So, you have a business idea. But will it be a smashing success, or a total flop?
There’s no magic ball to tell you with 100% certainty you have a winner. But there are proven ways to test your business idea before you sink your life-savings into a product or service that no one will buy.
Testing your idea will cost a little up front—in both time and money—but it’s well worth it. Because it will hurt much less to find out now that your product isn’t viable, rather than later.
Unless, of course, you’re Jeff Bezos and you don’t mind losing $170 Million on a failed idea. Otherwise, here’s how to validate your business idea before you go all in.
Research Your Market
Ideally, your product or service will fit within a healthy, proven market. Because entering an established market gives you a better chance at success than entering a new one—or one that doesn’t exist.
So, if you’re scratching your head right now because your idea doesn’t fit into a well-known industry, I hate to break it to you, but that’s not a good sign. Go back to the drawing board.
But, if your idea fits into an established industry, it’s time to find out if the market inside that industry is healthy enough to launch your idea.
Start by looking at market reports. Nearly every industry has them, and they’re relatively easy to find. Let’s say you have an idea for a new type of toy. Just type “toy industry market report” into Google, and you’ll be well on your way to getting the information you need—for a fee.
If you want to start with free resources, you can often find market reports at university libraries. Plus, the U.S. Census Bureau has lists of free industry statistics online, and you can get lots of valuable free data at your nearest Small Business Development Center.
As you’re gathering data, here’s what you want to find out:
If the industry is growing, generating plenty of money, and your idea seems like it will be a good match for what’s selling now and/or what’s predicted to sell in the future, then you’ve passed the first small test and you’re ready to dig deeper.
Research Your Top Competitors
Once you know that you’re entering a healthy marketplace, it’s time to check out your competitors.
Study who they are, what they’re doing, and how they’re doing it. And pay especially close attention to how many competitors there are, because it will be hard to compete if your market is too heavily saturated.
The top three competitors in any given industry will make an average of 80% of the revenue generated within that industry. That means all the other competitors (plus any new ones) are fighting for the remaining 20% of revenue.
So, if there are only a handful of competitors in your space, it makes sense to move forward. But if there are 10 or more, you should seriously reconsider—unless your idea can disrupt the market. As in, your idea is what the iPhone was to the cell phone industry. Then it might be worth the risk. But, if your market is crowded and your product isn’t transformative in a major way, then let it go.
If, at this point your idea can fill an open spot in an uncrowded market, then it’s time to do some customer research.
Talk to Your Ideal Customers
If you’ve gotten this far, then it’s time to go out into the field and talk to real people (other than your friends and family) to find out if your idea fills a real market need.
Because no matter how cool you think your idea is, your business won’t survive without real live humans who want to buy it. And without their input, you have no idea if your product or service fills a real need—or not. So, have conversations with your target market to find out their wants and desires, and to understand their pain points.
Here are several ways to reach out to your market:
And remember that this is not the time to try and sell people on your idea. You want to ask open-ended questions to find out what problems and pain points exist for your market.
Then, once you have enough feedback, ask yourself, “Does my idea solve an actual market need or did I make wrong assumptions?”
For example, Burger King wrongly assumed that in health-conscious America, their customers would welcome a lower calorie option for fries. Turns out people who eat fries want a guilty pleasure, not a healthy alternative. So “Satisfries” were dropped from the menu, like a hot potato.
So, if your research shows that, like Burger King, you’ve made wrong assumptions, then recalibrate your idea. And use the feedback you’ve gathered to change your idea to fit your customers’ real needs.
And if there’s no way to adjust it, scrap it. Because as bad as it hurts to let your idea go, it will hurt worse to proceed and loose even more money on a failed product.
But if your idea fits a real market need, then get ready to prototype your physical product or beta test your service.
Make a Prototype/Launch a Beta Test
This final test is the ultimate make or break for your idea. Because here is where you’ll find out if people will part with their hard-earned cash to get your solution.
If you have a physical product, make a limited run of prototypes. Then see how many people will pay for your product. If you’re selling online, you can use an ecommerce marketplace like Shopify. Or if you’re selling locally, you can partner with local shops to distribute your product.
If you have a service, now is the time to gather a group of people together to beta test it, or set up a pre-release landing page to see who’s willing to pay for your service.
If enough people buy your idea during the prelaunch, then your business idea has passed every test and you can be confident that it’s time to fully launch it.
So, what do you think? Does testing your idea seem like more trouble than it’s worth, or like a sure way to hedge your bets? (Let us know in the comments section below.
Holly Hughes-Barnes is a business blogger and brand journalist. She writes blog posts, case studies, and ebooks that build trust, bring in leads, and make more sales for B2B companies. She lives in TN with her husband, son, nearly-blind dog, and totally naked cat. Connect with her on LinkedIn and Twitter.