Looking for ways to validate your business idea? You’ve come to the right place. In this post, we describe the five steps entrepreneurs can take to verify the potential of their business before launch, also known as doing market validation.
Why you need market validation
Not all business ideas are worth pursuing. Market validation helps you discover which ones have real potential.
What is market validation?
Market validation is the process of collecting and analyzing data to figure out if your product or service will sell.
An essential part of the entrepreneur’s discovery journey, market validation is all about research and gathering feedback.
The insights gained through the process can build confidence among investors, crowd funders, and banks or debunk assumptions early on, saving you time, money, and other resources.
How to validate your business idea
Here are the five steps for validating a business idea.
- Write down objectives, assumptions, and hypotheses
Clarify your value proposition—what your company does, how it’s different from the competition, and who your target customers are.
Next, write down the assumptions you have about your target customers’ pain points and needs, along with any hypotheses you have regarding your product and your business model. You will be testing and verifying all of this information in the steps to come.
Tip: For more guidance on how to craft your value proposition, check out the Lean Canvas and the Value Proposition Canvas, two business plan templates available for free online. We also recommend the books Zero to One and Lean Startup.
- Interview potential customersConduct validation interviews (also known as customer discovery interviews) to discover whether there’s a real need for your product or service. Ask potential customers if they have the problem, tried to resolve it, what tools they’re using, what tools they’ve tried and didn’t work, etc.
You can collect feedback through focus groups (use HubSpot’s guide on how to run a focus group for your business); online surveys, or informal conversations with people who match your target audience.
Tip: At the end of the interview, ask if you can keep them in the loop and update them as you develop the idea.
- Determine market size and share
Next, you’ll want to estimate the size of the market to gauge your business’ potential.
To do this, find products or services similar to yours and research their sales data. Discover the number and share of current manufacturers/ providers.
- Find out what customers are searching for
Use a keyword search platform, such as Semrush or Moz, to determine the monthly search volume (MSV) for your product/service (or the problem you’re trying to solve). A high MSV is a good indication that there’s a need for what you are trying to sell.
Tip: Use keyword search to test various possible descriptions of what your company does.
- Get people to test your product or service
Create a minimum viable product (or version of your service) and find real people to try it. This is your chance to make your solution even better.
Have team members test everything first; then, once the main problems are fixed, invite beta testers to give it a try.
Tip: If you are selling software, mock up the potential solution and demo it as if it were a real product. If your target audience has the problem and it’s painful enough, they might be willing to preorder.
Validate before you launch
Market validation helps you determine whether or not your target audience needs your product or service, whether or not it will sell, and the likelihood of your business becoming profitable. It can also help you understand the changes you need to make to better address customers’ needs.
Done right and early on in the business creation process, it can help build confidence among potential backers as well as protect you from unnecessary losses.
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