You have an idea that you want to explore and build a business around it. You think it might be the next big thing but then will it really be? To know if you can actually build a business with your idea and the next big thing, you should first undertake the process to validate your idea.
We tend to have several ideas regarding the business we want to do. But it is a wise step to validate it before starting. Validation of an idea will save you precious resources such as your time and money.
What is idea validation?
Validation of an idea is a process that many businesses do not perform. It can be omitted if you are going to just trade goods but in the case of novel business ideas, idea validation should be done to avoid pitfalls and losses. Validating an idea is not a guarantee of future success but it surely helps you plan.
The process helps you put down on paper what you thought v/s what data you received. It helps you evaluate the different aspects related to your idea so that you can make a better-informed decision.
Characteristics of an idea
The following are the characteristics that you should evaluate your idea on basis of. If all three are present then your business idea is geared for success.
The business that you shall build should be sustainable in the short as well as the long term. We have seen in the recent past, that many businesses have been started with funding from capital investors and venture capitalists. These businesses do not have any source of revenue. Thus, these businesses tend to run without making any profit.
Businesses having no income revenue tend to fail in the long run as well as in the medium term. Also, many factors such as technology, change in regulations, and change in the cycles of business, tend to affect the sustainability of the business. You should evaluate the factors that affect your business in different aspects. E.g.: if your product uses natural resources such as wood as the main component, then you should study the impact of environmental regulations and the effect of policies to know how your production can be affected.
You need to factor out different factors that will affect your business and its running in the future. Many people tend to overlook this. Many hidden aspects can affect the business being sustainable. A study of the aspects can help the business avoid sudden shocks and losses.
The business you want to do and develop should be scalable. Scalability means that in case of an increase in sales and revenue, your business activities should be able to scale accordingly. Let us give you an example.
If you are running a manufacturing firm then you need to have enough resources to scale up the manufacturing in case of increased demand. For example, if you are manufacturing pens and you have a capacity of manufacturing a thousand pens a day and your sales are say around nine hundred pens a day then you are almost at full capacity.
If the demand increases from 900 pens a day to 1500 pens a day then your production capacity should also increase. If you are able to increase your production capacity from the current capacity of thousand pens a day to approximately 1500 to 2000 pens a day without incurring a significant amount of expenses or capital investment then your idea is scalable.
Different industries have different capacities and modules to scale their operations to meet the growing demand. Also please keep in mind that in case of a downward trend in demand, you should be able to scale down your operations without affecting your profitability.
Scalability in some industries requires capital investment such as the installation of new machinery and in the case of some industries, it does not require any capital investment or negligible capital investment such as services industries.
Your business should be profitable in the short term as well as in the long term. Any business is started with a motive to make profits and to earn incomes that are used to finance the future activities of the business. Any activity undertaken without the motive of making profits is not a business. Instead, an activity that is undertaken without any profit-making motive is basically just public service or charity.
If your business is unable to generate profits, then it will not be able to sustain itself financially and there will be no reward for placing your resources such as capital and time. Thus, profit is important as a characteristic of the idea. For any business to survive in the short-term and also in the long to very long town, the business needs to make a profit. Without profit, the business cannot be sustained.
When you are evaluating your idea, you need to know what will be your source of revenue. The source of revenue will define your income and profit. Although, the expenses incurred by the business will play an important role your revenue stream will cover it.
There are businesses that have been started without any business revenue or income stream. But to sustain the activities they need to figure out a revenue stream to keep them going.
How to validate your idea?
If you’re able to do the validation process correctly then you have a reasonable amount of certainty as to whether your business will be sustainable, profitable, and scalable in the future. You can avoid spending your spacious resources by doing idea validation.
Before we jump into the process of validating the idea one misconception that needs to be cleared is that idea validation is not a guarantee for the success of the business. Business ideas that are validated and proved to have a bright future can also fail since future sustainability and profitability are not guaranteed within this process. There are professionals that spend years studying the processes and methods for validation of product ideas and building processes that can help reduce the error of decision-making.
Let's take a look at the steps to validate a business idea:
Identify the Pain Point
Ask yourself the question – what is the pain point that your business idea is going to solve? If your product or service shall solve a pain point then you shall be able to make a profitable business. There are many pain points in different aspects of business and individual life that require a solution. Whenever somebody comes up with a solution to these pain points, the people are ready to pay the Solution provider.
A nice example of this is the taxi-sharing services such as Uber and Ola in India. Metropolitan cities in India were full of taxis that will take you from one place to another. But the pain point was that the drivers never obliged or often refused to take you to your desired destination.
When Ola and Uber came in they offered door-to-door pickup and drop service. The adoption was slow at first but then they started to gain users and people were paying more than the normal rates they used to pay.
Filling the gap
Are you filling in a gap that no one has yet filled? Or are you offering a better version of a product or service that already exists? The product or service you have to offer, if it is unique then it should be filling a gap. The pain point will highlight a gap in the process that is currently in place.
As mentioned above Uber and Ola filled the gap in service and chauffeurs available to the mass market. And they made money with the help of technology bringing the taxis to the doorsteps rather than people hailing them on the road.
Whenever you fill a gap that is present, you tend to make money since people are ready to pay for it. The only thing you need to then do is to run the business sustainably and profitably.
Talk to people
You can share your ideas with people you know you have the feedback. You should share your ideas with probable customers for a product or service. They will be more eager to share their feedback with you. Their answers and feedback are actually customer expectations of your business idea.
When you talk to people make sure you are asking them the right questions. You should prepare a list of questions that you can post to your future customers to get their feedback on your business idea. The feedback will help you in designing your product or help you structure your service.
Similar product research
Check out in the markets in your local region or online if your product is already available in some form or not. If it is not then you shall be one of the first movers of the product or service. In case your product is available in some form or exactly in the form you wanted it to be then it is also good news since there is already a market for it.
When file sharing and storage services started to come up Dropbox was not the first one to start. There were already a couple of services that were offering file storage and file-sharing services. But Dropbox was started with the aim to solve the problems of file sharing and storage that the founders of Dropbox had. The problems they faced were actually the problems faced by many others and hence dropbox progressed since it solved the problem that many people had.
Build an MVP
If you have the know-how and the budget you can go and build a Minimum Viable Product (MVP). A Minimum Viable Product will help you validate your idea much faster and in the real world. If you can build your MVP, then you can take it to the market and try to sell it to your customers. You can sell it in the local market to gain insights and feedback.
When the MVP is sold, a lot of data comes along with it. We get to know who is buying our product, what price we are able to sell it for (with or without discounts), and are getting repeat sales for it.
You can start selling the MVP with a minimum quantity and test it out for the next couple of weeks to get feedback. In case you are selling through some local distributors and retailers, they shall also share with you knowledge about your product and how to make improvements. With an MVP we also tend to come to know about real customer requirements and expectations.
The product or service you want to sell should have a considerable market. In simple words, enough people should be there to buy your product or service so that you cover your expenses (at the least) and break even. If you are able to sell to a considerable number of people then you can be profitable.
Run a Survey
Validation of an idea can take place in different forms. With the number of tools available online today you can use these tools to help you validate your ideas. You can run a survey that can accumulate data from your future customers and help you develop a good product or service.
Let us go through some of the methods to help you validate your business idea before you launch your business.
Survey Forms - a great tool for idea validation
Survey forms are tools that help you collect responses from the people that fill them in. There are many notable services starting from the free and popular option Google Forms that can be used from a Google account to more focused and varied services such as Survey Monkey, Typeform, Wufoo, and PaperForm.
- Google Forms
Google Forms is one of the most popular, widely-used, free online form builders. It is used mostly by individuals ranging from students, proprietors, academics, non-profits for collecting leads, and responses to surveys. Though it is widely used many professionals and businesses find themselves searching for a better solution.
The reason is that Google Forms wasn’t built with professional users and business needs in mind. It was designed to be a simple and basic solution for data collection, but no more than that. It is a good solution for the basic and average user that wants to collect leads and responses and it is good enough for validating an idea.
When you have the questions ready to put forward to an audience to know their thought, Google Forms is a formidable option but in case you want a better solution then there are plenty available in the market.
- Survey Monkey
Survey Monkey is one of the most popular online survey tools, and for good reason. The platform is extremely user-friendly, with a wide variety of templates and several features that speed up the survey design process.
Survey Monkey is so popular in large part thanks to its free Basic plan. With this, you can create an unlimited number of surveys as long as they have less than 10 questions each. You can only have 100 responses per survey, but you still get access to most of SurveyMonkey’s essential data analysis features.
The main downside to Survey Monkey is its pricing structure, which is expensive and forces you into an annual plan. Pricing for paid personal plans is designed to force you into a one-year subscription. SurveyMonkey has more than 200 survey templates, to begin with, and they are categorized.
The good thing about these templates is that they’re designed with beginners in mind. The questions and answers are framed to eliminate the most common biases, while also leaving plenty of room for you to tailor the survey to your needs.
Typeform is a survey management solution designed for companies of all sizes. It offers survey design, configuration, distribution, and analytics within a suite. Typeform also offers reporting and dashboards, which allow users to track performance metrics.
Typeform features survey design, where users can design customized surveys using a drag-and-drop interface. The interface is easy to use and forms can be customized with it. The templates include different types of questions, such as short-text answers, multiple-choice questions, long-text answers, picture selections, and drop-down menus. Users can also add photos and videos for each question.
Typeform limits the number of forms to only 5 in their Basic plan with the collection of a limited number of responses. Also, some features are disabled in the basic plan.
- Wufoo Forms
Wufoo forms is fun to use survey builder as per the reviews it has on various review websites. It is used by companies such as Disney, Amazon, BestBuy & CNet. Wufoo forms are customizable with custom CSS but then we just want to collect responses for idea validation. Although with payment acceptance feature can be a good tool for e-commerce. You can build and share basic forms and collect a limited number of responses in the basic plan before upgrading to a paid plan if required.
Crowdfunding - What is it & how to use it?
Crowdfunding means raising small amounts of money as capital from a very large number of people. When you crowdfund, it means you are receiving money in very small parts from a relatively large number of people. Let us explain.
Suppose you want to build the next big thing - a social network, a great gadget or a rocket, but you do not have the capital. You think of crowdfunding. Suppose your estimated cost to set up and build the product in large numbers for sale is say $1 Million then you ask 10,000 people to give you $100 each. These funders are also most likely your first customers.
Now it is not possible to actually approach 10,000 people in real-time in a limited time period so we take advantage of crowdfunding platforms such as Kickstarter & Indiegogo. Kickstarter is a well-known platform for crowdfunding and many known startups and venture have raised funds on it. Indiegogo too has a good number of projects that raised funds.
Google's trend analysis gives you an idea through a graph. It specifies if the term searched on the platform is trending upwards or downwards. This trend is shown as per the number of searches done on the Google search engine. This is a bit vague but it can be helpful.
The tool gives you results over a period of time right from 2005 till date. You can even see the trends across different regions. The filters are helpful.
Validation of an idea is not an exact science but the more data you have the better decision you shall be able to take. Whenever we are evaluating an idea we need to collect data as much as possible related to it so that we can avoid pitfalls and move ahead in a profitable manner.
We at Think Leaf Solutions help individuals and businesses to validate their ideas. We help them make better decisions. We connect to our network and bring in more data pertaining to the idea that is being evaluated.
Connect with us today if you have a business idea and want to get it evaluated. We shall be happy to help you in validating your new business idea and also to help you start your business.