Most people can produce several business ideas over the course of their lifetime. Some of these ideas seem like the best thing that happened since sliced bread while others seem “meh” after a while. In both cases though, the most critical questions that need to be answered are:
- Do people want this?
- Will people pay money for this?
- How much are they willing to pay?
- Does this business idea have a high potential to be profitable?
It is a well-known fact, that the most important objective of any business is to generate revenue and make profit. So beyond generating business ideas, one must validate these business ideas to ensure profit maximization and loss aversion. Most businesses do not fail because they are undercapitalized, instead they set themselves up for failure because adequate research, testing and preparation were not done initially. Hence, the importance of validating business ideas.
If you have an idea and you are considering setting up a business, the following seven steps should give you a better chance at launching a successful business:
STEP 1: RESEARCH THE IDEA AND DETERMINE WHICH SOLUTIONS ALREADY EXIST
One of the best ways to validate a business idea/ several idea is to make sure that people are searching for it or there are similar businesses already existing. If they are not searching for it, it might be a sign that nobody needs it. Another thing to look out for is that some ideas have been implemented by several business owners and it appears impossible to make it work. This might be an indicator to avoid a business idea/solution. There are several ways to find out to see if your product idea is being researched e.g., The use of google survey. Additionally, online tools such as Google Insights, Google Trends and the Google Keyword Planner will show you how often people are searching for specific terms, where those customers are located and whether the topics are growing in popularity.
If your business idea(s) is being researched, then it is important to determine if your proposed solution already exists. After you have done your research, if your solution already has robust competition, you can either ditch it or proceed with it. You just need to bear in mind that it might be tougher to break into the space. In the scenario where you are trying to choose which idea to run with amongst several, you can discard the ones with robust competition and proceed to the next step.
STEP 2: RATE YOUR REMAINING IDEAS
After deleting any idea that is not being researched and has a robust competition, the next step is to rate your remaining ideas. This can be done based on three attributes on a scale of 0 – 10. 0 being the worst and 10 being the best:
- Investment cost
- Personal interest
- Potential profit
Look at each of the idea(s) and assign three separate numbers to it based on this scale. After rating each idea against these three attributes, add up the total for each idea. Rank your ideas from the highest to the lowest total score. Your cue is to focus on the ideas with the highest total score.
STEP 3: FORECAST YOUR REVENUE AND EXPENSES FOR YOUR TOP IDEAS
Create a simple spreadsheet for each idea. On one side, estimate your revenue. On the other side, estimate your expenses. Expenses include both overhead cost (costs that do not change based on the quantity of products or services you sell (rent, insurance etc.) and operating cost (costs associated with making a product or providing a service (electricity, supplies, office equipment etc.,). Using your forecasts, you can get a better sense of the profit potential for each idea.
STEP 4: IDENTIFY POTENTIAL CUSTOMERS AND GET FEEDBACK FROM THEM
Reaching out to potential customers to ensure your product/service is going to solve their specific needs may very well be one of the most critical parts of validating your business idea. You need to reach out to your potential target customer and ask them if your product idea addresses a specific pain-point for them, and if they would pay for it. Although your family and friends might fit the profile of your target client, it is best you seek feedback from people beyond your close circle to eliminate the risk of bias.
Pitch your ideas and see which ones they like the best. You can set up a free survey using Google Forms, SurveyMonkey and many others. You should talk to real potential customers about their needs, wants and expectations. The questions in the survey must be well thought out so that it achieves the goal of helping you identify who your true target demographic is, how useful your solution is to them and get answers around pricing and market size.
STEP 5: EXAMINE YOUR RANKINGS COLLECTIVELY
Your total score from Step 2, forecasts in Step 3, and feedback in Step 4 should help you identify the strongest ideas on your list. Refine your top one to three ideas and use them. Ideas with the highest scores after the addition of scores given under the steps are considered more profitable. That is, if an idea has a high score under step 2 and has a high potential for profit but does not receive positive feedback from potential customers, one should avoid that idea.
STEP 6: SET UP CONSUMER TESTS TO VALIDATE YOUR MINIMUM VIABLE PRODUCT (MVP)
This step is critical and will save you money and time. Before you spend all your money building an app or stocking up on inventory, make sure a sizable number of customers will pay for your product or service. The dictum, “If you build it, they will come” does not hold true in the entrepreneurial world.
If your business idea is a product, create a prototype of the product. You can create the prototype yourself or hire someone in that industry to create it for you. The point of a prototype is that it does not have to be perfect before you ship it. There are several consumer testing methods you can employ to validate your product, some include:
- Create an online storefront and start taking pre-orders.
- Create an online landing page.
- List your product on a virtual store like Jumia, Konga, Shopify etc. and see if you receive any sales after marketing.
- Email and call retail stores outside of where you live about the possibility of stocking your product.
If your business idea is a service, you need to assess if potential customers are interested in using your service. This can be done in several ways, some of which include:
- Creating a website and taking bookings.
- Create a simple landing page.
- Calling and emailing potential customers to see if they would be interested in using your service.
- Selling pre-orders for a course
Once you have tested your ideas using the above methods, you should have an idea of how interested customers are in your product or service. This will further solidify if it is worth pursuing or not.
STEP 7: LAUNCH A CROWDFUNDING CAMPAIGN (OPTIONAL)
After confirming whether the product or service is worth pursuing the next optional last step is to launch a crowdfunding campaign. This will help with exposure and additional funding. It is a way to raise money by collecting donations through family, friends, friends of friends, strangers, businesses, and more. By using social media to spread awareness, people can reach more potential donors.
There are various platforms that can be used for crowdfunding. Some of the most common ones include, GoFundMe, Kickstarter, IndieGoGo, Fundly and even platforms like Facebook and Instagram.
Developing an innovative idea or launching a business from scratch is no easy feat, but in the digital age there are platforms and touchpoints for testing your idea and connecting with new audiences. Trust your instincts, follow your passion, observe every step of the validation process, and you will increase your chances at having a successful business
By Mubinah Hassan
Intern