Last Updated 15 April 2017 | By:

How to Validate A Startup Business Idea

(& Why)

Validate your business idea

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, let’s 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 it, you could be completely wasting your time and money on something that may no one actually wants, or is looking for. We’re all for entrepreneurial passion and pursuing dreams around here, but un-validated ideas don’t put food on the table. You’ve got to work smart in the beginning or you’ll end up making some critical mistakes.

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. We’ll provide great examples of entrepreneurs in action and you can form your own strategy for validating your startup idea. Let’s dive in!

Step 1) "The Thing" Business Ideas Need

The One Secret Your Business Idea Needs

Most great business ideas start with a problem.

  • Tons of people don’t have time to brew an entire pot of coffee in the morning, hence the Keurig.
  • Some businesses struggle with brand building and marketing, hence professionals like Ali Shwanke and Jackie Steinmetz.
  • Many entrepreneurs are overwhelmed with the amount of vague info available and need a little direction to get started. Hence, Startup Savant.

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 – your customer.

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 an ultra-special t-shirt? Probably because it’s a sign of their status or the image they want to project – rich, privileged and successful.


Will Ideal Customers Buy?

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 going to pull out their purse (or wallet) and pay.

Start with the target customer. Who will be most likely to buy your product or service? What’s the age group or demographic? How busy are they? How much spare cash? Is your product or service meant to be a necessity?

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 getting it from the wrong people? That could be disastrous!


What motivates your customer?

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.

To Gain

Is your customer looking to make money, make more money, save 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/anxiety, or to become more charming so they aren’t “shut down” when they ask people out? A major contributing factor to spending is to avoid something – usually quite specific.

Love & Affection

Does your customer buy specific types of things to build, save, or reinforce relationships?

Pride or Influence

Does your customer want social acceptance, to be in style, to possess something great, learn more, advance in their job or social setting, become a better leader, improve self-worth, gain more recognition, or look good in public?


What’s the Major benefit?

What’s the customer getting in return for their money, in their own mind? It’s not enough to offer a great solution. You have to understand the benefit of solving their problem and their emotional response. Your solution could be:

  • Fast & Cheap
  • Easy/Simple
  • Expensive
  • Comprehensive
  • Immediate & Helpful
  • Discreet or Overt

When they buy your product they’ll be:

  • Happy or Relieved
  • Excited & Thankful
  • Comforted
  • Motivated

You get the picture. Get into your customer’s head to understand the motivation behind their decision to buy. And it shouldn’t be too hard – you’re a consumer too!


Use mock offers to test

Try creating 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 a place to start developing ideas and seeing if they would 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 a person you can enjoy delectable pasta from Italy and the wonderful company of your date.

The goal’s to find the 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.

  • Don’t pass this point until you have a strong solution to a real problem.
  • Don’t move forward unless you can answer why someone would buy your product or service.

Step 2) How to Do Market Research

Market Research Business Percentage Research Marketing Strategy Concept

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….

  • It’s the right concept for the wrong community.
  • Too pricey.
  • Too much competition.
  • Horrid location.
  • The market isn’t big enough.

How do you tell if a great idea is good enough to be a real business…yep, good old fashioned market research. You’ve already done or are in the process of the hardest part, namely creating a mock-product or service, now let’s look at what you can do through your homework:

  • Keep track of your competitors and their prices.
  • Make sure you keep track of your industry trends.
  • See what types of products or services are being launched.
  • Check to make sure your area isn’t saturated with competition.
  • See if your local area has enough customers to support your business.

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.

  • How big is the market?
  • Where do you fit and how can you make your business different?
  • Who are your competitors?
  • What are your competitors charging?

With those questions in mind, let’s dive a little deeper.


Market research Basics

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. This helps 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.


2) Know Your Industry

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, 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 our unsuccessful entrepreneur cliche really drops the ball. The local market wasn’t big enough to support their idea because, well, maybe it’s not distinct enough and there are similar brands down the street.

Look around at your area or marketplace.

  • What’s 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 grows your viability?


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 like trying to ‘walk a thousand miles’ in a customers shoe through 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.

Once you identify who your ideal customer, 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.


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?

  • Competition research is looking at what you’re going to offer and how it compares to similar products or services on the market.
  • Ask what are the features, prices, advantages, and benefits of your product and how do they compare to your competitor’s?
  • A simple comparison chart outlining these points are a simple way to go about it.

Bottom Line: Whatever your competitors are doing, figure out a way to do it better.


Market Research Grunt Work

Now let’s talk about the actual dirty work, or 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 the internet, 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 when browsing to save different pieces of information. Browse for a couple hours and save the most relevant content you find to the pocket, then come back 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 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 (or 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.


3) Group Research

Here’s another great way to get inside your customers mind and figure out their pains. List 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 (MVP).

These questions could be something like:

  • What do they think your product or service could do better?
  • Why did you choose my business rather than our competitors?
  • How do you make your buying decisions on this topic?

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, 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.

Step 3) S.W.O.T Analysis

How To Do SWOT Analysis

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.


SWOT analysis?

  • Strengths: What is it that you and your business idea do REALLY well?
  • Weaknesses: Where are the weak points?
  • Opportunities: What are the most apparent, and less obvious?
  • Threats: What are the biggest threats you’re facing?

Easy enough, right?


How SWOT analysis helps

Let’s say you’re a landscaper who specializes 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 equipment like larger landscaping firms.

  • 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.

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.


What are Your Strengths?

  • What advantages does your organization have?
  • What do you do better than anyone else?
  • What unique or lowest-cost resources can you draw upon that others can’t?
  • What do people in your market see as your strengths?
  • What factors mean that you “get the sale”?
  • What’s your organization’s Unique Selling Proposition (USP)?

Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market. If you’re having difficulty identifying strengths, try writing down a list of your organization’s characteristics. Some of these will hopefully be strengths!


What are Your Weaknesses?

  • What could you improve?
  • What should you avoid?
  • What are people in your market likely to see as weaknesses?
  • What factors cost you sales?

Again, consider this from an internal and external basis: do other people see weaknesses that you don’t? Are your competitors doing any better? It’s best to be realistic now, and face any unpleasant truths as soon as possible.


What are Your Opportunities?

What good opportunities can you spot and what interesting trends are you aware of? Useful opportunities can come from such things as:

  • 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, etc.
  • 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.


What are Your Threats?

  • What obstacles do you face?
  • What are your competitors doing?
  • Are quality standards or specs changing?
  • Is changing technology threatening your position?
  • Do you have bad debt or cash-flow problems?
  • Could any of your weaknesses seriously threaten your business?


Set up for success!

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… now that’s a recipe for failure. Remember, if you fail to plan, then plan to fail.


Step 4) How Your Idea Makes Money

How Will Your Business Make Money

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.

It’s important to realize there are more options than you might think. 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. Stephen Key built his entire business by using this method and has made a killing.


ways businesses generate revenue

  • Asset Sale: When your customer buys, they have every right to do whatever the heck they want with your product/service. An example of this could be a butcher shop. After they buy their meat, customers can do whatever their heart desires with it.
  • Usage Fee: Based on how much your customer uses your product. The more they use it, the more they pay and vice versa. Pay As You Go Phones are a great example. The more a customer uses their minutes, the more often they have to purchase more.
  • Subscription Fees: Generated by continuously selling a product to your customer every month, quarter, or year. An example of this would be the monthly subscription fee we pay to use Xero accounting software and keep track of our books. .
  • Renting/Leasing: Generated by granting someone exclusive right to a particular asset or piece of property, in return for a fee. An example of this could be a real estate company that rents apartments out to tenants.
  • Licensing: Generated by allowing customers permission to use your intellectual property in exchange for licensing fees. An example  could be an independent product developer, like Stephen Key, developing and renting products out to larger companies.
  • Advertising: Generated by advertising a specific service or product. An example of this is Content is created that readers enjoy and they generate revenue by placing ads in the surrounding area of each article.


savvy – not reinventing wheels

Ye, think outside the box. The most effective ways of doing things may not be conventional. 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?

One last example of how you can generate revenue thinking outside of the box. 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.

Step 5) Build a Buyer Persona

With a Business Plan and your 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 on a deep level and building relationships of trust, which increases visibility 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.

  • Use words they use to talk about the problems they have; the problems that your newly started business solves for them.
  • Know what stops them from making a purchase.
  • Know in what ways they look for information regarding the issues they face depending on the role they occupy within their company and industry.
  • Have a clear picture of what keeps them up at night.
  • Know 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:

  • Best practices advise 3-5 buyer personas.
  • Identify their role: CEO or general manager, end consumer, head of the household, etc.
  • Gather background info such as average age, income, and interests.
  • Know what decisions they oversee.
  • Know their common objections.
  • List who and what influences their purchase decisions.
  • Know their values and fears.
  • Note their goals and objectives.
  • 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’s well worth it, due to the value they’ll give you in being able to talk the language that will get through to your ideal audience.


Wrapping Up

At the end of the day, you can break that info above 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 non-viable business idea. Although, oftentimes no matter what your product or service, it just needs as Tony Robbins would put it…a pivot.

All the steps above and the research is really about optimization. You’re finding weak points and strengthening them. Weakness in your product, approach, attitude, partnerships, and so forth. One shouldn’t let disappointing research stop them from pursuing their vision or dream! Just be deliberate. Be informed. Chase problems and optimize and in time people will see things your way.