You dream to quit your 9 to 5 job, start a business, and be your own boss?
You have a good business idea but you are not sure if it’s rock solid to be successful. The last thing you want is to waste your time working on things that you will drop only a couple of months later because they don’t work.
Remember this: Planning is good but testing is better. Especially when it comes to starting a business.
So, if you want to become a successful entrepreneur, it is key to do proper market validation before investing significant time and money into your business ideas. The times of building products behind closed doors and hoping the world will jump on them once they are launched are over. You have to focus on your market and your target audience from the beginning.
Here are the steps to help you make sure your business idea is something the world wants, before you launch it.
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Day 1. Make a rough draft of your business model
You probably know this already, but having a good business idea is only one piece of the puzzle of making a business successful. Every good business idea needs a robust business model to stand on. There are in total nine elements that you need to carefully think through when working out your business idea.
- Who is your target audience?
- What are their biggest pain points?
- How can their lives be improved by you?
- How will you create value for your customer segment?
- What are the expected benefits that will result for your customer segment?
- Which product or service they will be paying for?
- How will you interact with your customers? (e.g. single transaction or continuous interaction)
- What kind of relationship do your customers look for?
- Why will they trust you?
- Where does your customer segment hang out on (online & offline)?
- How will you reach your target audience?
- How will you generate leads, sales?
- How will you charge for your product or service?
- What actions do you need to take before launching your product or service?
- Which activities will you need to take after the launch (one time & continuously)?
- What or who do you need to develop your business idea?
- Which resources do you need to launch your business?
- Do you need partners to deliver your product or service? Which ones?
- What initial investment is required to launch your idea?
- What fix and variable cost will you have after the launch?
You don’t need to break your head over all the details of your business model upfront. In the initial stages of your market validation, many business elements will be based on assumptions. Don’t worry!
In the beginning, a fast run through the nine categories of your business model is more than enough. Be bold and make assumptions for aspects you don’t have clear answers to yet. Write them down as risky hypotheses. These will be your guidance for further market validation of your business idea.
In the future, you will repeat this exercise a couple of times until all your assumptions are validated and your business model is bullet proof.
For now, your initial assumptions are sufficient to move on to step 2 of your market validation.
Day 1. Understand the market for your business idea
After you have a first rough idea of your business model, you can take a look at your target market. You don’t need to conduct a full blown research of all your big and small competitors, but you should have a good understanding how big your market is and how other companies are generating business.
The first question to answer is how competitive your market is.
Are there many competitors? If yes, that means that there is an established market based on clear demand and a business opportunity. However, it could also mean that the market is already saturated. If there are hardly any competitors, ask yourself why. Is your idea so innovative that the market is only in its baby steps or is there no demand for your proposition?
Next, think about how you can differentiate from your competition.
How can you make a customer choose you over one of your competitors? Having crisp differentiating value is very important to make sure you can rip off a slice of the pie for your business. Make sure that your unique advantage is clear and convincing to your target audience.
Day 2-3. Get in touch with your target audience!
Do you know what one of the biggest (and most frequent!) reasons is why entrepreneurs fail? Because they create super sophisticated products with tons of fancy features, only to realize that at the end of the day nobody wants to buy them!
We can’t stress this enough: You need to get yourself out there and you need to do it as soon as possible!
You have defined your customer segment and you have an idea where they are hanging out online and offline. Now it’s your job to get talking to them. Your goal is to eliminate all doubts about what your customers want and turn your assumptions into facts.
That’s why you need to involve them in this initial stage of testing your business idea and co-create your proposition together with them. Here are some ideas for how you can do a market validation of your business idea with your target audience.
Talk to your ideal customers face to face
It might seem awkward and time consuming to talk to strangers, but believe us, it’s the most effective way to test the grounds for your business idea. Go to places your target audience is hanging out at.
Don’t ask them directly how they like your idea. Nobody will ever tell you straight up that your idea sucks. People don’t want to hurt your feelings, but you need to know their honest opinion.
Instead, ask them about their pain points, how they have tried to solve them before, what worked and didn’t work and why. Ask repeatedly Why and dig deep until you understand what their underlying motivations and needs are.
Talk to as many people until your insights will start to repeat themselves. That’s when you know that you have built a solid knowledge base. Typically, 10 interviews are a good number for your initial market validation.
Find your target audience on social media
It’s never been easier to connect with people around the world than nowadays on social media! There are a couple of platforms we suggest for getting first hand insights from your target group.
We love going through the discussion threads on Quora and Reddit because you can learn so much in the shortest amount of time. Simply join discussions that are related to your idea or scroll through answers of relevant questions. You can also publish any questions you have and collect responses from your target customers.
Another great way to find your target audience is through Instagram. Think about what your target customer is looking for or talking about and search of them by using hashtags. You can either chat with them via private messages or even ask if they are open to give feedback on your idea via a call. This method has worked exceptionally well for us in the past!
Our third suggestion is to use Answerthepublic to find out which questions your target audience has. It’s not exactly social media but it’’s a great tool to learn what people are googling for in your field.
Conduct a survey
While face to face conversations give you a great depth of information, surveys help you to quantify your insights. We like to use surveys to understand how common the problem is that we are addressing and if what we have learnt from 10 people is valid for 100 or 1000 people.
There are great free survey tools available. We mostly use Google Forms because it provides all basic functionalities and is easy to analyze with Google Sheets.
Do a landing page test
Once you have a good understanding about the pain points and needs of your target audience, a landing page test is a great way to measure how many of your target personas are likely to convert into customers that are willing to pay. This is part of your quantitative market validation.
What you need to do is to set up a simple landing page that clearly describes your offering and pricing. To measure whether your idea is a good business idea, you will measure the conversion ration of subscribers versus total website visitors. A great conversion rate depends on your niche and business model, but 3% is typically a good result. According to WordStream, the top 25% of landing pages convert at over 5%.
There are many free landing page tools available that you don’t even need to purchase a domain for. You can drive traffic to your landing page through free Pinterest marketing, ask for feedback in Facebook groups, or posting it on Quora, Reddit, and Instagram. You can also decide to use paid Facebook ads.
Remember, your offering and uniqueness should be easy to grasp by the website visitor. That’s why it’s a good idea to test your landing page with friends before you launch it.
Day 4. Do a back of the envelope business case
The last step for evaluating whether your idea is a good business to start is to create a back of the envelope business case. Your goals is to come up with a rough estimate of your revenue potential and expected profit.
How do you do that? The easiest way is to start by calculating your profit per customer. What is your revenue compared to the cost of delivering your product? What are your customer acquisition cost? Subtract the cost from the revenue per customer and you’ll get your profit per customer.
After that, think about how many customers you will need to acquire monthly in order to make your monthly profit target. Is that number of customers realistic? If not, you might need to tweak the numbers until you feel comfortable.
Day 4+. Every good business idea needs a customer base
Starting your own business is a great way to live a more purposeful and flexible life. In this post we shared how you can test if your idea is a good business idea through market validation in only 4 days and without spending any money.
Once you have evaluated whether your idea is a good business to start and received a green light, that’s not yet where you start investing and putting all eggs in one basket. Now you dive deeper into testing your remaining hypotheses and adjusting your business model until any major uncertainties are eliminated.
But don’t forget that coming up with a robust business plan is only the beginning! After you have a clear idea about your online business model, you need to start selling your idea. For this, you will need to create a large and stable amount of monthly traffic to your website.
Pinterest is a very powerful platform for bloggers, coaches, and online retailers to drive organic traffic to your website from Day 1.
If you want to learn how we increased our Pinterest unique monthly viewers from 0 to 87k in only 2 months and how you can start driving free traffic to your website through Pinterest, read our detailed posts about Pinterest Marketing and Pinterest SEO.