Before starting a new business it is wise to validate your business idea. Validating your idea will save you a fortune, both in time and money.
So what does it mean to validate your idea?
In plain English, validation means testing your idea. There are certain indicators your idea must meet if it is to be successful. To validate your idea, you will test it in the marketplace to ensure it will be able to attract customers, generate revenue and grow.
If you validate your idea properly you will know whether it has merit before you spend your valuable time and money trying to bring your new business to life.
Validating your idea does not guarantee your new business will be a success, but it will help you move down the right path when starting a new business.
A Process to Follow
When starting a business, or when advising my clients on their new business ventures, I like to ask myself the following questions.
Who is my ideal customer?
Where will I find them?
What need am I meeting or what value am I bringing to the marketplace?
How does my idea/product meet that need or provide that value?
How much would people be willing to pay for this service?
What might stop someone from purchasing my product or service?
The answers to these questions help you to identify any flaws in the proposed business idea. If you don’t know who your ideal customer is, how are you going to find them? Without a plan to acquire customers your business cannot succeed.
A product can be a great product but still not make a viable business if there is no demand for a product. This is often the case when businesses cannot bring their product to market at a competitive price point.
Knowing what people are willing to pay for your product will help you understand how many units you need to sell to break even, and then make a profit.
To break-even means to reach a point in the business venture when the revenue equals the costs. Businesses that cannot reach this point will not survive. The quicker you can reach this point, the more viable and healthy the business venture may be. Ensure you know where this point will be when starting a business. Formulate a plan that will help you reach it as soon as possible.
Testing Your Idea in the Market
Once you have asked these basic questions to yourself, you should move into the marketplace and ask the same questions again. It is easy to get so caught up in what you believe to be a good idea, that you miss the potential flaws. Testing your idea in the marketplace helps you find the truth.
Be careful when seeking market validation. You will need to avoid relying on the opinions of those closest to you (family/friends etc. as these opinions are often skewed by personal feelings). Starting a business based solely on these biased opinions can result in you wasting your time pursuing a dead end. This time could instead be put to better use pursuing an idea that has merit.
Options for Market Testing
Search Engines
Before starting a business, search extensively using Google, Facebook and other platforms to see if a comparable product already exists. If they do you will have some indication that there is market demand for the product. You can also use these platforms to identify the strengths and weaknesses of existing competitors. If you take the time to read through customer reviews you can learn what customer expectations are in relation to your proposed ideas. Lastly you can find out what prices are currently being charged.
One-on-one Testing
Go into the marketplace and find potential customers (as you identified in step 1 above). Ask them the questions and see what they have to say. Needless to say when doing one-on-one testing you will want to speak with many people. The more people you speak with the more valid and accurate your results will be.
Related Businesses
Talk to related businesses who might benefit from the products or services you are offering. If they are already dealing with someone in your niche, ask what you would need to do in order to provide better value. This will give you a benchmark you will need to beat.
These related businesses can also become valuable sources of new clients, so ensure you are spending time to cultivate the relationship.
Social Media
Social Media is a priceless venue for idea validation when starting a business. People are glued to their devices and only to eager to share their thoughts, ideas, opinions and recommendations. There are a number of ways you can harness social media to validate your ideas.
Use Facebook and run a lead generation ad. This will not only help you validate your idea but will also produce an email list you can market your product to later. It will also help you understand how much cost will be associated with each customer acquisition.
Use groups to test your idea and gain valuable feedback and insight. Groups exist on almost every topic or niche under the sun. Make sure you follow the rules in groups that you do not administer/run otherwise you will be removed and your online reputation may be damaged.
You can and should form your own group and start building your following.
- Posting content. Multi-million dollar businesses have been started, validated and fueled by social media. Facebook isn’t the only option, if your product is a visual one, Pinterest might be another valuable option.
Take Pre-orders
You will be amazed how many businesses or products have been sold before they were finished. If there is demand for your products and services you can construct a prototype and begin to take pre-orders. This is an incredibly valuable route for market validation. If you can sell it before it exists you can certainly still sell it once you have finished it.
Crowdfunding
Crowdfunding using platforms like Kickstarter are an exciting platform for idea validation when starting a new business. Our society has really begun to embrace these alternative sources for funding new business ventures. Crowdfunding is a particularly useful venue for idea validation as you can both validate your idea and raise revenue to fund it at the same time.
Where to from here?
Once you have taken the steps listed above, you will have enough data to decide if your idea has merit.
If your idea met with a positive reception and you were able to gather data of potential customers who would buy it, then you know your idea has potential.
Remember someone liking your idea is not the same as someone being willing to buy the finished project.
Now that your idea has been validated, you are ready to kick-off your new business. Effective planning will help you start, grow and expand your new business.
Our next article will deal entirely with what bases you need to cover in the planning stage to maximize your businesses potential.
You can grab our free business blueprint at our website (www.beatingbusiness.com). It will guide you through the entire process from humble beginnings to enduring success.
Author: Samuel Stokes CPA, B.Bus
About the Author:
Samuel Stokes is an Accountant and Business Advisor who has been helping businesses succeed since 2005. He holds a Bachelor's degree in business, is a current Tax Agent and a member of the Certified Public Accountants. He is also a USA Today Bestselling Author.