So you’ve got an awesome business idea and want to bring it to life.
Good for you! Excitement and possibilities are definitely two of my favorite parts to being an entrepreneur. 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 will change your life.
But hold your horses!
Before you start plugging away and building the product (or service) for the next 9 months, let me share with you something my friend Eric T. Wagner said,
Even if you have an ah-ha moment, you’ve still got to test it.
Eric went on to talk about an entrepreneur he knew that had a ‘hunch’ at what his potential customers needed. The entrepreneur spent some time with his target customer and began to refine his great idea.
From there, he decided to build a software solution for his customers. They were going to love it. With that hunch, the entrepreneur immediately got to work and closed himself off from the outside world. 9 months and $30,000 later, he brought the game-changing software to market and introduced it to his target customers.
The only problem was, nobody wanted it.
Validating your business idea is critical. Without that validation, you could be completely wasting your time and money on something that may not sell.
I’m all for entrepreneurial passion and pursuing your dreams, but unvalidated ideas don’t put food on the table for your loved ones. You’ve got to work smart in the beginning or you’ll end up making some critical mistakes.
In this definitive guide to validating your business idea, we’ll get down to the basics and figure out if your target market actually wants your product or service. Or not.
Inspired partly by Business Model Generation, this guide will explain the first few steps you need to take to see if it’s something you should actually pursue, or throw out the window like an unwelcome spider in your car.
This process doesn’t have to be incredibly overwhelming or confusing. And you sure as heck don’t have to spend thousands of dollars on weird market reports. I’ll give you some great examples of entrepreneurs in action and you can form your own strategy for validating your business idea from them.
Let’s dive in!
Most great business ideas start with a problem.
A lot people don’t have enough time to brew an entire pot of coffee in the morning, hence the Keurig.
Many entrepreneurs are overwhelmed with the amount of vague information available and need a little clear direction to get started. Hence, Startup Savant.
Is there something out there that someone feels like they’re having a hard time and need help with? That generally tends to be the focus of most product or service creations. And it makes sense we start there first because the entire product or service that you’re building should add tremendous value to the person with the problem in the first place.
(Here’s the secret) Your business idea needs to solve a problem your potential customer would pay for. Even providing pleasure to the customer solves a problem – boredom, stress-reliever, feeling of acceptance or creating status.
Why do you think people pay $345.00 for a Hermes t-shirt? It isn’t a simple cotton t-shirt, it’s a sign of their status or the image they want to project – rich, privileged and successful.
Who will be most likely to buy the product or service you’re looking to create?
Since we’re making assumptions of what we think people will want, we need to actually go into the marketplace and test it. It’s extremely important to know who’s literally going to pull out their purse (or wallet) and pay you.
So first we need to start with the target customer. Who will be most likely to buy your product or service? In our case for Startup University we thought about the typical entrepreneur whose average age is about 25-40.
We also had to note that our target market either had a job that they were holding onto while they got their business off the ground or were already running a startup business full time. In both cases, our target market had very little additional time to spare.
So this meant that they needed a solution to answer all their questions before they even had to ask them. To simplify entrepreneurship and make it applicable for the next morning they had to get up and go to work.
We had to define our target customer very accurately so we could get feedback on the Startup University idea from the right people. This is also very important because if you don’t, you’ll be getting feedback and making big decisions based on the wrong input.
Problem: New business owners need help, guidance, and the right information. But they don’t have a lot of time to spend researching or taking lengthy, expensive classes.
Solution: Provide business owners with fast, effective and affordable business education – Startup Savant!
Ask yourself which of these 6 buying habits are 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 money, make more money, save money, look better, generate more sales, get smarter, or appear prestigious?
Is your customer looking to reduce their costs, prevent loss of something, guarantee their or their loved ones safety, save time, protect health, or reduce risk?
Is your customer looking for enjoyment, comfort, beauty, entertainment, recreation, good health, good food, better housing, sexual attraction, or get higher workplace morale?
Does your customer want pain relief, protection, to work less, save more time; have safety or security, attain good health, worry less, or become more attractive?
Does your customer buy for their family, social admiration, loyalty, to feel beautiful, to be admired, loyalty, or build stronger friendships?
Does your customer want social acceptance, to be in style, to possess something great, learn more, advance in their job or social setting, get admiration of others, become a better leader, improve their self worth, gain more recognition, or look good in public? (Talk about a mouth full!)
Now you need to focus on what value you’re offering. For your product or service, what is the customer getting in return for their money?
For Startup University, it may be that they’ll discover a ‘safe-place’ for entrepreneurship. Someone just getting started and terrified to even take their first step will feel empowered and educated enough to take steps in the right direction.
It’s not enough to offer a great solution to their problem. You have to understand the benefit of solving their problem and their emotional response to your product/service.
Your solution could be:
When they buy your product they will be:
You get the picture. You need to get into your customer’s head to understand the motivation behind the decision to buy. And it shouldn’t be too hard – you’re a consumer too!
Now that you’ve spent some time thinking about your potential customer, try creating a mockup of what an offer might sound like to give me a place to start.
This doesn’t have to be exactly what you will bring to the market. But a place to start developing your ideas and seeing it would resonate with potential buyers. Here’s your mock offer template: 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 a person you can enjoy delectable pasta from Italy and the wonderful company of your date.
This could be an example offer that the entrepreneur could give people for feedback on the overall idea of her restaurant.
The goal is to find a right combination of the two and make the customer feel like they’re getting more value than what they’re paying for. This little exercise is just to give an idea of how you might position your marketing message and see what your potential customers respond to.
But here is how you find the kind of value proposition to communicate to these people to see if they would buy.
Do NOT pass this point until you have a strong solution to a real problem. Do NOT move forward unless you can answer WHY someone would buy your product or service.
Here’s the sad, but true, tale of the unsuccessful entrepreneur…
There once was a gal who wanted to be self-employed. So she started business after business, but they all failed.
But she had a new idea. A new concept that would surely be her ticket to success. Her idea was so great! This time, there was NO way she could lose! She saved and planned. She rented space, got a new sign, and excitedly opened her new business. And waited for the flood of new customers.
And waited. And waited. And waited…but they never came. Why did our unsuccessful entrepreneur fail? She didn’t lack determination or drive. What she did lack was a simple knowledge of her market.
Because if she’d done any market research, she would have understood that her latest business was destined for failure.
Why? It was a good concept. But it was all wrong for her community. It was too pricey, competition was too strong, her location was horrible, and the market was not big enough.
Some ideas seem great. But are never destined to be more than a good concept. So how do you tell if your great idea is good enough to be a real business? You research your market.
You’ve already done or are in the process of the hardest part: created a simple version of your product or service.
Now let’s tackle market research to find some information on how big your market is. (And even see if there’s a market for your product or service in the first place!) By doing basic market research, it also shows you where you stand in the market and how you can create a competitive advantage for your business.
Wouldn’t it be nice to see some hard proof that people are actually interested in the product or service you’re wanting to offer – before you go out and actually spend any money to develop or build it?
Through market research you can:
I know it sounds a little complicated and intimidating, 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.
Market research is the analysis of a specific area, including demographics like age, median household income, level of education, etc. You can get a lot of data from the recent Census and the SBA. This will help you create the big picture of your area.
It will help in determining 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 an essential piece of success.
The easiest way to understand 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.
So you may have to research your industry on the web. But this is not bad. For example, you can easily search “retail industry trends” and find a ton of info. You can also search professional or trade groups, magazines, and online groups.
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.
Here’s where our unsuccessful entrepreneur really dropped the ball. The local market was not big enough to support another business like hers.
Her’s was a little bit different…but there are similar businesses down the street. With strong and loyal customer bases. Look around at your area.
What is your competition like?
Do you have a product/service that could really stand out?
Do you have a specific niche you’re targeting?
Do you have a marketing budget and strategy that will grow your viability?
Now you need to take a look at who your customers are. (I beg you, don’t mess this up!)
You might write down your customers in a specific niche by age, location, or income. That’s one way of doing it and has been widely accepted in most business classes.
But my all time favorite way to ‘walk a thousand miles’ in a customers shoes is to create a customer empathy map. This helps you get down in the dirt and understand all the relevant aspects of who customers are as human beings.
For instance I did a customer empathy map to understand your needs better for Startup University. Through that I thoroughly understood how dedicated you are to building your this business and the struggles you’re having in the process. (Plus, I’ve been there and experience those feelings on a daily basis.)
Once you identify who your ideal customer is, learn more about them. Follow them on social media, read up on the blogs/websites they spend time on. Heck, you can even personally ask them what they do or don’t like about your competitor’s product or service.
Ever pretend to be a spy when you were a kid? Well now you can be.
Ok, maybe not a spy, but you should do a little recon to see if you’ve got any competition. Is someone in the market selling the same solution you’re wanting to? Is there something they’re doing that you could do better?
Competition research is looking at what you’re going to offer and how it compares to similar products or services on the market.
For example, you need to ask what are the features, prices, advantages, and benefits of your product and how they compare to your competitor’s. A simple comparison chart outlining these things might be the best way to go about it.
With a marketing consulting business, it may be that you use better analytics tools to track your clients progress, offer unlimited access to you and your team, and have a monthly meeting to set goals for the next month.
Bottom line: Whatever your competitors are doing, figure out a way to do it better.
So we’ve talked about the different things you should look into so your new business has the best chances for success.
Now let’s talk about the actual dirty work. Actually doing the market research. Let’s look at the three ways you can carry out market research and get all the information you could possibly need.
This kind of research will include looking through the internet, marketing databases, industry magazines, industry websites, trade and industry associations.
You might be able to think of more places for information, but this is a great place to start. 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 when browsing the internet to save different pieces of information for later. Usually I’ll browse for a couple hours and save the most relevant content I find to the pocket, then come back the next day to look through all of it. That’s been a huge time saver for me in the past.)
This kind of research entails going out into the world and using observation, experiments, and questions to gather information.
Observation might include visiting your competitors store and actually watching what people buy. (Don’t be creepy though.) Another experiment would be to try a free trial with a software service competitor then reaching out to a few other users and get their thoughts on the product.
You could even go a step further and find a community (of forum) for that software and see what your competitors are doing right…and wrong. This is another affordable way to do market research yourself but it can be a little bit time consuming.
Here is another great way to get inside your customers mind and figure out their pains.
Make a list of your top 5 potential customers and invite them to your office or a coffee shop for a couple drinks. After you spend some time enjoying their company, ask them to answer a few questions about your business idea and minimum viable product. (Which we’ll talk about putting together below.)
These questions could be something like:
There are a number of other options 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, I strongly recommend you get down in the dirt and personally understand the needs and goals of your customers, if your product/service is viable, and what your changes are for success.
If you don’t do market research before you start your business, then you could be in serious trouble. You’ve got this.
Now that you’ve done some basic market research, it’s time to analyze your current business idea.
We’re going to use a trusted business technique – a SWOT analysis. Who can tell you the truth like your best friend? A best friend tells you like it is. Even when you don’t want to hear it.
That’s what a SWOT is. It’s like your best friend telling you that your current strategy or idea sucks. It lets you know where your true skills are. It also uncovers any weaknesses you’d like to deny.
And denial can be a dangerous place to be in the business world. But the good news is a SWOT can be your road map to success. As cliché as that sounds. Maybe you learned about SWOT Analysis in Business 101. Or perhaps you’ve never heard of it before.
Either way, it’s the easiest strategic planning tool that will give you an in-depth understand of your current business environment.
Ask yourself the following four questions:
A SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.
It highlights your business environment both internally (strengths & weaknesses) and externally (opportunities & threats).
Easy enough, right?
The best thing about a SWOT is that it shows you how to answer your biggest challenges.
Here’s an example. Let’s say you’re a landscaper. You specialize in custom designed decorative gardens, and it’s your biggest strength. Your customer service is outstanding and you focus on building long-term relationships with your clients.
Your biggest weakness is you’re a small operation, and you don’t have the equipment that larger landscaping firms have. After a SWOT analysis, you see the connection between leveraging your strengths against your weaknesses.
You understand your strategy should focus on your design skills & relationship building, which is something your competitors don’t have. You can also defend against your biggest threats by understanding your strengths and opportunities.
The point is to see the connections. It’s not a difficult exercise, and it seems simple. But it can truly give you some insights you had not thought of before.
Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market.
Also, if you’re having any difficulty identifying strengths, try writing down a list of your organization’s characteristics. Some of these will hopefully be strengths! When looking at your strengths, think about them in relation to your competitors.
For example, if all of your competitors provide high quality products, then a high quality production process is not a strength in your organization’s market, it’s a necessity.
Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don’t see?
Are your competitors doing any better than you? It’s best to be realistic now, and face any unpleasant truths as soon as possible.
– Changes in technology and markets on both a broad and narrow scale.
– Changes in government policy related to your field.
– Changes in social patterns, population profiles, lifestyle changes, and so on.
– Local events.
A useful approach when looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.
Don’t be an unsuccessful entrepreneur because you failed to do proper market research. It’s hard enough to establish a business.
But trying to grow a business in the wrong market, and that’s a recipe for failure. Learn a lesson from our unsuccessful entrepreneur: Fail to plan, then plan to fail.
Your cash flow is the life of your business.
You provide incredible value to your customers, now it’s a matter of figuring out how much to charge or which revenue streams fit your business best.
Before we talk about charging your customers for your product or service, it’s important to realize that there are more options than you might have initially thought. Did you know with the product you’ve got and are thinking of bringing to 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 revenue streams generated would be completely different than if it were to do it all yourself.
Stephen Key built his entire business by using this method and has made a killing.
Cool, right? Although it might not be 100% relevant to your business right now, understanding that type of model might spur some incredible ideas on how you could build additional revenue streams. So lets jump in.
One thing I would urge you to do is to think outside the box with this one. The most effective ways of doing things may not be the conventional ways. When you’re able to pivot and adapt to new environments as an entrepreneur, you’re much more likely to succeed.
What if you owned a coffee shop and offered unlimited cups of joe for $35 a month? A black cup of coffee doesn’t cost you much to make and sometimes customers would prefer paying on a monthly basis.
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? How much would your coffee shop clear with 1,000 monthly “cuppa joe” customers?
What if you had a consulting business that offered a monthly membership, for which they could get x hours of services per month at no additional cost and a 20% discount on services beyond that amount? This way you’d generate revenue on a monthly basis through that same person and not have to scrounge around every month looking for new clients to fill that hole.
Not only would you sleep better at night, but your clients would get the attention they deserve since you’re not having to rush around to find new ones on a regular basis. And guaranteed revenue? I think yes.
For one last example of a business thinking outside of the box, my 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 your goals set up to measure progress, you’re ready to move on to another aspect of your startup phase: increasing brand awareness and visibility. You’ve set up your social media strategy, but have you thoroughly 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 that relationship of trust, which increases your visibility with them and transforms them from leads to customers. In order for them to trust you and be interested in what you say, you need to talk their lingo. This means:
1) Using the words they use to talk about the problems they have; the problems that your newly started business solves for them.
2) Knowing what stops them from making a purchase.
3) Knowing in what ways they look for information regarding the issues they face depending on the role they occupy within their company and industry.
4) Having a clear picture of what keeps them up at night.
5) Knowing where they are in the buyer’s journey.
These components make up your buyer persona, a.k.a. your target audience, potential and active customers; basically, the people you help through the startup you’ve founded. The same way you ask questions and have a list for your business plan, works for your social media strategy too; and the buyer persona piece of your online strategy has its own set of criteria.
If you haven’t built your buyer personas yet, you can get started with the following steps:
6) Best practices advise that you have three to five buyer personas and at the very least, you should build one.
7) Identify their role (i.e. are they a CEO or general manager, or if an end consumer, are they the head of the household).
8) Gather background information such as average age, income, and interests.
9) Know what decisions they oversee.
10) Know their common objections.
11) List who and what influences their purchase decisions.
12) Know their values and fears.
13) Note their goals and objectives.
14) List a couple of real quotes from interviews you’ve conducted with your target audience (existing customers are the first ones you could turn to for this type of information).
Building your buyer personas takes time and research; but it is well worth it, due to the value they will give you in being able to talk the language that will get through to your ideal audience.
I’m not saying that if you wing it, you can’t reach your ideal buyer; but the importance of planning, like the time you took to ensure you had a business plan, will strengthen the likelihood of your startup success.
Why? Because a solid and in-depth foundation is always stronger than a fragile and superficial one.