Test and Invest
Run a cheap test, then scale only what proves itself
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 99%
Test and Invest is AppSumo's resource-allocation rule: ideas can be tried, but they must earn larger investment through a fast, inexpensive test. Begin with a clear hypothesis and success signal, then run the smallest version that can produce useful customer or revenue evidence. If it fails, stop or revise it without exposing the wider business. If it works, invest substantially, with Kagan encouraging teams to ask how they could increase the winner tenfold rather than make a token expansion. He gives video sponsorships as an example: AppSumo sponsored a video, observed strong revenue, repeated the test, and eventually built a five-person team around the channel. He contrasts this with expanding AppSumo's marketplace from 600 to 13,000 products without testing or listening to customers, a decision he says took years to unwind and recover from.
Origin
Kagan presents Test and Invest as an AppSumo operating value and contrasts a successful video-sponsorship test with an untested marketplace expansion. Extracted from The Foundr Podcast.
Core principles
- 01Earn investment with a small test
- 02Define success through observed response
- 03Scale winners materially rather than incrementally
- 04Keep customer feedback inside the decision loop
How to run it
- 1
State the hypothesis
Write what you expect the idea to change and for whom. Choose a measurable customer or business response that would support the claim.
Watch out A test without a success signal can be rationalised after the fact.
- 2
Design the minimum test
Create the quickest and cheapest version that can produce useful evidence. Limit spend, scope, and exposure while preserving the core proposition.
Pro tip Use one channel, customer group, or product slice first.
- 3
Read the response
Measure the chosen signal and gather direct customer feedback. Separate evidence from the team's attachment to the idea.
Watch out Internal confidence is not a substitute for customer response.
- 4
Stop or invest
End or revise an unsuccessful test. When the evidence is strong, assign meaningful resources and ask what tenfold expansion would require.
Pro tip Scale the proven mechanism, not every detail of the pilot.
Watch out Scaling too early multiplies both cost and customer harm.
- 5
Retest at scale
Continue measuring economics and customer response as the investment grows. A successful small test is evidence, not permanent immunity from review.
In the wild
AppSumo sponsored one video and saw strong revenue. The company tested the approach several more times, then built a five-person team to operate video sponsorships.
→ A limited channel experiment earned a much larger resource commitment.
Kagan expanded AppSumo's marketplace from about 600 products to 13,000 without talking to customers or following the Test and Invest rule. He says customers were angry, the team had opposed the idea, and recovery took substantial time.
→ The untested expansion damaged the business and had to be reversed.
Common mistakes
Doubling down before testing
Large commitments magnify a weak assumption. Limit the first exposure and require observed evidence.
Scaling by half measures
Once a channel clearly works, a tiny increase may leave most of the opportunity unused. Examine what a material expansion requires.
Ignoring customer objections
Internal enthusiasm cannot override direct customer feedback. Keep customer response in both the test and scale decisions.
Is it for you?
Best for
It is best for marketing, product, and channel decisions that can be tested at limited scale.
Not ideal for
It is not ideal when a tiny test cannot represent the real outcome or when failure would still be irreversible.
From the transcript
“people can pretty much do 31 00 whatever they want but they have to test it first”
“If it works, how do we double down on it, 10x it or whatever that is?”
From the episode
498: He Lost Millions in Facebook Stock Then Built a $300M Tech Company
Noah Kagan