How To Validate A Business Idea
Have you ever come up with a business idea that really excites you?
If you have, did you take action and turn your idea into reality?
Maybe you immediately went in all-guns-blazing to make things happen. You invested time, energy and money into your idea…only to find that it didn’t have a market.
Or perhaps you let that ‘eureka’ moment pass you by and did nothing. This is the most common response, one that typically stems from a lack of belief or just not knowing where to begin.
These two behaviours: diving in too fast, and doing nothing - are both costly mistakes that lead to missed opportunities and wasted resources.
In this post, you’ll learn how to validate business ideas, so that next time you have one, you’ll neither dive in too fast, nor do nothing at all. Instead, you’ll be able to assess whether there’s an opportunity worth pursuing.
What does it mean to validate a business idea?
Validation is the process of gaining evidence that suggests there’s a market for your idea. The evidence needs to give you a reasonable degree of certainty that you will be able to find paying customers. The greater the time and money needed to develop the product, the higher the level of certainty you should require before proceeding.
Think (a little) before looking to validate your idea
Before you invest time into researching and testing your idea, ask yourself a few questions:
- Do you have the skills & resources to bring your idea to life? If not, can you acquire them?
- How would you feel about working on the business for the next 5 years? Running a business requires dedication, so make sure that your heart’s in it.
- Does the business fit with your desired lifestyle? Certain businesses require unsociable working hours and tie you to a physical location.
You might be tempted to spend a long time thinking about the idea and reading entrepreneurship articles. Don’t think or read for too long. If you really want to start a business, you’re going to have to start taking action…
Step 1: Look for the product.
The easiest way to validate a product is to find that it already exists. When I have an idea, I search for it on Google and half the time I find that the product, or something similar, is already on the market. This can be discouraging, and I sometimes feel that I’m a year too late. But there’s almost always a way to compete, so don’t give up before doing further research.
The existence of successful competitors gives you certainty that there’s a market for your idea. It can be hard to know how successful your competitors are, but you can at least roughly estimate their size. You can do this by viewing the company’s site traffic using a tool like SimilarWeb, checking their social media, and Googling them to see if they’ve received investment.
Having competitors can make things harder, but it can also give you a blueprint to follow and enable you to focus on their shortcomings.
Lingoci.com, the language tutoring platform I founded, was launched a good 10 years later than several competitors. Having so much competition prevented us from scaling rapidly, but it also gave us a solid idea of what we needed to create. Lingoci isn’t unique but we’ve been able to grow steadily through finding the best tutors and marketing effectively.
Step 2: See whether people are searching to solve the problem.
Whether or not you find competitors, use Google Keyword Planner to see search volume for keywords related to your idea.
This will give you an indication of whether people have the problem your idea addresses. It will also tell you roughly how big the market is in different countries. The bigger the market, the less you need to worry about competitors.
You’ll probably want to get search volume for keywords related to your solution, as well as related to the problem that it solves. Also consider searching on Amazon as users who search there have an intent to purchase something, which isn’t always the case on Google.
Step 3: Find your target market and get feedback from the right people.
You might be tempted to skip this step because you’re fearful of rejection. But you need to separate yourself from your idea — if people don’t like your idea, don’t take it personally. Instead, recognise it as useful feedback.
You might also be tempted to start by asking for feedback from your family and friends, or a friendly entrepreneurship community like Indiehackers.com. Before you do this, consider whether these groups fit your target market. If they don’t, you need to take any feedback you receive with a big pinch of salt.
Most of your family members are unlikely to fit your target market. If your family expresses skepticism about the idea, it may come from a lack of understanding or their risk-averse attitudes.
Parents will naturally worry about your career but nowadays starting a business is less risky; startup costs are lower due to technology improvements and if you decide to go back to the jobs market, your entrepreneurial adventure will likely be admired, even if it didn’t lead to success.
Rather than relying on feedback from family and friends, think about who is likely to fit into your target market and focus on finding these people online. For example, if your target market is digital nomads, you can quickly find several Facebook Groups full of them. As well as Facebook, consider looking at forums, Quora, and competitor websites.
Once you’ve found these groups, explain your idea. A common concern here is that someone will take the idea. The reality is that this is extremely unlikely. Most ideas have been thought of by others before, and if you can execute effectively, competition should not overly concern you.
People have a low attention span online, so explain your idea in a very concise way. Don’t be pushy, just try to start a conversation. Your post could be something like this:
“I’m considering creating ____, to solve (X problem) by ____. Does anyone have this problem? Would you pay for it to be solved? Please be brutally honest as I’m trying to work out whether to go ahead with this idea.”
Consider also linking to a basic landing page that explains what your solution is and encourages visitors to join an email list. If you decide to go ahead with the project, this email list can then be used to send updates and get feedback whilst developing your product. Plus, if you launch the product, you’ll already have an engaged audience to generate your first sales.
If none of your respondents say they would pay for your product, it probably does not have a market. If they all say that they can see other people using your product but would not use it themselves, it’s still unlikely that there’s a market.
Step 4: Shadow test and/or create a Minimum Viable Product.
Research has repeatedly shown that what people say they’d do and what people actually do are two entirely different things. So, if people say that they’d pay for the product, the next step is to test whether they put their money where their mouth is.
The easiest way to do this is shadow testing: creating an offer before the product actually exists. Typically, this involves creating a basic website advertising the product and seeing if visitors sign up.
One way to shadow test is to see if visitors pre-order your product, then only process the payments if the project goes ahead. Another is to only allow visitors to start adding their name and email on the payment page, then tell them that the product is currently in development and suggest that they join your email list for updates.
Of course, to shadow test you’ll need to get a reasonable amount of traffic to your site. If your product solves a problem that people search about online, you can get targeted traffic quickly by using Google Search Ads. Just make sure that you target search terms that are very specific to your product, and set a small daily budget.
Creating an MVP — Minimal Viable Product — can be seen either as an alternative to, or the next step to, shadow testing. The MVP is the simplest product that you can create in order to solve your audience’s problem.
The aim is to build something as fast possible so that you can get feedback and decide whether to go further with the project. Just as with shadow testing, the critical feedback here is whether people purchase the product. The difference is that you’re actually building a basic version of the product, not just advertising it.
The MVP approach was popularised by Eric Ries’ Lean Startup movement. This movement has inspired a community of entrepreneurs and developers to go from idea to launch in ridiculously short time periods — sometimes as short as 24 hours. Usually, these projects turn out not to have a market — something the creators miss because they don’t first take a moment to talk to, and gain feedback from, their target audience. So don’t skip step three!
When considering whether to create an MVP, you’ll need to consider how much time and money it would require. In some cases, shadow testing may be a better option for idea validation.
At this point, a couple of questions tend to crop up:
1) What’s a good enough conversion rate?
When you shadow test or create an MVP, you’ll need to look at conversion rates to assess whether there’s a big enough market for you to go ahead. For example, is a 5% conversion rate (i.e. 5% of site visitors purchase the product) high enough to validate your idea?
Well, the answer is: maybe. It depends on what level of certainty is reasonable to you, as well as on the conversion rate you’d need to in order to sell your product and make an acceptable profit. Running these tests won’t always give you a definite answer. The more traffic you get, the more confidence you can have in your data being reliable.
2) How can I create an MVP if I don’t code?
It’s true that it’s harder to build MVPs quickly and cheaply if you’re not a developer. But in the last few years it’s become far easier for non-technical entrepreneurs to test online products. There are many software tools that allow you to build a simple website quickly with no code involved — Caard, Shopify, Squarespace, to name a few.
If it’s a more complex product, you’ll need to persuade a developer to work with you. Talented developers don’t come cheap. If you’d prefer to find someone who’s willing to work for equity, you’d better have an impressive idea, and a persuasive argument for why they should work with you.
Key points to take away:
- Don’t skip validating your idea because you’re impatient or fearful of rejection.
- Consider your level of personal fit with the business before investing time into validation.
- Step 1: Look for the product. If you find competitors, analyse whether you can compete.
- Step 2: See whether people are searching to solve the problem.
- Step 3: Get feedback from your target market (which is rarely your family and friends).
- Step 4: If people say they’d pay for the solution, shadow test and/or create an MVP. Carefully analyse whether the feedback received gives you enough certainty that your product will sell. The higher the risk (time/money) involved, the higher the level of certainty you should require before going ahead with the project.
If you enjoyed this article, you might want to check out my previous piece, which explained how to come up with business ideas, and work out whether they’re any good.
Already have a business and need help growing it? Get in touch.