Cases

Hypothesis verification for creating an online store for used spare parts

Europe's largest auto parts e-commerce autodoc.eu contacted us for an initial verification of the hypothesis that the idea of an online store for used auto parts is commercially attractive and should be explored in more depth. We will describe how we worked on this project in this case

3M2C framework


To begin with, we recall that for such purposes we have the author's 3M2C framework, according to the first letters of the relevant sections of the idea validation:


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


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

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

Next, let's go through all the sections of idea validation using the example of this idea of an online store
for used auto parts.

Next, let's go through all the sections of idea validation using the example of this idea of an online store for used auto parts.

Market size (market size)


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

For a current idea, we have to look at the aftermarket in Europe. According to different sources, its volume is 226 billion euros. However, it includes two main components: service and auto parts. We are interested
in the second part.

By certain conclusions, the used auto parts market was calculated. Its volume is about 4.5 billion euros
a year.

In accordance with the rating scale agreed with the client, this criterion was rated 5 out of 20.

Market dynamics (market dynamics)


The market can be large in volume, but highly competitive and is at the final stage of its development. Therefore, it is important to evaluate the dynamics of its growth or decline. For example, in 2022 you may not want to invest in building a plant to produce internal combustion engines, given that this market is at its peak and will continue to fall with the development of electric vehicles.

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

Slower growth and more intense competition between these two channels is expected after 2025. However, the balance of authorized and independent service models will remain about the same through 2030.

So what? Used spare parts uses just an independent channel of auto repair shops and such statistics show that in the long term it will maintain its market share and grow in monetary terms.


Market dynamics was rated 3 points 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 recall what evaluation criteria can be in this paragraph.

0-5 - potential target audience is not aware of the problem that can be solved with the help
of the developed product

6-10 - potential target audience 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 target audience

11-15 - potential target audience is aware of the problem that can be solved with the help of 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 one + your company is already working in this market, knows how
to promote it, has technical and marketing capabilities that can be an additional advantage

In this case, we gave 18 points, since consumers are already solving the problem of finding used auto parts using existing services and the client is already working in this market, but with new auto parts. Looking ahead, we can say that we also superficially analyze current competitors at this stage. For example, in the UK there is a similar project "1st Choice Spares". However, we will skip this part of the analysis in this article.

Creation complexity (complexity of product creation)


The 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, then we consider such a product as difficult as possible to develop by the company. Therefore, by this criterion, he will receive from
0 to 5 points.

Conversely, if the development takes up to 3 months, then this product is the most attractive in terms of the timing of its implementation and initial testing, and therefore the least difficult to develop.

In this case, we estimated with the customer's specialists that an MVP to test the success of this model can be done in 6 months and gave an estimate of 18 points out of 20 possible.

Complementarity to Company (комплиментарность к компании)


It is extremely important to create a product or service in a market that 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 in question is used auto parts that are part of the auto parts market in which the company is already active. That's why it was rated 10 out of 20.

Outcome


Let's collect all the previous ratings and get the following list:

Market size (market size) - 5
Market dynamics (market dynamics) - 3
Marketing complexity (complexity of marketing efforts for the company) - 18
Creation complexity (complexity of product creation) - 18
Complementarity to Company (complementarity to the company) - 10

Overall rating - 54 points out of 100

It was decided with the customer that ideas with more than 60 points go to the next stage, so this idea was frozen.

Summary


Entrepreneurs have a lot of ideas in their heads. And if this flow is properly ordered, passing it through the verification funnel, then only viable hypotheses will reach the stage of large investments. And this, in turn, makes it possible to avoid big mistakes in the future, and, accordingly, inefficient waste of resources and time by minimizing costs. At the first stage, the initial analysis quickly filters out ideas that do not pass through the basic filter, in our case, the 3M2C framework.

At the second stage, the selected ideas undergo in-depth verification. And only at the third stage, an MVP
is created, which will help to understand the viability of the product and evaluate its commercial attractiveness.

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