Validating Your Business Idea
Most people have a business idea or a solution to a problem which can help their target market live better. However, not all ideas are feasible. As an entrepreneur, if you are going to be investing your time, money and energy executing an idea, you have to be sure that it is feasible, solving a problem and has a chance of survival in the market. To ensure that the idea is a worthwhile investment, one thing you can do is validate your idea.
Idea validation is the process of gathering data, information and evidence about your idea through experimentation and testing to make fast informed and de-risked information.1
The validation of your idea starts with your idea. Next is the execution of the idea and then, getting paying customers. Idea validation helps you expose your idea to the practicality of the real world before the release of the final product. By validating your idea, you prove that it is more than just a dream, a business plan, or a brand name; you know that it has a chance of survival.
Business idea validation is the process of testing whether or not your idea for a business is worth pursuing.
Why should you execute your idea?
Creating a business name and planning on paper is not enough. Your idea has to be executed in the real world.
In the real world, your business idea becomes real. That is, the people, the target market, they all become real. Generate real-life feedback from experiments. This feedback helps determine the risks and make better-informed decisions.
Idea validation is not only restricted to potential entrepreneurs and future startups, but also existing entrepreneurs. You can use the validation process to prove the concept of the initial business idea, validate the business idea, analyse the target audience, the impact of the organizations’ goals on the existing market, identify risks, and make informed decisions.
Let’s take a look at the story of the Sinclair C5. The Sinclair C5 was a battery-assisted tricycle that was aimed at revolutionizing personal transportation.
It was introduced by a renowned entrepreneur, Clive Sinclair, in 1985. It operated using an electric battery, and its maximum speed of 24 km/h meant it could be used without a driving license. Unfortunately, it has become known as a major business disaster. In the British climate, it could only be used in Southern England during the summer months. There were also concerns that its small size made it dangerous to drive on busy roads. The company sold only around 17,000 cars before stopping production in 1985.
The Sinclair C5 was an engineering triumph considering that the first successful electric cars were seen over 25 years later. However, from a business viewpoint, the Sinclair C5 was a disaster; though it worked well, very few people wanted to buy it. This is just one example of a seemingly good idea that was executed but no one really wanted or needed. A simple idea validation may have revealed this in the validation process.
Validation is ultimately about testing assumptions. It is important to test the riskiest assumption first and not to waste your time on something that doesn’t have potential.
Steps to validating your business idea
1. Define your goal
The first step in validating your business idea is defining your goals. In this stage, you decide what you aim to learn from the validation process and what aspects of your idea you want to validate.
Below are some examples of goals that may be defined:
- Problem – Is there a problem your idea is solving? Is the problem true/worth solving?
- Solution – Is your product/offer enough to solve the problem?
- Features – How will/do the core features of your product work?
- Business model – Is your business model viable and scalable?
- Price – Is there a demand for your product in your intended market? Will the product survive in the market with the price you have set? How does your pricing model work in practice?
The above listed goals are quite popular and are all important. However, you don’t have to limit your goal(s) those. The purpose of your goal is to identify the most essential assumptions relating to your idea and start with that.
2. Develop a hypothesis
Idea validation is about making assumptions and testing them. An assumption made for the purpose of argument to test if it is true or false.
For this investigation, the key is to start with the most critical assumption.
Assumptions with high risk and those you have little knowledge about should have higher priority. The reason for choosing a single risky assumption is to save time. It does take time to validate each assumption, and by choosing the riskiest assumption first, you have a good chance of finding an invalid assumption which will force you to reconsider your core hypothesis and come up with a pivot if need be.
For example, in Airbnb’s case, its main critical assumption was that people are willing to stay at a stranger’s house and that homeowners are willing to rent out their homes to strangers. For Airbnb, this was their most critical assumption because the entire idea depends on other people willing to share their homes. By putting three airbeds on their living room floor and offering a bed-and-breakfast service, they managed to both pay their rent and hit it off with their guests, who enjoyed being shown around and living like a local.
By validating their idea, they recognised that renting out homes wasn’t just a model to be applied to expensive San Francisco at certain times of the year, it could work anywhere, and any time.
Your core hypothesis should be made up of three elements: a customer hypothesis, a problem hypothesis, and a solution hypothesis. A solution hypothesis comes only after you have validated your problem hypothesis.
Steps to developing your hypothesis include:
- Identify your assumptions.
- Reframe assumptions as “hypotheses” – Sample Hypothesis: If Thomas & Co launch their product in an urban rather than in a rural area, they will make more profit.
- Rank them in order of importance.
- Design appropriate tests.
- Conduct the tests.
- Synthesize your learnings.
Once you have developed the hypothesis, you can actually start validating that assumption by running experiments. In other words, an experiment is conducted to learn if your assumption is true or false.
There are various ways you can experiment these include:
- Focus Group Research: bring together a group of people together to provide feedback regarding the product, service, concept, or marketing campaign.
- Prototype: Build a prototype solution based upon your validated assumptions. With it, test and evaluate your potential solution by having customers to interact with a low-fidelity physical prototype.
- Crowdfunding: Use crowdfunding platforms as a way to validate an idea by getting backers to put money into your concept before or while building it.
- Sample Products: give out product samples to the potential consumer free of cost so that they may provide feedback after use.
- Landing Page: Get out of the building (virtually) by using landing pages to test your hypotheses against user expectations and interest.
- Interview Survey– Customer interviews find out whether you are addressing a real need and solving a real problem. Alternatively, use these one-on-one interactions to gain insights into whether your solution actually resonates with your customers.
- Questionnaire Survey: Questionnaire surveys are good for gathering statistical information about the attributes, attitudes, or actions of a population as well as the product or service with a structured set of questions.
- App Mockup: Create a clickable/tappable prototype of an App or a digital service.
- Picnic in the Graveyard: Investigate the biggest failures in your industry and understand the reasons for them. What can you learn from Sinclair C5,?
- Alpha and Beta testing: Test your products with alpha and beta tests to provide a complete overview of the true product or service experience gained by the end-users while experiencing the product. Alpha Testing is performed by the testers within the organization, while Beta Testing is performed by the end-users outside of the organisation.
- AB Testing: A or B? Test two versions of a product with a sample of users, then use the winning version.
- Wizard of Oz: Work ‘behind the scenes’ to deliver the service manually, without huge infrastructure, but make customers believe that the infrastructure is already in place.
- Imposter Judo: Use a related website/product as if it were your own. Repackage an existing product. If a similar idea already exists, you can use it as a quick and simple way to gather feedback. With imposter judo, leverage the ‘fake it till you make it’ rule.
- Pre-sales campaign: Talk to your customers and gauge their interest by testing their willingness to pre-order.
- Co-creation: Involve a key customer early in the development process.
- Process Simulation: Create a simulation of a process improvement and make evidence-based decisions.
- Product simulation: Create digital models to virtually simulate product features and make evidence-based decisions.
4. Analyse and Validate
In this stage, you should confirm your assumption to be either valid or invalid, based on the results of the experiments conducted with the hypothesis. If your idea has potential, and the most critical hypothesis is correct, you can start refining your idea.
When you analyze you should look for:
- Major patterns and themes
- Supporting and disproving findings in comparison with hypotheses
- Surprising findings
- Emotional response from users
- Interesting user stories
- Typical wordings and expression users apply
Although validation is not always a guarantee of success, as it’s the execution that matters, having validated the most critical assumptions, using the data you’ve gathered in the validation process will definitely help when you start developing and implementing your idea.