Validate a Business Idea - A 10 Step Guide

The path to validating a business idea is not as difficult as people think. The problem most people have is being to careful with their business idea. Inside you will find a step by step guide on how to validate a business idea.

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WHAT's INSIDE
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10 icons depicting how to validate a business idea

Idea’s are easy.

Making a business out of them is the hard part.

The biggest mistake new entrepreneurs make is treating their ideas carefully. I was guilty of this. I wrapped them up in bubble wrap, hid them from the world and then slowly and quietly started working on them on my own.

Luckily for me, I learned that’s a terrible way to deal with business ideas early on.

From about the age of 10, I was determined to start a business. I was the first kid to set up shop on the side of the road and spend the day throwing stones at a target, waiting for the neighborhood moms to stop by and buy whatever I was offering that summer.

Year after year I’d pedal off different things: fruit, toys, cards — anything. I came to realize how hard it was trying to get new customers. The hit rate of a car that drove past and stopped was really low. So I figured it would be easier to sell to fewer people and have them buy from me more than once than constantly trying to sell to everyone — like a grocery store does.

So one day, when a mom from my school who had bought from me before stopped to grab a bag of my avocado’s — the flavor of that summer — I asked her: “I hate sitting out here all day wasting time. What could I sell you most days that you’d need?” Her reply was simple, “Well I buy bread and milk almost every day.”

So that’s what I did. For the next few weeks, I’d go buy bread and milk and deliver it around our neighborhood on my bike. I started with one paying customer, and soon grew as I got hold of my mom’s phone book (remember those?) and SMS’d everyone on it in our area.

I learned a super valuable lesson from that: Market research. If I wasn’t a chubby little boy sitting on the side of the road, I’d likely never have sold any plums, birthday cards or toy push cars. The only thing on my side was the “look how cute and entrepreneurial he is” factor. But by asking someone what they wanted, I was doing a form of market research. And from that, I was able to do less work, sell more, make more money, and spend more time playing with my friends.

My dad helped me synthesize my experience into one of the most valuable lessons of entrepreneurship I learned. I remember him saying so clearly, “You can’t sell something that people don’t want. Ask people what they want, then be the best at selling it to them.”

I’ve kept that as a guiding ‘north star’ for any new business I want to start. I never spend a single cent or second on a new business without first validating the idea thoroughly.

This is the process I’ve learned and developed over the years. It takes you through the entire pre-launch process, step by step.

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1: A Why

Here’s the difficult truth: Starting a business is hard.

If it were easy, everyone would be entrepreneurs who own their own businesses. If you can overcome the hurdles along the way, the reward of owning and building your own business is well worth it.

However, you need something to lean on when times do get hard. You need a why. Why am I doing this? Why should I keep going?

Task

Write a description of your life as you imagine it in 5 years after you’ve started your own successful business.

What does your day to day look like?

How much financial freedom do you have?

What are your stress levels like?

How much time do you get to spend with your family?

Include everything that is important to you. Include pictures, emotions and vivid descriptions. The more life-like the better.

That’s your “why”. That’s what you’re going to refer to every single time things start getting tough.

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2: A Problem

The most common mistake most first-time entrepreneurs make: Starting with a solution. That little boy on the side of the road selling sour plums started with a solution.

Every good business is built off the back of a problem that people need to solve, and will pay money to do that.

The customer might not know that problem exists yet (think of when Facebook was founded, no one knew they needed it), but every good business solves a problem.

Task

What problem are you solving? Write it down.

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3: A Solution

You’ve got your problem, now you need a way to solve it.

The strength of your solution is going to be a big determining factor in how successful your business is.

When you think you’ve found a good solution to the problem, consider these:

  1. Do you have the skills/know-how/drive to make that solution come to life?
  2. Does your solution suit you as a person?
  3. Does your solution suit your desired lifestyle? (Think about step 1)

Task

If you’ve answered those three questions and you’re still positive about how you’re going to solve your problem, you’ve found ‘product-founder fit’.

If you are unsure about one of the three answers, start brainstorming. How can you solve the problem (step 2) in such a way that after these three questions you’ll still be excited about the project.

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4: A Customer

Now you need to find out if someone is going to buy your solution to their problem.

A lot of first-time entrepreneurs could save themselves a lot of wasted time, effort and money down the line by doing this thoroughly. But they don’t.

The reason is, there’s a stigma attached to business ideas. Most people think you should hold them sacred and wrap them in bubble wrap until it’s time to make money.

That’s absolutely the worst way to handle a business idea.

Before you make a business out of a potential solution, you need to thoroughly test it. Put it through its paces. Pick it apart from every angle possible. If it stands up to that — it’s a good one. If it doesn’t — great. You’ve saved yourself a lot of time and money and you can free up some mental bandwidth for finding the next problem that needs to be solved.

Task

Go to where your customers are and ask. You can do this in so many ways, among these:

  • Cold email,
  • Quora,
  • Reddit,
  • Phone call,
  • In-person (conferences, meetups, etc.).

You’d be surprised at how forthcoming people are with advice/input when you ask them for it.

Here’s a great cold email example for a B2B Saas product:

Hi [First name]

Sorry for the out of the blue email.

I know you’re busy, so I’ll cut straight to it: I need your input on something important. It’ll take less than a minute of your time.

Business owners like you have to deal with [problem you’re solving] a lot. I’m building software that helps you solve that by doing, [x], [y] and [z].

Would you pay for something like that?

Thanks for your help here — I really appreciate it.

— [Your Name]

PS: If you’ve got any input on how I can make this a better solution for you, please do let me know.

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5: Customer Profile

We’ve dealt with the what, the how — now it’s time for the who. As in, who is going to buy your product.

The biggest mistake people make is not clearly defining their target audience. Remember, you’re solving a specific problem for a specific person. You can’t sell that problem to everyone.

Targeting a very specific customer is going to be helpful. It will help you target your marketing message, build your brand, and find product-market fit as soon as possible.

Task

The best way to make sure your company is aligned with who they are targeting is to create a very specific customer profile. This is a very in-depth description of who your customer is, what they do, what their habits and interests are, and how they interact within your market.

When I create customer profiles, I like to think of them based on how you can target your customers using metrics and search intents on the internet, along with a few other data points.

Here’s an example:

Demographics

- Male
- Mid 30's
- Married, 2 young kids
- College Degree
- Lives in San Francisco
- Earns $5 000+ monthly
- Works at a VC fund as a medium-level analyst

Buying Habits

- Compares options before buying
- Doesn’t like to waste, so buys food more frequently, in smaller quantities
- Shops online for convenience
- Price conscious, but would prefer to spend more on a quality product
- Prefer to pay a bit more to support local businesses

Psychographics (yes, that’s a word)

- Outdoors person
- Likes having his own time
- Driven, intrinsically motivated
- Values financial freedom — has a rainy day fund
- Values time with family

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6: Customer Analysis

You know who your customer is. Now, it’s time to check that you’ve got product-customer fit.

It’s all good and well having a great product, but if you’re trying to sell it to the wrong people, you’re not going to make any progress.

Task

Answer these questions, sequentially:

  1. How many customers are there, like the one you’ve described above?
    I like to use search metrics to quantify this.
    If you’re selling an anti-anxiety blanket, you’ll get a pretty good sense of the demand for that product by looking at the search volume for keywords like “anti-anxiety blanket buy” or “best anti-anxiety blankets” or “best blankets for anxiety”.
    If you use a tool like Google Ads, they have a Keyword Planner which will also suggest keywords that are similar. Build a list of keywords and then check for the search volume.
    Depending on what you’re selling, anything above a few thousand hits per month on very intent-specific keywords is a good signal to continue.
  2. Can your customer use the solution?
    It’s all very well making anti-anxiety blankets, but if you live in the world’s hottest country in the tropics, you’re probably better off finding a better solution for treating anxiety.
  3. Where can you find/reach those customers easily?
    Think of both digital and in real life.
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7: Problem-Solution Fit

Problem-solution fit is basically answering the question of: “Does my solution actually solve the problem that I built it off of?”

It sounds fairly self-explanatory. But a lot of founders can get this wrong. They build something which they think solves the problem perfectly, but for a variety of potential reasons, actually fails.

You’re finding a solution for the people who have the problem — not for you.

The main question you need to ask yourself here is: Who is this for?

If you’ve properly defined your customer above, then this step is a lot easier. If you’re trying to be everything to everyone, this becomes difficult.

Task

Find 10 customers from every corner of the niche you’re targeting. Engage with them and validate that they do have the problem you’re setting out to solve:

“Do you battle with creating profitable Facebook ads?”

If yes, continue.

If no, disregard and find someone else who is in your target market.

“I’ve built a solution to that problem. It helps you create profitable ads by doing x, y and z. I have two questions for you:
1. Does that solution help solve your problem?
2. Would you use that solution?”

And that’s it. Take that feedback and tinker with your solution until you’ve got a fit. You’ve got to get your hands dirty here. But it will be worth it down the line.

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8: Industry Analysis

That’s most of the hard work done.

Now you need to know what arena you’re stepping into. What does the industry you’re jumping into look like? Where are the companies that are succeeding (and more importantly), where are the companies that are failing?

Be prepared for this to take you a solid day of reading and researching. It’ll be worth it. You’ll learn from other companies’ mistakes so you don’t make them yourself, and capitalize on other companies’ successes without having had to have find your way there.

Here’s a good way to get started:

Task

Ask yourself this: If I were one of my potential customers, how would I find the service/product I’m providing?

Would you Google it? Ask on a forum?

Do that. And find the 5 (or more, if you want to be more thorough) competitors in the space you’re entering. For each company ask the following questions:

  • ‍What are they doing well (positives)?
  • What are they doing poorly (Negatives)?
  • What is their product?
  • Where is their market (place)?
  • How do they get their product to that market (Distribution)?
  • How do they advertise their product (Marketing channels)?
  • What can you learn from them?
  • What should you not copy from them?

Here’s a template:

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If you come out of this step still optimistic that you’re entering a space that you can compete in, and your value proposition is unique from any other’s out there — then carry on to the next step.

If you feel a bit disheartened by this and realized that there are other much bigger companies solving the problem you are, you have three options:

  1. Ask yourself how you can service the niche better. What could differentiate you from those big businesses?
  2. Niche-down even further. Go into a sub-sector of the audience that the big company is targeting and build a solution specifically for them. Once you have a foothold, you can then expand.
  3. Move on. There’s no shame in it. You’ll be on to your next idea in no time at all.
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9: Startup Capital

One of the most daunting things that face most entrepreneurs: Where do I get the capital to start?

If you don’t have any savings or an additional income that can get your business started, it can be a major hurdle.

This is why I’m a big fan of internet (specifically information) businesses. They require almost no capital to get started (You can literally do it for <$100) and the only investment you have to make is time.

And because they’re cash generators, they’re very easy to bootstrap with literally no capital investment.

If you are looking to start a business which does require startup capital, here’s what I’d consider doing:

Crowdfunding

A successful crowdfunding campaign does three things:

  1. Leverages the distribution of an already-established ‘eCommerce’ site to get your product in front of lots of faces;
  2. Gives you valuable feedback on your product and what resonates with your audience, before you’ve spent anything on production;
  3. Gives you some money to get a product out the door, and your business off it’s training wheels.

Starting a cash-generating side business

As mentioned above — an information business is a great cash-generator that can be started with less than $100 in the bank account.

The internet makes these opportunities available!

Saving

It’s hard, it’s not sexy, and it can be painful. If you want it enough, you’ll do it. Remember — this is money you should be comfortable saying goodbye to.

Services business

They’re not idealic, but they work. And if you do them right, they can generate a nice income which can get you started on your journey.

The pro (and con) of a service business is that all you need is your time. If other people value your time, you can charge them for it. This is a great way to build up a bit of rapport with your audience, as well as generate cash you can save.

Preferably, choose something related to the business you’re going to start.

Angel investors

This would be my last resort, simply because it requires a large amount of effort and very seldom garners any results.

Most angel investors are looking for extremely high growth-potential businesses that are going to be the next Airbnb. 10X return on an angel investment is not considered remarkable.

To get an angel investor on board you are going to have to likely have some sort of proof of concept, or a track record. You’ll have to put together a pitch deck, show that the idea you have has gained traction already and is poised for massive growth.

If you feel you can do all of that, angel investment might be a good way to get your business started.

Also remember that when you’re taking on external investment that early, you are diluting your company at a very low valuation. Because the investment is super risky for the investor, they take a very large stake in your business for not a lot of money. If you are going to go on to build a very large business, it’s likely you’ll regret having given up that amount of it so early on.

You can check out https://angel.co for more info on angel investment.

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10: Personal Trait Analysis

Because you’re likely going to be going on this journey by yourself, you need to understand what you’re going to be up against.

By doing a strength and weaknesses audit on yourself before your start, you’ll know what you’re going to:

a) Be good at (and therefore want to do), and

b) Be poor at (and therefore shy away from).

As an example, I’m excellent with product. I’m technical, creative and thorough. But I’m terrible at selling. I don’t like it, I’m not good at it and because of that — I don’t do nearly enough of it.

That’s what this is going to show you. It’s going to help you realize when you’re plodding along ticking off boxes that give you the impression that you’re making progress, but in actual fact, you’re just doing the things you like doing, in lieu of making real progress towards your goals.

Task

Do an audit of your strengths and weaknesses. List them, and their associated category (People, product or innovation). Those are three guidelines based on three areas of building a business — you might want to add more.

Be brutally honest with yourself. It’s going to guide you in where you need to spend time, and spend less time.

Download the template here.

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So, if you’ve ticked the ten boxes above, you’ve got a business idea that’s based on a validated problem people have, with a solution that people are willing to pay for, and enough people to sell it to.

You’ve got an idea that is worth turning into a business.

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