Validating Any Business Idea
The validation process of your business idea will help you determine if there is a need for your offering in your target market. When you verify your business idea, you will be able to forecast whether people are willing to spend money on your product and whether your efforts will be profitable. (1).
If you’re a startup founder, you’re certainly aware of the necessity of validating ideas early on in the process. Otherwise, you risk squandering valuable time and money on a product that isn’t a suitable fit.
In addition, when you secure validation for your business idea, you also instill confidence among your stakeholders, gain deeper insights into your target customers, and even help you gain higher conversion (2) (Read Also: Advertising Conversion: 10 Tips for Writing High-Converting Ads).
#1 You Need to Build a Strong USP
The USP, Unique Selling Proposition is what sets you apart from your competitors.
It is an overall theme for all your marketing efforts that can help you summarize the essence of your business in a single sentence.
“Why should customers purchase your product instead of your competitors” is the question your USP answers for your target customers.
That’s why creating a USP before launching a product or service is a solid strategy to predict if it will sell.
If your offering doesn’t stand out from the crowd, why would anyone want to buy it? Is it anything consumers will regard as valuable, even if something makes your product or service stand out? Why invest time or money in producing a product that will not be viable in the market if both of these requirements are not met?
Below are some tips you need to know to create and convey your USP to your audience:
- Your USP needs to offer a specific benefit that your customers deem attractive.
- You cannot use vague language and must be specific, so your customers know how to apply the benefit your product offers.
- You can start by reviewing your business offerings from the perspective of your target audience and analyzing their needs, like lower prices, better customer service, faster delivery, etc.
- Determine specific benefits you offer your customers, but your competitors don’t.
- Ensure you are doing enough to differentiate your business from your competitors; otherwise, you can’t gain an edge.
- Learn from some famous USP examples like Subway, M&Ms, Apple, FedEx, etc., and try to put together your USP slogan.
- Be sure to make your one-sentence slogan memorable enough and self-explanatory.
- Use your USP in all your social media posts, marketing materials, and advertisements.
#2 Conduct SWOT Analysis
It is a strategic planning method that can help you evaluate your strengths, weaknesses, potential opportunities, and challenges (6).
You can typically use it as part of your marketing strategy, general business planning, and jumping-off point for team conversations. And if done properly, you can gain a plethora of information with a SWOT analysis with varied applications.
The most common representation of a SWOT matrix is a square divided into four quadrants:
The easiest way to fill each quadrant is by answering a series of questions relevant to your business and market situation.
Below are some questions you can answer during the process:
You will need to think about attributes that can help you achieve your goals for this quadrant.
- What skills do you have that others don’t?
- What is your level of expertise or specialized knowledge?
- What is your background?
- What differentiates you from your competitors?
- In your business, where do you make the most profit?
You will need to think about the attributes that can prevent you from achieving your business goals.
- What areas of your life do you need to improve?
- What are your shortfalls in terms of resources?
- What areas of your company are losing money?
- What more education and experience do you need?
- What part of your business costs you more time and money?
Think of external conditions that can help you achieve your goals for this quadrant.
- What are your current business objectives?
- How can you improve your relationship with your existing customers?
- How can technology help you grow your company?
- Are there any new target audiences you could reach?
- Are there any associated products or services that could help you expand your business?
You will need to think about external conditions that can damage the performance of your business or prevent you from achieving your goals.
- What challenges do you have to overcome?
- What are the advantages of your main competitors?
- What are the things that your competitors are doing that you are not?
- What’s the state of the economy?
- What is the state of the industry?
And once you compile the information you gain from the analysis, you can find new business strategies and goals. It can include ideas to build your strengths, setting goals for new opportunities, validating your business idea based on your threats, strengths, and weaknesses.
You can even explore different ways to combine your opportunities and strengths to create new business strategies, remove threats, and build a list of areas you need to improve. Once you understand how you can effectively use your SWOT data, you will find several ways to use it in your business to find new opportunities, validate your business ideas, and improve your overall decision-making process (7, 8).
#3 Check Your Financial Feasibility
When it comes to validating any business idea, checking your finances is a critical step (9).
Financial analysis will help you determine the total cost to get your business running, the initial and ongoing expenses to keep your business running, its earning potential, and different ways you can bridge the financial gap between your startup and maintain profitability.
Even if it is discouraging to learn that your company model is risky or unfeasible in a particular market, this knowledge can save you time and money. It will help you avoid wasting your resources only to face a financial failure (10). (Suggested Reading: Best Content Marketing Tools For Your Startup (2021))
#4 Use the ICE System
You can also use the ICE system to evaluate your business ideas as per their impact, confidence, and effort criteria. Such an approach is used to set business priorities, and you can easily apply this system to any product (11, 12).
The Impact of Hypothesis on Achieving Your Goal – h3
Determine how much a single concept will impact and contribute to your desired outcome. Assign a number from 0 to 3 to your business idea, with 3 representing something that can entirely change the game and multiply metrics and 0 representing a complete lack of influence on the outcome.
Consider how confident you are in your idea’s ability to work and accomplish the desired result, then mark it on a range of 0% to 100%.
For instance, you can put 70 to 100% on cases where you already have representative data you can trust. You have done comparative trials before, and they have been successful, for instance. You can put numbers between 50 to 70% in case your idea is based on a well-known practice that is already working out for your competitors.
However, in a circumstance where you only have subjective opinions, you will need to give it 50% or below numbers and discuss if the idea is worth trying or just too risky.
Effort in Hours
This component depicts how much time you will need to put the idea into action. Ask your team members how long it will take each of them to put this notion into action. Add those hours together and figure out the total.
Effect = Impact * Effort
Once you collect all the data, you can calculate the total value of your business idea, allowing you to make an objective decision.
#5 Follow The Gameplay Video Approach
Another way you can test your business idea is to validate it at the positioning level (13).
Such an approach is common in the hyper-casual gaming market when publishers often promote only the gameplay video even if the game itself doesn’t exist. However, if the gameplay video indicates demand, publishers quickly develop the game further (14).
This approach allows developers to save their budget if they don’t detect any demand.
You can also apply the same approach to your business idea. Instead of launching the final version of your business offering, you can run multiple positioning tests and detect demand.
You can see which of your positionings garner the most demand with high-quality target leads and the lowest CPL. Then, you can allocate your resources based on your results, which would help you save a lot of resources.
Moreover, you can use this same approach in other business challenges, whether it is about deciding which product you should launch, which market you should enter next etc.
Overall, the goal of validating any business idea is not to waste time, money, and other resources on a service or product that is not interesting to your audience.
It is much easier to go on to the next phases of your business once you have validated your business idea.
“Remember that creating a business around demand is far easier than building a demand around a business (15).”