A good business idea doesn't guarantee success. It takes more than that to build a loyal clientele and generate steady revenue. Anyone can have ideas, but it's the execution that matters. As an entrepreneur, it's important to know how to validate your startup idea before investing time, money and energy into new projects.
Why Should Ideas Be Validated?
Ready to launch a new product or service? Make sure there is a need for it before you get started. Nine out of 10 startups fail, and a lack of product-market fit is the reason for failure in about 42% of cases. This doesn't mean those products are poorly designed or of low quality — they simply don't serve a market need.
Many startup founders rush into building a product and showing it to the world. Building a successful business isn't that easy, though.
First, it's important to check whether or not consumers really need or want what you have to offer. Second, make sure your idea is appealing to potential investors. Chances are that you'll be surprised by the number of rejections you get before finding someone who believes in your vision.
Assuming you have a product that people want, you need to test it and identify its strengths and weaknesses. Furthermore, it's essential to put together a strong team, draft a business plan and set clear goals. Be prepared to reach out to investors, present your idea and its market potential, research your audience and validate your startup idea in the real world. If things work out well, you'll need to further develop your product and seek ways to turn your prospects into buyers.
Avoid These Common Startup Mistakes
A lack of product-market fit is just one of the many reasons startups fail. About one-third of startup founders go out of business because they run out of cash. Approximately 17% don't have a business model, and 23% fail to build a diverse team with different skill sets. Startups may also fail for one or more of the following reasons:
- Poor marketing
- No passion for the market
- Lack of focus
- Failure to execute sales
- Chasing investors, not customers
- Ignoring users' feedback
- Poor leadership
- Pricing issues
Validating your startup idea won't eliminate these risks, but it can reduce them. You not only need to test your product but also raise capital, invest in the right team and research potential customers. Every detail matters when it comes to starting a business. Even the smallest issues can turn into major problems down the road.
Pay attention to patterns in startup failures so you don't make the same mistakes. Study your competitors and learn from them; see what they do well and what can be improved. Make sure your product or service brings value to the target audience and fills a gap in the market. Build an inexpensive prototype, test it in real-world conditions and gather feedback.
Good Ideas Don't Guarantee Success
It takes more than just a great product to succeed in business. What looks good on paper doesn't always translate to real life. Perhaps other companies are offering similar products or services as you, or maybe your circumstances change. The economy and legal regulations are dynamic and beyond your control. If, say, you launch a high-end product that customers cannot afford, your efforts will go to waste.
The business landscape is constantly changing too, with new technologies emerging all the time. A product that fills a gap in the market today may lose its appeal a year or two from now. Therefore, timing is essential. Launch your product too soon or too late, and your business will go down in flames despite its huge potential.
Another aspect to consider is the actual execution. A product idea is only as good as the people who execute it. If your team is inexperienced or disengaged, it will reflect on your business. Common mistakes, such as trying to do everything yourself or hiring interns instead of qualified professionals, can cost you big.
What Is Idea Validation?
Whether you're an inventor, an app developer or just someone with creative ideas, you want to bring your vision to life. However, remember that you are also an entrepreneur. In this role, you need to create products that people want to buy — and that's why you should first validate your business idea.
This process involves testing your ideas to determine whether or not it's worth pursuing your vision. By doing so, you will avoid wasting resources by building a product nobody wants. The whole point is to make sure your business will have a sustainable audience and achieve specific goals or milestones. Basically, you want to see if your product or service is of interest to a given target market.
Idea validation is a complex process that includes everything from customer and market research to value proposition testing. Startup founders may use A/B testing, surveys, focus groups, social media and lean planning to test their ideas before taking the next step. Data analysis, usability tests, longitudinal user studies and other validation methods may help too. Choosing the best strategies to validate your idea depends on your budget, availability and business goals.
How to Validate Your Startup Idea
Decide on the steps needed to validate your startup idea before building a minimum viable product, or MVP. Basically, you want to create a version of your product with just enough features to satisfy early users. If everything goes as planned, you can design a complete set of features, reach out to investors and launch your product.
First of all, determine whether your business idea can fill a gap in the market or solve a problem your potential customers may have. Let's say your target buyer is a typical small business owner.
Think about any problem he may face, such as increasing sales or cutting advertising costs, and then try to figure out if your product or service can address these issues. Conduct market research to learn about your audience and its needs. Contact potential customers, conduct surveys and attend networking events to dig deeper into your target market.
Make a list of questions for your potential customers. You need to find out the problems they are experiencing, how they handle them now and whether or not they would pay for a solution. If their problem isn't big enough, they may use your product but never pay for it. Therefore, you need to come up with solutions for problems worth solving.
Check Your Competitors
Even if you have a great business idea, dozens of other companies may offer similar products or services. Sure, you don't have to reinvent the wheel, but you need to research your competition and think of what and how you could do better. Chances are that you lack the experience and resources to create the next Facebook or Apple. However, you can develop a successful product that makes you more competitive or that meets a specific customer need or demand.
In fact, you shouldn't fear competition. If there is competition, it shows that you have a large enough market for your product or service. You just need to come up with something better than what's already there.
Leverage online platforms like Google, Angel.co, Crunchbase and LinkedIn to research your competitors. Check their story, funding sources, services and customer reviews. If you don't have a premium LinkedIn account, sign up for one to gain access to team-size charts and other business data.
Find out how many customers your competitors have, how they gain customer loyalty and how they reach out to prospects. What's their business strategy? What about their annual profit? Take a look at your least-successful competitors too and try to determine what they did wrong.
Measure Your Product-Market Fit
One of the reasons you must study your competition and target audience is to determine whether your product can satisfy a strong demand in the market. If it does, then you have a good product-market fit. This concept is all about providing the right solution to the right person at the right time.
There are various ways to test your product-market fit. Having access to accurate, data-driven insights is a must. Even if you have an established business, you still need to continuously test your goods and services from the perspective of product-market fit. One way to do it is to use the lean product process, a simple yet effective system for developing new products, which has six steps:
- Define your target customers
- Identify any underserved needs they have
- Draft your value proposition
- Specify the core features of your MVP
- Build your MVP
- Test it with potential customers
Furthermore, you may use lean planning and other methodologies to validate your business idea. A lean plan, for example, is no longer than one page and includes several key aspects you need to consider, such as a problem worth solving and your solution.
It should also briefly cover your target market, competitors, business strategy, execution, sales and marketing activities, milestones, expenses and sources of revenue. Think of it as a simplified version of a traditional business plan.
Pitch Your Idea
Many startup founders hesitate to share their business idea, thinking that someone else is going to steal it. Unfortunately, this approach can do more harm than good. By doing so, you won't know how others feel about it. If it's really good, your competitors might actually decide to team up with you, and even if someone steals it, he may not implement and execute it properly.
Go ahead and pitch your idea online and offline. Attend networking events, industry-related events and business meetings. Consider joining startup competitions, such as the SXSW Pitch, Flash Pitch or HATCH Pitch. This isn't just a great way to validate your business idea — it can also help you build partnerships and gain media exposure. Plus, you will receive valuable feedback from industry experts.
Likewise, you can join online communities, crowdfunding platforms and web-based events to pitch your idea and collect feedback. GlobalPitch, for example, allows entrepreneurs to present their ideas online to startup accelerators, investors and corporations. The best pitches are rewarded with prizes and may secure funding. When you're ready to take your idea to the next level, pitch it to investor groups or launch a test version of your product to see how it performs.
For example, you may use crowdfunding platforms to test your idea. Once you have the MVP, create an account on Kickstarter, Crowdfunder, WeFunder or other similar platforms to present your product and highlight its key features. If people like your idea, they will preorder your product and spread the word about it. This could also be a great way to raise money for your small business and build brand awareness.
- Diplomatic Council: Why Startups Fail - and How to Avoid
- CBInsights: The Top 20 Reasons Startups Fail
- Investopedia: How Many Startups Fail and Why?
- Techopedia: Minimum Viable Product (MVP)
- Nasdaq: A Playbook for How to Achieve Product-Market Fit With Dan Olsen
- Bplans: Introducing Lean Planning: How to Plan Less and Grow Faster
- Entrepreneur: Validate Your Startup Idea by Doing the Things That Don't Scale
- Standford eCorner: Four Ways to Validate an Idea