Why and how to validate business ideas

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

In order not to waste time and money, it is better not to rush.

It happens that a potential entrepreneur immediately starts implementing an idea: he is looking for premises, suppliers, hires developers, rents an office. After a few months, the product is ready, and then a meeting with reality takes place: users are not happy, there is no budget for marketing, no stream of new registrations or sales is expected. The entrepreneur gives up, thinks that the market is not yet ripe, and returns to office affairs.

In order not to find yourself in such a situation, the project should be started not with the code, but with the verification of the idea: to study the market and competitors, to communicate with clients, to assess the commercial potential. And only after that, proceed to launch. Let's figure out why this is important and how to test ideas in general.

What could be wrong with the idea

Not all ideas are doomed to success - some will not make a profitable business. Let's say you feel like high-employment managers don't have enough time to look after their health. To help them, you decide to launch a telemedicine services marketplace. Here's what can go wrong:

• The problem you are thinking does not exist. Let's say you think busy managers don't have time to see a doctor all the time. But you judge only by yourself and a few close friends. It may turn out that you are an exception to the rule, while others do not have such difficulties.
• There is a problem, but the solution does not work. Let's say it turned out that managers really do not have time to monitor their health. But is telemedicine right for them? Maybe they are not ready to trust "doctors on the Internet" and the service with a call to a specialist at home will be much more in demand?
• The market is too narrow. If there is a problem and your solution is suitable, it still does not mean that the idea will help you make good money. Maybe there are only a few hundred of such managers in Russia and they visit doctors every six months. A thousand not very high checks a year is hardly what you are after.
• It's too expensive to attract customers. Okay, even if there are a lot of potential customers. Can you attract them to your service and earn money? It may turn out that finding a new consumer of services will cost you 5,000 rubles, and you will earn only 3,000 rubles on it. As a result, you will only lose 2,000 rubles on each client.

Why test an idea

As you can see, there are many pitfalls, and preliminary checking will help to partially avoid them. This is why, before launching a product or service, you must first make sure that the idea works:

• To eliminate the influence of one's own cognitive biases. It happens that managers want to start a business in an area in which they are well versed. They are asked for advice, they conduct training, they are followed on social networks. In such conditions, it may seem that there is no need to test the idea: "I know the industry very well." Unfortunately, even years of experience does not always help. The market may still be too small and the economy negative.
• In order not to waste time and money. If you immediately create a full-fledged service, then you can easily spend several months and hundreds of thousands of rubles. At the same time, at the output, get something that users do not need at all.
• To make a product in demand. It can be the other way around: while testing an idea, you will understand where to focus resources in order to launch a useful service faster and start earning.

How to test an idea

It is worthwhile to set aside two weeks for this task in full-time mode. If you can only set aside half a day, then the check will take about a month. If a couple of hours a day - two months. During this time, it will be possible to go through all the steps and decide whether to develop the idea or not. But there is no need to rush - premature conclusions can be statistically incorrect and dangerous.

Step 1. Formulate the problem you want to solve

Push away from the problem you plan to work with. In the example above with the telemedicine marketplace, it can be formulated as follows: "Top managers do not have enough time to visit doctors, which is why they have health problems." Then describe the solution you offer: “Telemedicine services marketplace”.

An idea consists of a bundle of a problem and a solution. And if the problem is static, then the solution may change.

The congestion problem can be solved by developing public transport, building new roads, or changing working hours to avoid rush hour. The problem of poor project management - a new software or educational project for managers. The problem of poor English proficiency - online classes with a teacher, a mobile app, or a trip abroad to immerse yourself in the environment. There is only one problem - there are many solutions.

Probably, your first decision will not be viable. But this is not a reason to abandon the project: the idea can always be refined. This conclusion may well be the result of the verification phase - to continue working on the same problem, but look for a different approach. Therefore, I recommend choosing a problem that will be interesting for you to deal with for a long time.

Step 2. Get to know the audience better

The product will be used by specific people: teachers, developers, builders, managers, analysts or nail technicians. Your solution should help them cope with their tasks and meet their needs.

To create an in-demand product, you need to get to know the users as closely as possible. What problems do they face? What difficulties are they experiencing? How are they being solved now? What satisfies them or does not satisfy them in the current conditions?

Let's say you want to fix the problem of slow workflow within companies. To do this, you want to create a system in which it will be possible to assign responsible persons and add statuses to tasks. You think this feature will help you process documents faster. But after talking with accountants and buyers, it turns out, for example, that one employee has too many tasks - they physically do not have time to complete them. Therefore, your decision will not help them in any way.

Interview a few people who are expected to benefit from your product. Find out their pains and needs.

Think about whether your potential product will help them? If not, then already at this step it is worth taking a break. Perhaps you will immediately realize that your idea is simply not needed by people.

It is worth looking for respondents for surveys and interviews in places where customers are concentrated. If you plan to sell physical goods, provide services or open a public catering - communicate with visitors to shops, salons or cafes. If you intend to create a service for performers (for example, plumbers or copywriters), collect information on specialized sites like YouDo and FL.ru. If you want to create a B2B tool for a specific niche, then talk with participants in specialized forums and face-to-face events. But you can start with social networks: ask friends and subscribers who might benefit from your proposal, and discuss the idea.

Step 3. Research your competitors

Everyone has competitors. Direct are other products and services that accomplish the same task. Indirect ones are those that claim the same resource, but offer different solutions. For example, for an educational platform, a direct competitor is another educational platform, and an indirect competitor is Netflix, which also wants to take the user's free time. Competitors may be unexpected: even a paper notebook or simply unwillingness to solve a problem.

It is often possible to calculate competitors already at the second step - during the meeting with the audience. Ask how your potential customers are solving the problem now: what services and tools they use. Alternative ways to cope with the task are your competitors.

Assess their strengths and weaknesses: functionality, interface, audience size, reviews. What audience problems are competitors not solving? Think about what might be the advantage that will make you stand out.

If you cannot find any competitors, this is more of a red flag. The chances of stumbling upon a completely empty niche today are small, but the likelihood that your solution is simply not needed by anyone is much higher.

Step 4. Determine the metrics for success

If at the very beginning you do not fix how to determine the success of the test of an idea, then it will be difficult to make an informed decision whether to develop it further. For example, we got 30 leads - is that not enough? Landing page conversion rate is 7%, will the idea take off? In both cases, it is not clear.

Select the metric that you will work on in the test. This can be, for example, the number of calls, the cost of a lead or a click. And define the goal that you want to achieve - let's say, "Get 20 applications no more than 500 rubles." If there are fewer applications or they will cost you more, then you should admit that the test was unsuccessful.

In my practice, there was such a case: in a B2B startup, as part of an experiment, the conversion to an application on a landing page was 15%. The founders decided to check what would happen if they made an offer with a price right on the page. Conversion fell three times, to 5%. Does this mean that the idea is a failure? Is not a fact. From the first version of the page, only 5% of applications reached a deal, the final conversion was 0.75%. From the second version, 50% of applications turned into signed contracts, the final conversion was 2.5%. It turns out that the funnel began to work three times more efficiently. The founders of the startup knew that they were focusing on the final conversion, so they didn't abandon the experiment when the first conversion dropped.

If you do not define the metric by which you will measure success and its target value, then it may be tempting to interpret the result in your favor. And this is fraught: in fact, it will turn out that the idea will remain unconfirmed, and you will already decide on the next step.

Step 5. Prepare the point of contact

Create a platform where potential customers can get acquainted with the product and take the targeted action: order, pay, leave an application.

The site can be as simple as an Instagram page, a Facebook group, or a Google form. But I recommend investing a little more time and making a landing page - landing page. This solution has several advantages:

• You can set up an analytics system and retargeting. This way you will get more information about your customers and remember them for future advertising campaigns.
• Landing page gives more scope for conveying meanings and design. You can surprise customers from the first contact with an unusual design (although this is not necessary at the test stage).
• More mechanics can be implemented on the landing page: just specify a contact number, add a form, or immediately link a payment module.

You can assemble a landing page in an evening using the constructor - there are quite a few such services.

Don't waste too many resources on the site. Most likely, you will have to change and refine it several times in order to test new hypotheses. The more flexible it is and the easier it is for you to work with it, the better.

Step 6. Tell users about the product

The contact area is ready, now you need to make it so that potential customers know about it. Send the link to thematic chats, post on social networks, ask friends to share on your pages. Run targeted ads to reach as many people as possible.

Evaluate your ad at two levels at once: how actively the user clicks on a banner or link and how many of them ultimately perform the targeted action. If people actively go to the page, but then leave it, then, probably, you poorly formulated the advertising message: you promised them something that they could not find. Conversely, if the ad is poorly clicked on, and the page conversion is good, then it makes sense to modify the ad.

	Clicks poorly on your ad	They click well on the ad
Poor page conversion	The solution does not interest users at all, or you present it badly	The ad promises what the user does not find on the page
Good page conversion	The offer is interesting, but the announcement is weak	Good ad and offer - users are interested

In advertising, you need to convey the essence of your proposal: to whom the product will be useful and with what tasks it will help. There is no need to say that you will solve all problems and promise mountains of gold. Just be honest about your benefits.

Step 7. Chat with the leads

Get in touch with people who will leave applications. Not necessarily with everyone, but try to communicate in person or by phone with at least 8-10 of them. It's important to figure out what exactly attracted them and why they found your offer useful. Discuss the product with customers: what interested them, why they left an application or paid for the order, what they expect. This will help you understand your goals and the needs of your audience even deeper.

At this stage, it is already possible to preliminarily assess the commercial potential of the idea. You can see how much you spent on advertising and how many applications you received. You can guess how much money you will be able to earn from these applications, and understand whether it is profitable to develop such a business.

Do not forget that in most cases a business does not make money on the first deal, but on the next. If the first sale brought you 500 rubles, and you spent 1,000 rubles on it, this does not mean that the idea is futile. If you can make one more sale, then the indicators will be equal. Two - you will be a plus. Etc.

Step 8. Examine the results

After all the steps, it remains to evaluate the accumulated information and conclude how successfully the idea was tested. Here's what to understand:

1. Is there a problem in the market that you want to solve? How important is it to potential customers?
2. Does the solution you offer suit customers? Does it meet their needs?
3. Is the need common enough? How many people can you potentially attract?
4. How are things going with the economics of the project? Can you make money on it?

Based on the results of the verification, you have to make one of three decisions: start product development; abandon the idea or change it; finalize the proposal and launch a new test.