One lesser-known struggle of being an entrepreneur is having a long list of business ideas and not knowing which one to pursue. To be successful, you must know how to validate your business idea so that you don’t go chasing after every new idea or shiny object. So how can you test your business idea to know if it’s a good one?
Generating ideas is easy but determining whether or not it’s worth pursuing is another story. Your goal as an entrepreneur is to invest in processes or things that are profitable and worthwhile. You don’t want to spend your limited time and money on something that won’t yield results.
So, if you have a business idea that needs evaluating, I’ve created this step-by-step guide for you.
8 steps to validate your business idea
1. Identify your main goal
To succeed, you must identify your main goal and figure out whether it’s something people are interested in. This is the first thing you must do. Ask yourself these questions:
- What do I want to achieve?
- Why do I want to accomplish this?
- What steps am I going to take to reach my goal?
Be as specific as you can when defining your goal. For example, if you want to start an online store, specify what products you will sell, which e-commerce platform you will use, and the people you will market to.
This helps you plan your steps, determine how profitable your business is, and develop an effective marketing strategy that leads to higher conversions.
2. Identify your target market
This is the next step in your validation process. What problem does your business solve? Define your target audience and identify their needs and most common challenges. Make sure your business solves at least one problem for them. If your product idea does not solve any existing problem, you may have difficulty getting customers or making sales.
Consider your main offer and find out who will be interested in it. Remember that you’re selling to real people. For example, if you want to start a clothing store and sell baby clothes, target new moms and moms-to-be.
Find out the social media platforms they prefer and the online marketplaces they do most of their shopping on. Use social media platforms to connect with them. Listen to the questions they ask, the words they use, the things they complain about. Find out what they think about your business idea and the solution you’re offering.
You can also target people based on interests, demographic data, spending habits, location, and so on. Once you define your audience and identify common challenges, offer practical solutions to build long-term relationships and ensure business growth.
3. Conduct market research
Conduct market research to find out if people are interested in your offer. Ask yourself these questions:
- Is there a market demand for this particular product or service?
- Who is interested in what I want to sell?
- What is the most effective way to reach them?
Run keyword research on Ubersuggest, KWFinder, or Ahrefs to identify high-ranking keywords and know what people are searching for. For the best results, think about the phrases that your target audience would search for. You can also research words related to your industry, niche, or offer.
Here’s a detailed guide on how to do keyword research.
If people are searching for products or services related to your niche, you are on the right track. If not, continue searching for different keywords relevant to your niche until you find what you are looking for.
If you still fail to see the desired results stick, you may need to re-define your goal, and this time make sure it solves a specific and identified need.
Next, visit top social media platforms like Facebook, Instagram, and Twitter. Practice social listening or study relevant conversations to find out what your target audience is interested in. This is easier if you already offer a specific service or product. Simply go through comments, inquiries, and reviews to find out what prospects need, then ask yourself whether or not your business idea can cater to those needs.
Reach out to existing customers, prospects, and followers. Tell them your plan and ask them to share their honest opinion. For example, if you want to start an online course but aren’t sure whether people will be interested or not, reach out to your existing community or post on Quora or Reddit. Talk about what you want to do, highlight a few things that people will benefit from it, and ask your audience if they’ll be interested in it.
If you get more positive responses than negative ones, you are on the right path. If 30 percent of people say they are interested and 70 percent say they aren’t, improve your idea. Add more value and extra benefits or come up with another way to make your offer more attractive.
Once you confirm that there is a need for your product or service, move on to the next step.
4. Do a SWOT analysis
Implement a SWOT analysis to weigh associated risks, assess your current standpoint, and develop a strategic plan. A SWOT analysis is a method used to determine your strengths, weaknesses, opportunities, and threats. It helps you understand where you are and direct you to where you desire to be. It’s a great way to measure and know your strong points and weaknesses.
Consider your strengths as an organization or individual if you are a solopreneur. Answer these questions:
- What are you good at?
- How is it connected to the idea you want to execute?
- What are the benefits of launching this business idea?
- How is it going to benefit your customers? List at least 3 advantages of starting the business and 5 things prospects will benefit from it.
Next, consider your weaknesses. What are they, and what can you do to overcome them? Do you lack financial resources? Or you don’t have the right team to see the project off the ground? Identify your area of restraint and come up with a way to get past it.
For example, if you don’t have enough capital, look for investors or raise the money on your own. You could also consider pre-selling your product. If you lack talent within your team, hire more people or upskill your existing employees.
Also, consider the opportunities that come with executing your idea. What closed doors could it open for you? How will it impact your organization? And do the benefits outweigh the risks? If so, stick to your idea.
Think about the threats or potential drawbacks. What are some of the things that can hinder your progress and keep you from your goal? Is it the competition? Or other external factors? List all potential threats and think of practical ways to overcome, avoid, or lessen their impact.
5. Study your competition
Next, study your competition. Are there other businesses offering your specific service or product? Are they making sales? If yes, then your idea is worth executing because there are people who are already interested in your offer.
Identify your top 5 competitors and analyze their business strategies.
- What are their main offers?
- How are they different or similar to yours?
- How does the competition attract prospects?
- What sets them apart from the others?
Congested markets mean great opportunities, but they also indicate a higher level of competition. So, come up with creative ways to stand apart from the crowd and outshine your competitors.
First, decide how you are going to enter and dominate the market. Are you offering the same product or service as the competition? If so, how will you attract prospects and get them to prefer your business over the competition?
Visit competitor profiles and analyze their strategy. Go to their websites to learn more about them. Find out how long they have been in business, the kind of services they offer, their target audience, and marketing tactics. What are they doing right? And Where are they lacking?
Learn from them and implement what works into your strategy. Identify areas that need improvement and create a better offer to gain a competitive edge.
If you want to offer extra value, expand your market reach, and tap into an uncontested market space, you must do your research. Identify at least one problem that your competition isn’t solving and create your business around that.
What common problem or challenge does your target audience have? And why is the competition failing to provide a solution? Is it because they haven’t noticed the need? Or It’s because they don’t have a similar solution to offer?
Study the problem and solution you want to offer to determine whether or not it’s worth pursuing. It could be your opportunity to outshine the competition.
6. Identify your unique value proposition
The only way to succeed is to identify your value proposition.
- What sets you apart from the competition?
- What do you have to offer that the competition isn’t?
- Does your idea provide the ultimate solution?
Your idea must offer a must-have solution that the competition isn’t offering. Alternatively, you could cater to a niche that your competition may have overlooked.
How does your product or service make your customers’ lives easier?
- Does it address an urgent need?
- Does it help them save time?
- Does it make their jobs easier?
- Or maybe it helps them stand out from the crowd and increase their own sales.
Make sure you identify at least one important thing to your target audience and figure out how your idea can provide the best solution.
Let’s say you want to start a web design agency, for example. The first step when evaluating your idea is to analyze the competition. Focus on the main services that your top 5 competitors offer. Are they similar to yours? If yes, look for ways to attract potential customers to your business.
Create a free service or offer a service that the competition isn’t offering. For example, if some of your competitors only offer web design, provide a one-stop solution to your clients. Offer web hosting services as well. If they have similar services to yours, offer free hosting for a year, a free domain name, or free technical support for a certain period.
Consider their pricing strategy to see how you can improve yours. For example, do you have to lower your prices to attract sales? And Can you afford to price your products or services lower?
You could decide to focus on value pricing instead and set your prices higher. If so, what additional value will your product or service bring? And how are you going to show potential customers that your offer is worth the money?
Highlight the value of your product to show prospects what they stand to benefit from choosing you over the competition.
Your value proposition will be a crucial part of your marketing message, because it will help you to attract your target audience.
Check out this detailed guide to identifying your unique selling point.
7. Create your Minimum Viable Product (MVP)
Your MVP is your Minimum Viable Product or a smaller, workable version of the product or service you want to offer. It’s a business concept from the book “The Lean Startup” by Eric Ries.
Your MVP helps you understand your idea better, know what your target audience thinks about it, and come up with effective ways to improve it.
So, build your MVP and offer it to existing customers, potential clients, or anyone who shows interest in your product or service. This is a great way to test product success and ensure that you’ll get your desired results.
Design your minimum viable product and offer it for free. For example, if you are an app developer, you might want to design an app that helps your target audience solve a specific problem. Focus on the main app features when creating the first version of your app.
For example, if you want to develop a bookkeeping app, concentrate on the essential features first and worry about the other aspects later. Make sure you have a user-friendly interface.
Focus on what the app does. For example, if it’s meant to offer a simple and convenient way to create invoices, monitor payments, and add or delete account users, make sure your first product does precisely that.
Once you develop an app that does what you want it to do, ask your existing customers and prospects to try it. Don’t worry about the colors, fonts, and other details. You can always customize those later.
Aim to design something functional that people want. Offer it for free and ask people to download it, use it, and share their feedback. Pay attention to positive and negative reviews. Use negative ones to learn and improve your product because at the end of the day it’s more about what the customer wants and less about what you want.
8. Assess your resources
Your idea will not succeed if you don’t have enough resources to implement your plans. Do you have enough talent, money, time, or other required resources?
Consider your existing team. Can you work with them to launch your idea and see it to fruition or do you need new talent? If your team members have the required expertise, work with them. If not, you can either train them or onboard new employees. Decide between hiring permanent staff and outsourcing the work to contractors.
If you are a solopreneur and don’t have enough time or the required skill, outsource the work. Look for freelancers on top freelancing sites like Upwork, Fiverr, Guru, PeoplePer Hour, and FlexJobs and work with them.
Next, consider your financial resources. Do you have enough capital to execute your idea? And what is your profit margin?
If you followed the above-mentioned steps and have enough capital to launch your idea, define your sales objectives.
- What are your expected profits?
- How much do you want to make?
Set short-term and long-term goals to ensure success. Have monthly, quarterly, and yearly goals. Know much you want to make 5-10 years from now and come up with a plan to ensure that happens.
If you don’t have the money, look for ways to raise it. You could raise the money yourself or seek investors. You can raise capital yourself by offering a new service or starting a side hustle to generate passive income.
If you choose to look for investors, make sure you get noticed by the right people. Identify at least 10 people who are already investing in businesses similar to yours and pitch your idea. Approach people who have the power to give you the assistance you need. For example, if you are approaching companies, talk to the Founder or Managing Director.
Common questions answered about how to validate your business idea
How long should it take to validate a business idea?
It can take anywhere from a few hours to months for your new business idea to be validated. The length of time it takes depends on how quickly you work and the complexity of your idea.
If you are planning to launch a startup, You may need to build a prototype or find investors. For some other businesses, idea validation may simply meaning surveying the general public with google forms, or checking out Amazon bestsellers to see whether your product idea has a high demand and low competition.
How do I validate a startup idea with zero budget?
You can validate a startup idea with zero budget by doing the following:
- Conduct a thorough market analysis and business plan.
- Create visual and text descriptions of your idea, and ask people in your network their thoughts
- Conduct a survey to find out what people want
- Test your idea with potential customers and other companies in the industry.
- If possible, find an investor who is willing to take a risk on you and your startup idea.
How can I validate my startup idea without someone stealing it?
It may be difficult to validate your business idea without sharing it with people. One way is to use a service like AngelList and look for startups that are similar to yours, and then contact those founders and ask for advice.
Another way is to get the people working with you on your idea to sign a non-disclosure agreement. However, if you’re simply pitching your idea to someone or asking for feedback and suggestions, it might not be appropriate to ask them to sign an NDA.
Is it possible to raise capital without actually selling any products or services?
Companies can raise capital by selling equity, debt, or other forms of securities. This is the process of selling off a portion of your company to investors in exchange for money. These investors will be able to make money if the company does well and lose money if the company does poorly. As a small business, you can also raise capital by pre-selling your new product. If your idea is good enough and has high demand, customers may be willing to pay and pre-order before the final product is ready.
You can also raise money by crowdfunding on platforms like Kickstarter.
Getting people to preorder or back your product is a very effective form of market validation.