Validating the business idea is the first step you need to take when you have an intuition that you think is a winner and you decide to start a successful startup and make it work. But what does it mean to validate the business idea?
There is a lot of confusion around this topic and, therefore, this guide aims to clarify, first of all, why you should validate your idea. We will then explain, step by step, technique by technique, how to do it so that you can reduce your risks and optimize your resources to increase your chances of success.
Why and how to validate an idea before investing resources
As promised, the first section of this guide is devoted to the reasons why it is essential to validate a business idea before investing resources to realize the product or service to be launched in the market.
The first reason is already in the premise: this step saves you money by clearly showing you whether it is really worth spending money on the creation of a product or service.
Through this process you have the opportunity to see whether your potential customers perceive a particular need and, more importantly, whether they are willing to pay what you expect for the solution you plan to propose.
As for, however, “how” to validate the business idea, at the moment it is enough for you to know that this process consists of several steps, starting with the so-called Customer Validation, that is, the validation of the customer-problem pair.
Now, however, it is time to delve into the (decisive) role that business idea validation plays within a startup.
The role of validation for startups
Business idea validation proves invaluable especially for startups, since for these particular companies reducing the risk of failure and optimizing the resources available (often few, at least in the early days) can make a real difference.
Many startuppers make the mistake of allowing themselves to be tempted by the possibility of launching their solution on the market immediately, believing in this way that they will save time, money and energy that they can devote to other activities. The risk, however, is that they will never be able to achieve the steps following the launch.
Contrary to what many people think, in fact it is through the business idea validation process that you can save time and money.
Risk reduction and resource optimization
The possibility of reducing the risk of going out of business through business idea validation we have already discussed a few lines above. In addition to making sure that there is indeed a need that you think you are capable of satisfying (and verifying that consumers are willing to pay for you to do so), this process is also useful in identifying possible problems and finding the most timely and effective solutions to solve them.
Not only that, business idea validation also provides you with concrete feedback from consumers, based on which you can optimize resources to refine your product/service.
And that’s not all: validating your idea allows you to publicize your solution and thus increase the interest of your potential customers.
Definition, main objectives, and steps
Before delving into the main techniques for validating a business idea, it is worth making a premise: any technique, even the most effective, will prove useless if you do not first define what your main goals are. That is not, however, the only thing you will need to define.
Just speaking of “defining,” to proceed in order, it is first necessary to recall the definition of business idea validation: in technical terms, business idea validation is that process that allows you to achieve what is known as problem-solution fit, validating the solution at the heart of your business idea as the best possible solution to the problem you have identified in a given customer segment, before proceeding to launch it to market.
You should now know that, based on this definition, it is possible to divide the business idea validation process into three distinct stages:
- Customer Validation
- Market study
- Solution Validation.
In the first phase, that is, the so-called Customer Validation phase, the goal is to ascertain that there is a segment of customers who are looking for a solution to a problem for which they are willing to spend money.
To accomplish this, you need to know that you have several tools at your disposal.
The Javelin Board, for example, is the best tool for validating a business idea and customer-problem pair from a Lean perspective (i.e., listening to the market and making decisions driven by consumer feedback). On a practical level, it is a graphic slate used to figure out which type of customer is most in line with the problem you want to solve and the solution you want to offer. Its key elements are: customer, problem, riskiest assumptions, solution, and success criterion.
Another important step is the definition of Buyer Personas, which aim to put down on paper the buying behaviors, habits and preferences of your customer-types.
Other very useful tools when validating the customer-problem pair, especially for first-time startuppers, are questionnaires and interviews.
The last tool we want to make you aware of is the so-called Problem-Solution Fit Canvas, which is intended to organize all the information gathered at this stage more clearly.
The next stage (Market Study) is where you need to analyze the behavior of your competitors (direct and indirect) and their performance, as well as trends in the market you want to enter and consumer interests.
You will not be surprised to learn that competitive analysis is a key step at this stage. Your study, however, needs to take a broader look: to better understand the market, you can use, for example, a SWOT analysis, which sheds light on your strengths and weaknesses and the threats and opportunities you may face.
The third and final stage, called Solution Validation, is where you validate your solution, that is, you make sure that the product or service you intend to make is precisely the best solution to the problem encountered by customers.
To validate your proposed solution, it is critical, first, to define your Unique Value Proposition, which is the unique proposition of value your startup can offer.
Equally crucial is to define an effective marketing strategy, which is based on four basic elements (the 4 P’s): product, price, promotion and positioning.
Finally, there are two other very important tools in Solution Validation: the Smoke Test and the Minimum Viable Product. These more “practical” elements play a decisive role in the validation of a business idea because, as Thomas Edison teaches,
“the value of an idea is in putting it into practice.”
We will discuss this in more detail in the next few lines.
The main techniques for validating a business idea
The time has come to delve into the main techniques for validating a business idea. The first one we will discuss is precisely the Minimum Viable Product (MVP).
Minimum Viable Product (MVP)
The Minimum Viable Product is the first simplified version of the product or service you intend to make, equipped with the minimum set of features necessary to meet customer needs.
This tool is used to quickly test the business idea and get concrete feedback that is useful in understanding which features customers like best and which, on the other hand, need to be corrected or eliminated.
Market Testing
Another valid technique is market testing, which involves releasing the product/service to a limited audience in order to observe consumer response, measure performance, and make adjustments as necessary.
This test has the advantage of assessing the feasibility and chances of success of a product/service before it is launched to market on a larger scale.
Direct feedback from potential customers
The ability to obtain direct feedback from consumers plays a key role in assessing the prospects for success of a business idea. Very useful in this regard are customer relationship management software, as well as questionnaires and interviews.
Data and competitive analysis
Don’t underestimate the role of competitors in your climb to success (or, in the worst case, in the nosedive to failure): analyzing their behavior in the validation phase of the business idea is very important.
Competitor analysis uses a variety of tools and techniques (from SWOT analysis to Porter’s 5 forces model and the Value Proposition Canvas), through which you can identify strengths and weaknesses and better understand the industry and competitive landscape, so you can then secure a competitive advantage over your rivals.
Crowdfunding as validation
Many startuppers use the crowdfunding system as a mechanism to validate their business idea.
This particular mode of financing, for example, can help to measure (and increase) interest in a product or service in the marketplace, gather direct feedback useful for understanding strengths and weaknesses, and check whether the price thought to be appropriate for the value perceived by customers.
Common mistakes in validating a business idea
Up to this point we have focused on what to do to validate a business idea. In the next few lines, however, you will find out what not to do.
One of the most common mistakes when validating a business idea is made when subjecting customers to questionnaires and interviews: questions are often formulated incorrectly, feedback received is collected incorrectly, or questions are asked of the wrong people.
In the former case, it is generally a good idea to favor “past tense” questions based on the consumer’s actual experience. As for data collection through questionnaires and interviews, the advice is to favor, at least in the initial stage, closed-ended questions, so as to make it easier to categorize responses.
The third mistake can be easily avoided thanks to two valuable tools previously mentioned: the Buyer Personas and the Javelin Board.
Another big mistake usually made by those struggling with business idea validation is confusing solution with problem. In fact, among the main reasons why you fail to get adequate feedback is the difficulty in telling prospective clients about your business idea. A point needs to be made on this aspect, but given its importance, it deserves a separate paragraph.
How to get started with validation
Effectively telling your insight is critical if you want to validate the idea and assumptions of your business model before you take the famous “leap of faith.”
In this regard, remember that you have to start validating the business idea by validating, first of all, the problem. That is, you must check how it is perceived by consumers and analyze their behavior in the face of it. Only once you have ascertained the existence of a problem can you validate your solution, through MVP and Smoke Test.
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