Why should you validate business idea? When you are exploring new business or product concepts it is important to test your ideas early in the development stage. Here is the ultimate guide that will lead you through the whole process when you want to validate business idea.
This is not important only for potential entrepreneurs and future startups. When it comes to existing companies, they also need to validate business idea. They will need to validate their ideas in order to analyze their potential impact on the organization’s goals.
According many researches one of the biggest reasons for business failure is the lack of a market need for their product. So, if no one wants your product or service, you can not have a business.
If you validate business idea first, you will not have reasons to scare that your new venture will fail.
As someone who works with entrepreneurial individuals, I’ve discovered that most of them have an endless source and supply of ideas. But, also most of them keep their ideas only to themselves. They are simply afraid that if anyone hears about their business ideas they will use it to create their company and their own success.
If you keep your ideas only for yourself, you cannot validate them. If you don’t validate them, you will probably fail.
But, let’s start with practical steps you will need to take in order to validate your business idea.
Business Ideas Validation Process – How to validate business idea?
You need to create your own process that you will use for the ideas validation purpose. In this guide I will use some basic process that I use with my clients. But, remember that you will need to tweak it according to your own needs. Here you will find many useful and practical information that will help you to do the work for yourself.
Let’s start by simply breaking down the whole process in three different stages:
- Market validation stage
- Idea validation stage
- Product validation stage
Don’t worry. I will explain all three stages in this post. As a first open your business ideas book, or use these 50 questions to develop a business idea, or generate business ideas that match your own skills. Maybe you have found already the gap in an established market so you can use this business idea that follow. It doesn’t matter how you find the business idea, it is important for you now to have a business idea you want to validate.
1. Market validation stage
This is the first stage of your validation process. If your idea passes this stage of the validation process, you can continue with the next stages.
The purpose of the market validation stage is to find the answers to the following important questions:
- Is there market for product as a result of your business idea?
- If there is the market, is it big enough?
- Are there on the market people who are starving for the solution of the problem your product will solve?
- Are they willing to pay for such a solution?
I will share some tools and steps you will need to take in order to find answers on these questions based on facts, not on assumptions.
1. Use Google Trends to research and validate business idea
You can start your market validation with Google Trends to see what is the trend when people search about a solution that your business idea will produce for them. Google Trends is based on Google Search and shows how often a particular search-term is entered relative to the total search-volume across various regions of the world, and in various languages.
Let’s say that our product will be based on Chia seeds. In such a case I will go to Google Trends and type in search term Chia seeds. I will get the results as showed in the picture below.
As you can see, we have a growth trend about Chia seeds according to Google Searches. You can see that according Google, in January each year is the biggest interest, while in December we have large declines in searching trend.
Congratulation, you come to an important fact when you validate business idea!
But, I want to be more specific because I want to produce Chia seed oil or Chia seed powder. So, let compare these two terms in Google Trends.
As you can see from the results, Chia seed oil is more popular than Chia seed powder. This can be an additional sign that there is a market for two products, but the market for Chia seed oil is bigger than Chia seed powder.
You can dig deeper by analyzing the interest by regions, or cities, or look at related rising queries.
Use Google Keyword Planner to research and validate your ideas
We can continue our research for market validation of our business idea to produce products from Chia seeds. Let use Google Keyword Planner tool to check some more details about our two most important keywords: Chia seed oil and Chia seed powder.
Go to Google Keyword Planner and search for new keywords using phrase, website or category.
Next, you will need to put your keywords as in the picture below and click “Get Ideas”.
The results I get for my “Chia seeds” business idea is following:
As you can see, Chia seed oil have 10 times more searches than Chia seed powder. Also, you can see that for both keywords there is a high competition. This is a great sign for our purpose, because we are in the stage of market validation. If there is not competition, maybe there is not a market for such a product. This is another fact important that tell us there is a market for Chia seed oil and powder. If you look at “suggested bid” column you can see that Chia seed oil have larger suggested bid, so companies pay more for advertising of Chia seed oil than powder. This is an additional sign that we have a market for both products.
I will continue with my research as shown in the picture below to check about other similar suggestions.
From these results I can see that there is another term closely related to my initial keyword – Chia oil. Also, something important for this stage of the validation process is that there are several results on terms containing where to buy, that additionally confirm that the niche of the Chia seeds is a good niche for our business.
Use Amazon to research and validate business ideas
You can use Amazon to check if there is a big enough market for your business idea. Why Amazon, you probably ask? Because it is similar like search engine where people search something. But, the difference is that here people search about products they want to buy.
Go to Amazon.com and type in your target keyword or niche related to your business idea into the search bar. For example, if my target keyword is “Chia seeds” I will get these results.
As we can see from the results there are interesting possible products that persons buy related to Chia seeds like Chia seed oil and Chia seeds powder. If I continue to write about Chia seed oil, I will get additional more specific products as:
- Chia seed oil for skin
- Chia seed oil capsules
- Chia seed oil supplement
So, these can be some specific type of products that my business idea will generate if it pass the validation process.
But, I will continue my research of the Amazon. I want to search different products that exist as a Chia seed oil. In the search box on Amazon I will write “Chia seed oil” in quotation marks in order to get the results of exact match with the words in quotes (see picture below).
We can see that there are many different products, related to Chia seed oil. This is another prove that we have a market for our business idea. But, let’s dig deeper.
I have sorted the results according average customer review, so the best products come first. Now it is time to work on a research.
Open products from the list one by one and look at the following sections: “about the product”, “product description”, “frequently bought together”, “customers who bought this item also bought”, “Customer Questions & Answers” and “Customer Reviews”.
Look at the about the product and write what you see there on a piece of paper, or an Excel (or Google Drive) spreadsheet. You will need this information later because you can use this copywriting of some of the best products reviewed on Amazon when you will need to design your total offer at idea validation stage. You can also analyse the package from the images section.
Next look at the product description and see how this product is described to the customers on Amazon. Again, write this information and use it when you work on the design of your offer.
When you look at the “frequently bought together” and “customers who bought this item also bought” you will need to see some other related products that you can use in the future.
Next, look at the section “Customer Questions & Answers” and read all questions and answers. If there are more questions, then this is an additional sign about the existence of the market. You will also find useful information as the biggest customer’s problems, challenges and care that you can use to develop the product when you move through the stages of the validation process.
When you look at “Customer Reviews” you can find additional information about what customers like, dislike and how the product helped them. You can also look close to lowest review ratings to see what are the complaints from the customers. Think about possible solution you can include in your product to escape such complaints.
Don’t forget to write all things that you find while you conduct this research. It will be helpful in the next stages of development of your business.
Create survey with Google Drive
Until now, you already have collected many interesting answers and analysis. So, you can go one step further to start collecting information directly from potential customers on the market. The best way to do this in the market validation stage is to use a survey.
Log in to your Google account and open Google Forms.
You can now start creating your survey using recommendations that I will share with you below.
When you use surveys for market validation purpose, you cannot use structured questions with already prepared answers that potential customers from the market will choose one or several of them. You want to validate the market, or existence of the market, the potential size of the market, existence of starving potential customers for the solution and their willingness to pay for the solution.
Your survey will be structured only in two parts that will contain several open ended questions. The first part is about the market and potential customers. With these questions, your purpose is to identify your market more accurately in order to be able to segment your audience. In this part of your survey will be questions like:
- How you can describe yourself in relation to (market, problem, solution)?
- What is your profession?
Use open ended questions in the survey when it comes to describing the problem and possible solutions.
- What is your single biggest challenge/frustration with _________?
- How you currently solve this problem?
- Do you want a solution that will solve this problem?
- How much times you will use this type of solution?
- What the solution will need to give you in order to pay for it?
- How much you will pay for the complete solution and why?
- How much you will pay for partial solution and why?
When you finish with the creation of your survey with Google Forms you can send it to the potential customers. You can send this survey on your email list if you have one. Also, if your research until now give you some potential customers contact details contact them and ask to respond to your survey.
You can also share your survey on your social media accounts, or better on the social media groups or forums that cover topic related to the product or service you want to validate.
At this stage you don’t need to have hundred thousand answers, but you will need to have enough potential customers in order to make a right decision. Depending on the product or service you are validating, and the target market the target number of answered surveys can be between 100 to 500.
If you prove that you have enough big market, with potential customers that are starving for your solution and are willing to pay you for your solution, than your business idea have passed market validation process. Now, you can continue with the next stage of the validation process.
2. Idea validation stage
In previous stage you have validated your market, and you start with this stage only if your previous market validation process proves that you have a market for your business idea, it is big enough, there are starving potential customers for your potential solution and they are willing to pay you for the solution. But, still your solution is only in your head as a possible business idea. So, you don’t have a product or a service to offer to the market and you haven’t designed or built anything yet.
At this validation stage you want to be sure that it is worth to start spending, time, money and efforts and go one step further to design and build your basic product or service.
Use a landing page for idea validation
You can simply start with the simple landing page. But, before you start building or designing your landing page, translate the features of your next product or service into customer’s benefits. Using these benefits you can easily start building your total offer. Be sure that your landing page will have:
- Your total offer with short descriptions of customer’s benefits;
- Order form, subscription form or phone number that visitors can use to take the first action on a page.
Your goal is to measure and check if there is enough interest about the problem that your business idea will solve for customers. The best way to measure the interest will be the conversion rates. You can calculate the conversion rates with following formula:
Conversion rate = The total number of visitors / The number of visitors that take the action
For example, if you have generated 1000 visitors to your landing page, and 50 of them ordered your product, or subscribed to your list to receive the information when they can buy the product, or call you on the phone, your conversion rate will be 50/1000 = 0.05 or 5%. How much is larger this number, your business idea will have higher potential.
If your conversion rates doesn’t pass the process, you will need to go back and improve the offer or the whole product/service concept you use to develop the offer.
If you use pay-per-click ads through Google or Facebook to your landing page, you can easily calculate how much cost you will have per one customer, or one potential customer. So, you slowly build your product and connect different dots related to marketing and sales.
Validate business idea through in-person interviews
The second test you will need to implement at this stage is to interview your customers directly talking with them face to face. Your goal with such an interview is to check would your potential customer will buy such a solution from you. In many cases, they will not tell you directly that they will not buy from you, or they don’t want your solution. So, your job will be to analyze their non-verbal communication while you explain them your product/service concept.
The answers you can get from such an interview can be:
- No, I will not buy your solution.
- Maybe, I am not sure now.
- Yes, I will buy for sure.
Your job through these tests and interviews is to tweak and improve the product/service concept until all interviewed customers will be in the group of “yes”.
When your business idea passes these tests, it passes the idea validation process. Now, you are ready to move forward to the last stage of validation process – product validation stage.
3. Product validation stage
The product validation stage is the last stage in the process when you validate business idea to become 100% sure that the idea will succeed.
When you come to this stage, you are already sure that there is a enough big market for your product/service, there are people starving for the solution and willing to pay you. Additionally, through idea validation stage you are sure that there is enough interest for potential product as the result of your business idea, and people will buy from you.
What you need to do is to acquire early adopters for your MVP through different forms of teasing. You already have surveyed potential customers, or potential customers with whom you have talked in person in the previous stage. It is important before you launch your MVP to have a critical mass of testers and early adopters. You simply need to get enough feedback from them in order to validate your MVP.
One important thing I want to mention related to this stage is that you need to ask for payment on day one, when you launch your MVP. In such a way, you can analyze additionally your pricing model and will check if you need to change something or not. As you already know, on your prices will depend the sales volume, income and the profitability of the product or service you are building.
Decide what to include in your MVP
At this stage, you will need to build an MVP (Minimum Viable Product). MVP is a smallest thing you can build to start the validation of the product. On the other side, it is important your MVP to work and have all desirable functionalities you have approved from previous two stages in this validation process. In such a way you can be able to prove or disprove your business idea.
The first thing you will need to do in this stage of the validation process is to decide what to include into the MVP. So, you need to check all information that you have collected from the previous two stages through analysis, surveys and interviews. The purpose is to use this analysis to decide what features to include in your first MVP and what need to contain your total offer. Cut everything out that previous stages proved that not bring strong value to the customers.
As an MVP you can use wireframes, prototypes and mock-ups. You want to get a strong positive reaction from customers at this stage when you validate business idea. You have already invested enough time and efforts in the whole process and you don’t want to screw at the end.
Do the customers buy and use your product (MVP)?
When it comes to product validation and what you will need to measure there are two most important things. The first one is to check if the customers really buy your product or service or they are only interested in a solution, but not ready to buy yet. Pre-selling as a way to validate the product is a great way to gain experience and prepare yourself for more profitable launches that you will use when you validate business idea.
The second important measure is related to how your customers use the product or service as an MVP at this stage.
- How much time they spend with your product?
- How they use and are they satisfied with your product?
- Are they falling in love with your product?
- Are they using all features, or only some of them?
You need to check if these two measures at this stage prove your expectation about buying the product and how they are using the product. Remember that you cannot expect that everything will be ok and you will pass this stage from the first time. In most of the cases, your expectations are based on assumptions, and now you will get the facts. And facts aren’t same as expectations based on assumptions. You will need to tweak your features, total offer and rebuild your MVP. In such a case you will have not one MVP, but several, until you come to the results that are according your expectation.
When you come to the final MVP that pass the customer’s control, you can say that you have validated business idea.