Hypothesis testing to create an online shop of used car parts

Europe’s largest e-commerce for used car parts, autodoc.eu contacted us for initial hypothesis verification that the idea of an online shop for used car parts is commercially attractive and should be explored in more depth.

How we worked on this project will be described in this case study.

3M2C framework

To begin with, let us remind you that we have an author’s framework 3M2C for such purposes, according to the first letters of the corresponding sections of the validation of the idea:

Market size)Market dynamics Marketing complexity (complexity of marketing efforts for the company) Creation complexity (complexity of product creation) Complementarity to Company.

Each of these items is scored from 0 to 20 points. And their sum means the percentage of possible success of this or that idea. The maximum possible score for an idea is 100 points. It is worth saying. That the scale of scores for each company will be individual. For example, for a small company, a market of $500 million may look huge. At the same time, for a global industrial concern with annual revenues in the billions of dollars, such a market is unlikely to be highly valued. You can read more about the framework in this article.

It is important to say that 3M2C is designed for initial validation of an idea within a few days. Then, if the idea is successful and scores a certain number of points, a more in-depth study is required.

Next, let’s go through all the sections of idea validation on the example of this online shop idea used car parts.

Market size

It is worth remembering that we are at the stage of quick initial validation of the idea. Therefore, we try to find the necessary information in open sources or purchase ready-made research. We will leave all additional research that may take a lot of time and resources for the next stage.

For the current idea, we have to consider the after-sales service market in Europe.

Its volume according to different sources is €226bn. However, it includes two main components: service and car parts directly. We are interested in the second part.

Through certain inferences, the market for used car parts was calculated. Its volume is approximately 4.5 billion euros per year.

According to the rating scale agreed with the client, this criterion was given a score of 5 out of 20.

Market dynamics

A market may be large in volume. But highly competitive and in the final stages of its development. Therefore, it is important to assess the dynamics of its growth or decline. For example,

In 2023, you are unlikely to want to invest in building a plant to produce internal combustion engines, given that this market is at its peak. And will continue to decline as electric vehicles develop.

In our case, the European auto parts market has been growing at 2% per year since 2011. The market for independent car services and parts has increased its share of the total to around 62% in 2019 from 59% in 2011.

Slower growth and fiercer competition between the two channels is expected after 2025. However, the balance of authorized and independent service models will remain roughly the same until 2030.

So what? B\y parts uses just the independent workshop channel, and such statistics say that in the long term it will maintain its market share and grow in monetary terms.

The market dynamics was rated 3 out of 20.

Marketing complexity (complexity of marketing efforts for the company)

For those who have not familiarized themselves with our 3M2C framework, let us remind you what evaluation criteria can be in this item.

• 0-5 — potential CA is not aware of the problem that can be solved by the product being developed.
• 6-10 — potential CA is aware of the problem that can be solved with the help of the product being developed, but at the moment there are no similar services/products that are already popular among the CA.
• 11-15 — potential CA is aware of the problem that can be solved by the product being developed, knows how to solve it, there are successful examples of projects on the market that solve the same problem.
• 16-20 — the same as the previous + your company is already working in this market, knows how to promote in it, has technical and marketing capabilities that can be an additional advantage.

In this case we put 18 points, because consumers are already solving the problem of searching for used car parts with the help of existing services and the client is already working on this market, but with new car parts. Looking ahead, we can say that current competitors are also superficially analyzed at this stage. For example, there is a similar project in the UK called 1st Choice Spares. But for the purposes of this article, we will omit this part of the analysis.

Creation complexity

A market can be very attractive, but making a product for it, even at the MVP stage, can be a very time-consuming and resource-intensive task.

Therefore, if it takes more than 2 years to develop a product to the MVP stage, we consider such a product to be as complex as possible to be developed by the company. Therefore, it will get from 0 to 5 points according to this criterion.

And vice versa, if the development will take up to 3 months, then this product is the most attractive in terms of the time of its implementation and initial testing, and therefore the least difficult to develop.

In this case we and the customer’s experts estimated that the MVP to test the success of this model could be done in 6 months and gave a score of 18 points out of a possible 20.

Complementarity to Company

It is crucial to create a product or service in a market you understand. For this reason, most startup accelerators specialize in certain niches. For example, a company that specializes in household chemicals is more likely to make a successful product in this area than in military ammunition.

The product under consideration is used car parts, which are part of the car parts market in which the company is already operating. Therefore, a score of 10 out of 20 was given.

Bottom line

Let’s collect all the scores given earlier and get the following list:

1. Market size — 5
2. Market dynamics — 3
3. Marketing complexity (complexity of marketing efforts for the company) — 18
4. Creation complexity (complexity of product creation) — 18
5. Complementarity to Company — 10

Total score — 54 points out of 100

Conclusion

Entrepreneurs always have a lot of ideas in their heads. And if this flow is properly organized through the verification funnel, only viable hypotheses will reach the stage of large investments. This, in turn, allows you to avoid large errors in the future by minimizing costs and, consequently, inefficient waste of resources and time. In the first stage, the initial analysis quickly filters out ideas that do not pass through the basic filter,

in our case the 3M2C framework. In the second stage, the selected ideas undergo in-depth verification. It is only at the third stage that an MVP is created to help understand the viability of the product and assess its commercial attractiveness.