Having an exciting idea that you want to pursue is the key to kickstarting your business journey. With a great concept, you can start focusing on turning that concept into a business, however it has to be commercially viable.
To be sure that it is, you need to look beyond your own perspective and take steps to validate any inkling you may have.
By validating your idea, you will understand whether it will survive in the market with the appropriate demand. This will enable you to be confident that you can succeed in the longer term.
In this guide, we explain how you can validate your business idea to guarantee longevity and success.
Why does validation matter?
Validation aims to help you determine the scope of the market and whether there is a place for your product or service. By understanding the market better, you can find out if there is suitable demand for your proposed offering and who your target customer might be. With these customers the driver of your revenue, sales and profit, it’s fundamental that you know there are people who will want to buy from you before you take an idea any further.
Establishing the potential customer base for your business will also help you refine the details around your company to align them to the unique needs and preferences of your target audience. This will affect every part of your business, including your marketing, sales and service strategies.
Another benefit of validation is that it enables you to prove to potential lenders, investors and other supporters that there is value in your idea. This should convince them to support your business by highlighting your ability to generate sales and, thereby, a return on any investment. In this sense, you will be more likely to obtain funding that can further fuel the success of your venture.
Finally, and perhaps most crucially, receiving validation will give you the confidence to achieve your goals. It’s common for every entrepreneur to have fears about failure, but taking the necessary due diligence will allow you to catch any red flags ahead of time and save wasted effort pursuing a business idea that will not work.
How to validate an idea
Due to the importance of verifying the market for your idea, you must do it right. We’ve listed the steps for doing so here.
Start by defining what you want to find out
When validating your business idea, the first task is to understand what it is you want to find out. This will relate to your concept in some way and help you determine whether there is a worth to your value proposition in the market.
Examples of potential questions could include:
- Is there a demand for your product/service?
- Are there competitors in the market, and how many?
- How is your product or service differentiate from the competition?
- Have other businesses succeeded doing what you want to do – and if not, why?
- What are the existing strategies and pricing models of established companies in the market?
- Will your value proposition appeal to a specific target market?
Once you have outlined what you need to find out to verify your idea and whether it’s worth pushing ahead with, you can focus on how you will answer that question.
Create a hypothesis
With a determined question you intend to answer, you next need to make a hypothesis. This is an assumption about what you expect the outcome to be. For example, a theory might be that your value proposition will fulfil a need for a specific target audience.
Once you have set out your assumed findings, it’s your job to prove or disprove them through research. You will also need to contemplate how you will demonstrate the hypothesis, including the criteria you will need to meet to obtain a conclusive answer. So, if your thesis is that your business will address an audience need, criteria you might wish to meet are:
- Your target market has the need you believe you are filling
- Your product/service is a solution to that issue
- The target customer is willing to spend money access your solution
Conduct tests
Having pinpointed what you want to find out, your assumed findings and the criteria you need to meet to form a conclusion, it’s time to focus on how you will prove your hypothesis. Usually, this will mean conducting a test of some kind. There are many ways to do this, including:
- Focus groups
- Creating minimum viable products (MVPs)
- Surveys
- Interviews
- Conversations with industry experts
The test you choose will depend on what it is you are trying to validate. Focus groups and surveys are typically helpful to validate a problem (for example, an assumed issue you believe customers may have in the market), while MVPs are a tool to review the functionality and potential of a product or service.
If you are trying to deem the financial worth of your idea, it might be an idea to run a crowdfunding campaign to see if people are willing to support it (thereby suggesting they want it to be a reality in the market, even at their expense), but this option might be too early in your journey.
When running these tests, remember to keep a record of the results so you can utilise them as evidence of your due diligence and take away any findings.
Review the results
The final step in your validation experiment is to review your results and make the necessary decisions. At this point, you should have answered your original question and either proven or disproven the hypothesis.
Depending on the outcome and whether your assumptions were correct, you need to choose between refining your idea further (perhaps even running additional tests) or developing a business plan based around the concept, in the knowledge that there is value for it in the market.
Validation is not always a straightforward process, so more due diligence may be required, especially as you try to build out the minute detail of the idea. Similarly, there will be continual milestones where the success of your idea is proven, ranging from funding applications and investor pitches to sales levels and marketing buzz. It is therefore essential to keep stock of any findings you come across and react accordingly.
Conclusion
While it is impossible to tell if a business will fail or succeed, having a validated idea that you know has a place in the market is a good indicator of your future performance. This will enable you to move forward with the confidence that it is an idea worth pursuing.
Having done your due diligence will also make it easier to convince others of the potential of your venture, helping you to attract funding and other support. With this, you can enjoy the right foundations for a business that lasts and generates demand.
Once you’re assured that your business idea has what it takes to succeed, you’re going to need capital to turn it into a reality.
Get in touch with Pegasus to find how we can help with our wide range of business funding solutions.