So you’ve got an awesome business idea and want to bring it to life?
Good for you! Whether you’re opening a new boutique in your town or starting an internet business – you know deep down that you’re on to something that’ll change your life.
But hold your horses! Before you start plugging away and building the product (or service) for the next 9 months, consider this quote from Eric T. Wagner,
“Even if you have an ah-ha moment, you’ve still got to test it.”
Validating your business idea is critical. Without validation, you could end up completely wasting your time and money on something that no one actually wants or needs.
We’re all for entrepreneurial passion and pursuing dreams around here, but unvalidated ideas don’t put food on the table. You’ve got to work smart in the beginning to avoid making some all-too-common mistakes.
This process doesn’t have to be incredibly overwhelming– and you sure as heck don’t have to spend thousands of dollars on weird market reports. We’ll provide you with some great examples of entrepreneurs in action so you can form your own strategy for validating your startup idea. Let’s dive in!
Most great business ideas start with a problem.
Why start there? Because the product or service that you’re building should be tremendously valuable to your customer.
Secret: Your business idea needs to offer a solution that your potential customer would pay for. Even providing pleasure to the customer solves a problem – boredom, stress, etc.
Perhaps your product will solve a problem of self-esteem. Why do you think people would pay $345.00 for an ultra-special t-shirt? Probably because it’s a sign of status, or it’s the image they want to project – rich, privileged and successful.
Since we’re making assumptions about what people will want, we need to actually go into the marketplace and test them. It’s extremely important to know who’s going to pull out their purse (or wallet) and pay.
Start with your target customer. Who is most likely to buy your product or service? What’s the age group or demographic? How busy are they? How much spare cash?
Our Problem: For Startup Savant, we target new business owners who need help, guidance, and the right information. But, they don’t have a lot of time to spend researching or taking lengthy, expensive classes.
Our Solution: Provide business owners with fast, effective and affordable business education.
Besides, how do you expect to get quality feedback if you’re aiming at the wrong people? That could be disastrous!
Ask yourself which of these 6 buying habits is most relevant to your business idea. Once you have a buying motive in mind, you’ll be able to position your product or service around that motive.
Is your customer looking to make more money, look better, generate more sales, get smarter, or appear prestigious?
Fear of Loss
Is your customer looking to reduce costs, guarantee safety, save time, protect health, or reduce risk? What are they afraid of that causes them to spend?
Comfort & Pleasure
Is your customer looking for enjoyment, comfort, beauty, entertainment, recreation, good health, good food, better housing, sexual attraction, or perhaps higher workplace morale?
Avoiding Pain & Discomfort
Does your customer want pain relief, less worry, or lower anxiety about something? Avoidance is a major motive in spending.
Love & Affection
Does your customer buy things to build, save, or reinforce relationships?
Pride or Influence
Does your customer want to possess something great, be in style, learn more, advance in their job or social setting, become a better leader, improve their self-worth, gain more recognition, or look good in public?
What’s the customer getting in return for their money– in their own mind and body? It’s not enough to offer a great solution. You have to understand their emotional response to the problem being solved. For instance, your solution could be:
And when they buy your product they’ll be:
You get the picture. Get into your customer’s head and figure out their motivation to buy. It shouldn’t be too hard – you’re a consumer too!
Create a mock-up of what an offer might sound like to find a decent place to start. This doesn’t have to be exactly what you’ll bring to market, but it’s a way to start developing ideas and seeing what might resonate with potential buyers.
A mock offer template is basically a combination of the price + the biggest benefit your product or service offers. For an entrepreneur opening an Italian restaurant, it may sound something like this:
“For $30 per person, you can enjoy delectable pasta from Italy in the wonderful company of your date.“
The goal’s to find the right combination so that the customer feels like they’re getting more value than what they’re paying for.
Again, the purpose of this exercise is to give you an idea of what potential customers might respond to, and how you might position your marketing message.
Oh, so sad is the cliche tale of the unsuccessful entrepreneur. What’s the #1 reason they fail? No market research to show that while their idea is totally awesome, and wicked-cool….
How do you tell if a great idea is good enough to be a real business? Good old fashioned market research. You’ve already done, or are in the process of doing, the hardest part– creating a mock-product or service. Now let’s look at what other homework you need to do:
It might sound a little complicated and intimidating at first, but it really is just a matter of looking at the market for your products and services.
With those questions in mind, let’s dive a little deeper.
1) Know Your Market
Market research is the analysis of a specific area, including demographics like age, median household income, education level, etc. You can get a lot of data from the recent Census and the SBA. Market research will help you determine things like price and location. For example, you don’t want to open a high-end retail shop in the middle of an economically depressed downtown area.
Bottom Line: Understanding the size and scope of your market is essential to your success.
2) Know Your Industry
The easiest way to learn about your industry is to buy an industry report. There are NAICS & SIC codes for each industry. However, these are very costly, unless you can get them through a library.
You may have to research your industry on the web, which isn’t half-bad. For example, you can easily search “retail industry trends” and find a ton of info through professional or trade groups, magazines, and online forums.
Bottom Line: Some careers are dying out, while others are thriving. Don’t get caught trying to join a profession that doesn’t have a future.
3) Know Your Area
Here’s where the cliche unsuccessful entrepreneur really drops the ball: the local market isn’t big enough to support their idea. Why? Maybe their idea isn’t distinct enough, or maybe there are similar brands down the street.
Look around at your area or marketplace.
4) Know Your Customer
Now you need to take a look at who your customers are.
By all means, define your ideal customers by age, location and income– but leverage other approaches as well. Try to ‘walk a mile’ in a customer’s shoes by using a Customer Empathy Map. This will help you get down in the dirt and understand all the relevant aspects of who your customers are as human beings.
Learn everything you can about your ideal customer. Follow them on social media, read up on the blogs/websites they spend time on. Heck, you can even personally ask them what they like or dislike about your competitor’s product or service.
5) Know Your Competition
Do a little recon to see if you’ve got any competition. Is someone in the market selling the same solution you’re gunning for? Is there something they’re doing that you could do better?
Bottom Line: Whatever your competitors are doing, figure out a way to do it better.
Now let’s talk about the actual dirty work: conducting the market research. Let’s look at the three ways you can get all the information you could possibly need.
1) Overview Research
This kind of research includes looking through marketing databases, industry magazines, industry websites, trade and industry associations, etc. The only problem with this kind of market research is that it takes up a lot of time.
Pro Hack: Use a tool like Pocket to save different pieces of information while you’re browsing. Browse for a couple hours, save the most relevant content you find, and come back to it the next day.
2) Field Research
Go out into the world and use observation, experiments, and questions to gather information.
Observation might include visiting your competitor’s store and actually watching what people buy. (Don’t be creepy though!)
As an experiment, you could try a competing software service’s free trial, then reach out to a few other users and get their thoughts on it. You could even go a step further and find a community (or forum) for that software to find out what your competitors are doing right…and wrong.
Field research is another affordable way to do market research yourself, but it can be a little bit time consuming.
3) Group Research
This is another great way to get inside your customers’ minds and figure out their pains. List your top 5 potential customers and invite them to your office or a coffee shop. After you spend some time enjoying their company, ask them to answer a few questions about your business idea.
These questions could be something like:
There are a number of other ways to carry out market research, but those three are terrific places to start. Even if you have the money to hire a private company to do all of this for you, you should still get down in the dirt and personally understand the needs and goals of your customers, if your product/service is viable, and what you need to do to be successful.
SWOT’s like your best friend telling you your current strategy or idea sucks. It lets you know where your true skills are and uncovers any weaknesses you’d like to deny.
Easy enough, right?
Let’s say you’re a landscaper and your biggest strength is designing custom decorative gardens. Your customer service is outstanding and you focus on building long-term relationships with your clients.
Your biggest weakness is that you run a small operation, and you don’t have the equipment that larger landscaping firms have.
After a SWOT analysis,
The point is to see the connections. It’s a simple exercise, but it can truly give you some insights you hadn’t thought of before.
What are Your Strengths?
Consider your strengths from an internal perspective, as well as from the point of view of your customers and people in your market. If you’re having difficulty identifying your strengths, try making a list of your organization’s characteristics. Hopefully some of the points will be strengths!
What are Your Weaknesses?
Again, consider this from an internal and external standpoint: do other people see weaknesses that you don’t? Are your competitors doing any better? It’s best to be realistic and face any unpleasant truths as soon as possible.
What are Your Opportunities?
What good opportunities can you spot? What interesting trends are you aware of? Useful opportunities can come from such things as:
A good approach is to look at your strengths and ask yourself whether they open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.
What are Your Threats?
Don’t become an unsuccessful entrepreneur by failing to do proper market research. It’s hard enough to establish a business, but trying to grow a business in the wrong market… now that’s a recipe for failure. Remember, if you fail to plan, plan to fail.
Now that you know you provide incredible value to your customers, it’s time to figure out how much to charge or which revenue streams fit your business best.
It’s important to realize there are more options than you might think. Did you know that with the product you’re bringing to the market, it’s possible to license (or rent) the rights to a larger company and receive a percentage of every sale?
You’d still see your product on the market, but the path you’d take and the revenue streams you generate would be completely different. Stephen Key built his entire business by using this method, and he’s made a killing.
Think outside the box. The most effective way of doing things may not be conventional. When you’re able to pivot and adapt to new environments, you’re much more likely to succeed as an entrepreneur.
What if you owned a coffee shop and offered unlimited cups of Joe for $35 a month? Maybe some customers would prefer paying on a monthly basis. A cup of coffee doesn’t cost much to make. What if you had 250 loyal customers paying $35 a month when it only costs you $10 in product and supplies to keep up with each person’s consumption?
Our friend Nancy L. Seibel chimed in to add another way this kind of structure could be used in your business.
This is what our heating contractor does. We joined their Comfort Club, for an annual $99. That makes us a priority customer, plus gives us something like 10% off. Basically we earned back a good piece our $99 with our first (expensive) repair. And yes, now we’re not likely to switch to another heating contractor so this model works so well for everyone involved!
Do some testing. Find your secret sauce– then scale it!
Pro Tip: Any time you can focus on recurring or passive revenue streams, do it. It’s a fast and effective way to scale a profitable business.
With a Business Plan and goals set up to measure progress, you’re ready to move on to increasing brand awareness and visibility. You’ve set up your social media strategy, but have you thought through your communication approach?
How you communicate with your audience makes all the difference in connecting with them on a deep level and building trust, which in turn increases visibility and transforms leads to customers. In order for your audience to trust you and be interested in what you say, you need to use their lingo.
These components make up your buyer persona(s), a.k.a. the people you help through the startup you’ve founded.
If you haven’t built your buyer persona(s) yet, you can get started with the following steps:
Building a buyer persona takes time and research, but it’s well worth it. Being able to talk in the language your ideal audience uses is tremendously valuable.
At the end of the day, you can break all of this info down to a relatively short checklist. The point is to roll up your sleeves and do your homework before investing tons of time and passion into a nonviable business idea.
All of these steps are really about optimization. Find weaknesses in your product, approach, attitude and partnerships, and strengthen them. Don’t let disappointing research stop you from pursuing your vision or dream! Just be deliberate. Be informed. Oftentimes all your product or service needs is– as Tony Robbins would put it– a pivot.