You see big companies do it all the time, particularly in the tech sphere. They continue to evolve, testing new products and new markets, attempting to spread their tentacles far and wide with new and exciting ideas. In today’s fast-changing marketplace, constantly churning out and acting on business ideas is becoming critical to business success. Gone are the days when you could find a comfortable spot, and stick faithfully to it.
Fortunately, validating your business ideas doesn’t have to be an unaffordable exercise, even in the face of multinational corporations spending millions of dollars ensuring that their new direction is the right one. And you’re probably not the hottest new Silicon Valley start-up, with access to endless angel investor funds. Only the lucky few companies have six- or seven-figure budgets to validate their big ideas.
The risks of doing nothing, and how to do something
On the flipside, the consequences if not validating your business, product or market idea could be greater than seven figures. Indeed, it could spell the end of your business altogether, by leading you to waste endless time and money attempting to grow in the wrong market or with the wrong feature set.
But while you may not have the backing of venture capitalists, all is not lost. There are some less comprehensive, but more cost-effective, market validation workarounds for your big idea.
Before we take a look at these alternative strategies, it’s important to point out that any market validation, whether it costs millions or the absolute minimum, must begin with a clear idea of what you’re trying to validate, what success looks like, and the factors that you’ll consider in your decision.
Once you’ve ticked those boxes, it’s time to get validating.
11 key questions of market validation
The act of validating your business idea is one of asking the right questions, and finding accurate answers. Some of the most pertinent questions include:
- What problem am I solving? Unless you can clearly define an issue at hand or a clear gap in the market, there may not be demand for whatever you’re planning to offer.
- Can I clearly state the benefits of my solution? This checks a) whether there’s truly a need for the solution, and b) how thoroughly you’ve thought it through, and c)how easy it will be to sell.
- Who is most likely to purchase my solution? A CIO in a medium-size construction company? A mature and high-income couple who value fine dining? Once you develop your buyer personas, you’ll be able to do the necessary research on the validity of your new direction.
- How valuable is my solution to the buyer? Does it solve enough of a problem or meet enough of a need that it would create a shift in buyer behaviour?
- How should I price and sell my solution? What price and method of charging maximises profit? Consider offering it as a product, a service, a subscription, or with a payment plan. Should you offer rewards to those who spread the word for you, such as discounts or credits when a customer refers a contact?
- Which markets should I sell into? Where will you find your customers? In your suburb, city or region? In New Zealand, APAC or beyond? Remember that while your potential market becomes larger as you expand your reach, your ability to cut through decreases.
- How should I reach these markets? Let’s say you have a point of sale solution for the retail sector. Will you target all retail companies or a small subset? Or will you instead target complementary retail partners, industry bodies, training providers, resellers, etc.?
- Should I investigate multiple horizontals? Would your sales planning solution work just as well for companies in other industries?
- How competitive is this market? Will I be positioned to build a financially sustainable business, where revenue covers cost? Will this leave room for continued investment in the brand, and money to be put aside for rainy days?
- Have I done a SWOT analysis? Identifying the potential strengths, weaknesses, opportunities and threats will give you a sense of where your idea sits within the realities of the market.
- How is the market expected to evolve in the foreseeable future? Are there any changes expected in regulation or legislation? Will there be new innovations that will impact the size of my potential market, or are competitors likely to enter or exit?
Validating these questions with accurate answers
In answering the questions above, you want to understand your criteria for success (or failure). Determine SMART (specific, measurable, achievable, relevant and time-bound) goals and validate them in a quantifiable way.
Your goals and budget will steer your validation strategies. A few of the most common include:
- Conducting a digital survey of prospective buyers.
- Interviewing prospective customers or key stakeholders.
- Floating the idea, whether formally or casually, at an industry event.
- Seeking out a mentor or advisor such as Thinclab or Stratigence.
- Creating a landing page or website for your new product, service or brand.
- Using A/B testing to assess the appetite of the market.
- Setting up a Microsoft Advertising campaign (these provide greater insight granularity than equivalent Google campaigns, while being a fraction of the cost.)
- Purchase readily available market insight reports.
Decision time: is it viable or not?
The time has come to decide one way or the other: are you going to make this change, or pursue this opportunity?
Do all that you can to take the emotion out of the decision. It can be tempting to say yes purely to justify the investment you’ve already made, even if the validation process was relatively cost-effective. Refer to your original goals and see how many were reached, and how well they were reached.
It’s wise to get a range of perspectives, whether from your team or outside advisors. Remember too that this is the first step of a long process: it may be a viable solution, but the route to market may be long and complex, so there will be a lot more investment required before you begin to see a return.
No matter what the final decision might be, the process of market validation grants you the knowledge you need to make good business decisions. And if you’re smart about how you work, you can secure this knowledge, and the opportunities it offers up, at a surprisingly low price.