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Validate your Business Idea in 12 Easy Steps

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Published at 28 October 2023

We entrepreneurs have some great qualities: We’re brave, resourceful, determined, creative, 

(I could go on, of course!). But we need to be aware that we way too often share a fatal flaw: 

When you get that new business idea, it’s so exciting. You’re buzzing. You tell everyone. 

Testing out business ideas before heavily investing time and money is a dangerously unused skill, so today, before you run off and start your company, we’re going to help you take a look at the anatomy of a good business idea,  explore the critical factors that can determine its success, and most importantly, learn how you test the idea with your audience.

Understanding the Essence of a Business Idea

At its core, a business idea serves as the reason for starting a business. It dictates every facet of a company, from the products and services you offer to your marketing strategies and the name of your business, and while a business idea doesn't necessarily have to be entirely unique, it must possess the potential to capture a portion of your target market. 

Put differently, your business should offer something distinctive compared to what already exists on the market, meaning you need to do something new, do something differently, do something more cheaply, or do something better, and this premise should form the basis of your idea. Then, you must prove that other people agree that your great idea is indeed a great idea.

Business ideas can take various forms, including:

1. A Gap in the Market

Identifying an unmet need for your potential customers or demand within the market can be a great basis for a compelling business idea. If you can recognize a gap that your product or service can fill, you could be on the right track.

2. New Product, Service, or Invention

Innovation often underpins successful business ideas and introducing a novel product, service, or invention can create a niche for your business in the market.

3. An Innovative Solution to an Everyday Problem

Solving common problems in innovative ways can lead to viable business ideas. Start by ensuring that the pain points exist for your customer and look for solutions that simplify or improve people's lives. Remember, identify the problem first, create the solution second. The downfall of many entrepreneurs has been attempting to solve a problem that doesn’t actually exist! 

You don’t always need to reinvent the wheel. Sometimes the outcome of your innovation and creativity can be figuring out how to offer the same solution at a lower price to your competitors.

4. An Interest or Hobby That Can Be Monetised

Sometimes, your passions and hobbies can translate into profitable ventures. If you're passionate about something, explore how it can be monetised.

5. Utilised Skills from Your Career

Leveraging the skills and expertise you've gained during your career can be a valid reason to create a business from it, and your industry knowledge can set you apart. Are there any products or services that you know that the customers of your current business would want or need, that the company you work for doesn’t provide?

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Ensuring Market Viability

For a business idea to thrive, there must be a sufficient demand for your products or services. Ideally, the market should be growing, as this attracts investors and signifies future business growth potential, and it's essential to ensure your chosen market is sustainable. 
Avoid riding on short-lived trends that can leave your business with no customers, and conduct thorough market research to gauge your idea's viability. Google Trends is your friend.

Able to Generate a Profit

A business idea must go beyond sounding like a good idea and even beyond having your customers tell you they love it; it must be commercially viable. 

Investors are unlikely to back an idea unless there's a clear demonstration that it can generate substantial profit, so you’ll need to conduct comprehensive research to determine production costs, selling prices, and essential expenses like salaries, manufacturing costs, and raw materials. 

Once you've done that, consider hiring an expert to help you prepare your company financial projection documents: Your P&L, cashflow projections, and projected balance sheets.

If your idea doesn't show profitability, consider either pivoting to a more viable concept or taking steps to make it profitable. Seeking advice from experienced businesspeople can provide valuable insights, and trialling your idea before going ‘all-in’ can be a great idea. 

A Rauva customer who employed this method with great success operates a bagel takeaway in the Algarve. To prove she had a market, she initially started making bagels in her own kitchen and delivering them on foot to local customers and businesses. Once she proved the demand and identified key costs and operational factors, only then did she take a lease on a shop and create a brand. 

Potential for Further Growth

The best businesses not only turn a profit but also exhibit potential for growth. 

This growth can manifest as an expanded product range or branching out into new markets. Operating within an expanding sector is advantageous as it allows you to tap into emerging marketing opportunities and ensures your business reaches its full potential. Additionally, leveraging the internet is crucial for boosting sales and expanding your customer base in today's digital age.

Don’t try to run before you can walk, and at first you should focus on your core offering, however there’s no harm in defining your growth ambitions and direction from the outset. 

Serving a Purpose

Products or services offered by your business idea should serve a purpose or solve a problem. Customers must perceive long-term value in what you provide, and this value should be clear and distinct. Demonstrating that your offerings not only solve a problem but do so more efficiently than competitors' products can be the key to attracting and retaining customers.

Be sure you can communicate your value proposition succinctly. Not being able to describe the reason your business exists in a sentence is the quickest way to confuse and repel potential customers.

Ensuring Commercial Viability

Your business idea must align with the constraints of a startup. While some concepts may appear lucrative in theory, they may not be practical to execute. 

Inventions and food products, for instance, often require substantial startup capital to even get your product in front of your first customers, which can be a significant hurdle. If your idea centres around a product, collaborate extensively with manufacturers before embarking on your journey. Ensure that you can produce the product cost-effectively for your MVP and in the early stages; if not, it might be time to reconsider your approach.

Testing your Idea with your Audience

So, the concept of your idea ticks all the boxes. Before you register your business, invest too much time, effort and money, you need to get the nod from your audience, but there are very common mistakes that most entrepreneurs make at this stage. 

Picture the scene. A new and excited entrepreneur speaking to his friend about his great idea:

Entrepreneur: “Hey Friend! I’ve got a great idea for a business! I’m going to …. (fill in the blank)”

Friend: “Oh, what a great idea! I love it!”

And this happens all the time, because this is what friends do. This is not market validation. 

Instead, do the following:

Talking to your audience in a way that doesn’t put words in their mouth or encourage biased responses is a crucial skill to learn as an entrepreneur, however it’s essential to receive quality feedback, can potentially save you huge amounts of time and money, and will help you develop products that truly serve your customers needs, and enable you to craft marketing strategies that will speak to them. 

In conclusion, a successful business idea must tick several boxes, including satisfying market demand, being commercially viable, exhibiting growth potential, and, most importantly, be something that your audience will buy. 

You can’t have too much validation before launching your business, so don’t skip this part, regardless of how excited you are to move on to the fun stuff! 

Onwards entrepreneurs!

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