8 Steps To Validate Your Business Idea
Do you have a business idea, but don’t know how to prove that it will be a success? There are many ways of proving your business ideas as well as find out if you can build a profitable business. Here is our eight-step guide on how to validate your business idea.
The team behind Cloudnames have been establishing more than 50 startups over the years and launched hundreds of new products. When we started out it was common to invest huge amounts of money in building a new product without really testing if there was a market for it.
Those days are long gone, and today entrepreneurs build minimum viable products and test them with real customers before investing in the production process. By engaging with customers very early in the process you can validate your business idea with much lower investments and risk.
In this article, we will look at the eight steps you should follow as an entrepreneur that want to validate your business idea.
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Test your idea on trusted connections
Before you start your new business, you should discuss the idea you have with your trusted connections. Do not worry that your idea will be stolen! They may have valuable feedback and suggestions on how to develop your products or services further.
A Startup is all about searching for a repeatable and scalable business model. Before you get started you should evaluate the market size – will there be a market for your products or services?
If you don’t know of anyone that has established businesses before, find influencers on social media or research potential connections and call them for a meeting. Confidence is key, don’t let your nerves get the best of you. You are welcome to contact us at Cloudnames, we have experience mentoring startups and we are happy to help!
Check the competition
Check your competition online with a simple search on Google and Social media. You might be amazed by similar ideas that are out there! But remember; because others are offering similar products or services does not mean that your business model is a bad idea – in fact; that is a validation that there is a market for your product or service.
How can you improve on the existing offerings? Is there a unique feature that will make your idea fly with potential customers? Consider what makes your product special as a selling point.
Many of the most successful startups are disrupting existing markets – look at Uber, Airbnb or even Google. These companies have all established a presence with massive competition from existing players. Looking at what your competitors are doing is sometimes the best way to reinvent your own products and services.
Build a Minimum Viable Product (MVP)
Ask yourself what minimum functionality your product or service needs for the customer to be willing to pay for it. Do not seek to build the perfect product before you launch. You might end up investing a lot of money into something there is no market for.
Then find customers that are willing to pay for it. The payment is central to this, as delivering a product or service that potential customers are willing to use have little value if they are not willing to pay.
Learn more about MVP in this article about The Lean Startup Principles.[Tweet “Do you have a #business #idea, but don’t know if it will fly? Learn the 8 steps to #validate it @cloudnames”]
When you have a MVP you should connect with potential customers and ask for their feedback. Ideally, you should develop your idea with paying customers. Find out what would be a killer feature for your first customers and add it to your product or service.
Listen to the feedback you gain, as this will be the turning point for your business. It’s wise to treat it like a testing process. There is nothing more valuable than customer feedback to help further develop your business model or improve your products and services.
This way you will soon understand if your product idea works or not, without having to spend huge amounts of money. By talking with your potential customers you can implement necessary changes according to their feedback, and revisit in the future with launching a new test until you can determine a successful business model that will work.
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Look for proof that it will fail
It is equally important to look for reasons for why your idea will fail. Many entrepreneurs have such high belief in their idea that they forget to look at factors that may result in failure.
You should be just as serious about finding potential reasons for why your business idea may fail. Make a list of reasons and test them with your trusted connections and your first customers.
If you find that there are major obstacles, you may park the idea or even better, develop it into something new that does not contain the weaknesses you have discovered.
Evaluate Customer Acquisition cost (CAC)
In many cases, the Customer Acquisition Cost is the key to a new business idea. In short, that means that having a product or service that potential customers are willing to pay for is not enough unless you can manage to acquire the customer at a lower cost than they are willing to pay.
Depending on your business idea and your target customers, we often find that Social Media networks and other online marketing are the best way to examine CAC. That is because you can make a very targeted campaign and start with a very low budget. A few pounds is enough to get started.
Unless you have a substantial start capital, your first-year earnings from a new customer should cover the CAC for that customer.
Get control on the numbers
If your business idea requires external investors, the first rule is to get control over your numbers – this is a good idea even without the need for investors.
Now that we’ve determined that the CAC is central, you must also consider numbers that really matter, which is the Customer Lifetime Value (CLV). This is the expected value of a customer during the time they will remain a customer.
Are you offering a subscription? Or do you deliver something customers will purchase over and over again? Search for churn rates for your sector, talk with customers and make your CLV estimates.
A potential investor will be more interested if you can prove a CLV that is substantially higher than your CAC. The key here is the proof, so make sure you document all your findings when testing your MVP with real life clients.
Learn more about why Lean Startups are attractive for investors.
Test, test and test again
Cloud Computing solutions enable anyone to put together a minimum viable product at an affordable price. And with social media marketing, you can easily target small groups of potential customers to test your product ideas in the market at a fraction of the cost of traditional marketing.
Then you should continue to test every aspect of your business model: Customer segments, Value proposition, Sales channels etc. for validated learning until you have a “Product market fit” and can scale your marketing, sales and delivery.[Tweet “Do you want to test your #business #idea? Follow our 8 steps to validate it #entrepreneurship @cloudnames”]
Cloudnames can help
Cloudnames can help with everything you need for online marketing. We can handle your complete online presence, website, marketing and all the complicated technical details.
We offer a managed online marketing service where we take care of all your digital marketing campaigns and your online marketing strategy including Search Engine Optimisation (SEO), Search Engine Marketing (SEM), Social Media Marketing (SMM) and other Digital marketing activities like managing your website and email marketing.
At Cloudnames our motto is “sharing is caring,” so we have made a guide on everything you need to know to be successful with Social Media Marketing.
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