You think your business idea has potential, but do you know that even the most groundbreaking ideas have failed during the first year?
According to a CB Insights report about startup failure rates, the top three reasons these companies can't survive are running out of money, no market need for the product/service, and being outcompeted. Though all of them are closely related, the truth is that the first two have the same root cause: the idea validation (or the lack thereof).
Unfortunately, most entrepreneurs usually overlook well-conducted market research and don't test and iterate enough before being really sure the business idea will thrive. So, how to know which business idea is worth being pursued? We'll puzzle it out in this article.
What's An Idea Validation?
Idea validation is a process of discovering whether a specific target market is interested in your products or services and involves a series of tests before fully investing in the concept. An idea must solve a real problem, fulfilling customer pain points. By doing this, entrepreneurs will be able to determine whether there's a real need for the product and if it'll be profitable.
A common mistake most founders make is to be overconfident about their business idea and skip the necessary steps to put it to the test. The result is pouring large amounts of capital into launching a product that doesn't address the market needs. And what's more, a golden ticket for the club of the startups that crash before their first year.
The Importance Of Validating A Business Idea
If you like your business idea to thrive, it's key to put it to the test. Therefore, let's drill down the reasons why ideas should be validated. But before we start, we would like to emphasize that validating a concept is not only for inexperienced entrepreneurs.
There are many times in a company's lifecycle when validating an idea is crucial for growth. One of these cases is when founders decide to scale their operations internationally. By entering a new market, new challenges appear. So this is why this article can be helpful both for early-stage startups and consolidated businesses that aim to expand internationally.
With that being said, we can now explain the importance of validating an idea. In a nutshell, this process will save you time and money. You will gain a better understanding of whether the concept has actual demand. This will minimize risks and boost product development efficiently.
On the other hand, market validation can also help founders raise the confidence of potential investors considering funding the startup. The earlier the stage where you validate the idea, the earlier you'll know whether the product is worth being developed or changing the course.
5 Steps To Validate Your Business Idea
Establish Goals And Hypothesis
The validation process begins with setting goals and defining a hypothesis. First, write down your goals. The SMART goals are a constructive framework in this instance, as they will give you a comprehensive overview of the concept:
Specific
Measurable
Achievable
Relevant
Time-based
Your goals should be oriented to determine the most critical assumptions. That's why right after defining goals, you must develop a hypothesis. Start with the critical assumptions mentioned before, where it's more likely for the concept to fail.
For example, you can ask yourself whether your product is solving a real problem or how the key features of your product work.
Address The Size Of Your Target Market
The next step is to analyze and estimate the size of your target market and the share you could potentially get. This stage requires deep research and data collection to outline whether your product is a good fit and justify its launch. For example, you can analyze competitors, their number of sales, and what percentage of the market segment they hold.
Experiment With The Idea
To experiment, you need to develop a Minimum Viable Product. An MVP is a version of the final product with the basic features to be tested in the market, and it's a cost-efficient way to test assumptions. Also, you can conduct interviews, focus groups, and surveys with your target customers.
Gathering feedback is essential in this stage to get valuable insights. Maximize it!
Get External Support From An Accelerator
External support can be vital to validate ideas in a new market. Accelerators, like Base Miami, offer a wide range of programs to help founders find the product-market fit when expanding the startup internationally.
With the guidance, support, and experience of those who have already been there right where you are now, you can save time and money in the market validation process.
Validate (or not) The Idea And Restart The Cycle If Necessary
The fifth stage is when you see whether the assumptions are valid or not. Keep in mind that though this is the last step in the validation process, you may need to restart the cycle with new hypotheses.
Don't be afraid to start over, change the course, and fine-tune your idea if it doesn't succeed right from the start. Iteration is the key to building a product that addresses your customers' needs.
Wrapping Up
Developing a groundbreaking idea from scratch is not easy. What's more, the process of launching a new venture is haunted by nasty failure rates. Therefore, the purpose of validating a business idea is to minimize risks while saving time and money in the process. By doing this, you get a cheaper and faster way to test assumptions and decide whether to continue with the product development or pivot.
Base Miami's Market Fit program helps founders test their hypotheses to gain a solid understanding of how things work in the bustling US Market. We support startups with a proven methodology and a powerful network in their international expansion journey. We know launching a business can feel like jumping from a cliff, but with the right tools, you can take your company to the next level.
