's see it in action....
About 9 years ago I was considering opening a laundry service for students at SIUE called The Campus Clothesline. The numbers on the back of the napkin looked good. Being out of college just a few years, I also knew this was a particular pain point for most college kids. NO ONE liked waiting in the laundromat for their clothes to get done. I just didn't know if they'd pay what I'd charge for it.
So instead of dropping $65,000 to get it started, I used the "faux show" tool. I spent about $150 on Facebook ads, targeted SIUE students, and essentially said, "Here's what I'm planning on doing at this price point. Put your email address here if you want to be one of the first 100 students to get access to the Campus Clothesline." It took me 20 minutes to set up the ads and squeeze page.
The response was fantastic. In fact, someone working at the student paper saw the ad, emailed me, and I got an article in the student paper for free. Unfortunately, I had trouble finding a location to lease that was close enough to campus to make it cost-effective, and I never got around to opening it up. By the time I found a location, I was too deep into the gym business to pursue it so I put it on my idea shelf for another day.
Using it in the fitness biz
If you're interested in opening a gym and the napkin is looking good, you can do the very same thing. Set up a Facebook page for your potential gym, create a squeeze page, and then start running $100 worth of Facebook ads in that community to see what the response is. Within a week you'll know whether there is a big enough interest in your gym to make it worth your while.
And if there is, you can really up your marketing game. Once you have the lease signed, equipment ordered, and are about a month away from opening, run another ad. This time, instead of collecting emails, your goal is to make a pre-sale. Offer a big discount, 25% off the membership price, for the first 25, 50, or even 100 members that sign up for a year-long membership. Increase the discount to 50% if they pay all upfront.
That does 3 things.. 1) Gets you money upfront to use to finish the gym. 2) Gets you guaranteed money coming in monthly so you immediately have some cash flow. 3) Adds some social proof. People enjoy training at a popular gym. If 50 people jump on the deal, people who were on the fence will notice that and more than likely will become members, especially if you give those first members an awesome experience.
Is the napkin test and faux show foolproof?
Of course not.
However, when combined, they work really well for weeding out bad ideas.