You’ve had a brilliant idea, one you think could turn into a rare “unicorn“. But before you dive headlong into launching a business, first take the time to validate your idea. This will help ensure that there’s room in the market for your idea – along with potential customers. It can also save you from doubling up on something that already exists, or attempting to shoehorn yourself into an overcrowded vertical.
Here’s how to figure out whether your idea has legs.
Research the Market
Ideally, you’ll be working in a space that you’re familiar with. Even then, make sure that well-versed in what’s already out there, who your competitors are and how much room there is to grow. If you’re not familiar with your new vertical, become an expert – or at the very least run your idea past someone who is. You may think that you’ve solved banking or healthcare, but an insider can let you know if there’s something you’ve missed.
Also, exercise caution when assessing your competitors. While being the first may mean that you’re in an untapped space, there could well be a reason that space is untapped. Maybe there’s no real demand, or maybe there are challenging regulations you need to adhere to. On the other hand, a saturated market requires you to get consumers to shift from their existing product to yours, – which is no easy task.
However, if there are a handful of competitors who are starting to make inroads, you’re in luck. They’ve done some of the work of validating your market for you. Now you just need to offer something better or different from what they are.
Crunch the Numbers
So you’ve established that there’s a potential market for your idea. Now it’s time to figure out whether you can make the numbers balance. What’s a viable price for your idea, and how does that compare with how much it will take to produce it? You may find that production, shipping, packaging or storage are prohibitively expensive, and in that case, you’ll need to make some adjustments to your idea. Perhaps your idea is only viable at a certain price point, which means you’ll need to position your brand in a way that justifies the expense. Or maybe it’s a seasonal idea, which means you may have capacity issues if demand is higher than anticipated.
There’s more to running a business than just the cost of the item itself, so don’t forget to factor in all the expenses involved in your idea. These will include everything from marketing to licensing fees to paying yourself at the end of the day. What do these figures look like if you scale the product up? Does the profit scale accordingly, or not?
One good way to figure out whether your idea works from a financial perspective is to start with your financial goals and then work backward. If you want to make $100,000 in your first year, and $500,000 in your second, what needs to happen to make that work?
Don’t be one of those people who talk vaguely about landing a million customers out of nowhere. Be crystal clear on your business model and how exactly you’re going to drive revenues.
Test the Waters
On paper, your idea seems like a good one. But what does the market actually think? Here’s where you put it to the test. Build a website landing page and gather sign-ups. If enough people jump at the idea, you just might be on to something. You can also call around to pitch your product and see how people respond to your proposed idea and pricing. Use their feedback to adjust your pitch, idea, and costs accordingly.
If no one bites, then it’s time to either reframe your idea or come up with something else. If they do go for it, it’s time to start prototyping. Build out the simplest version of your idea possible and then iterate from there. Start small. You’ll obtain new information and feedback along the way, letting you refine your idea so that it’s as targeted as possible to your audience.
Don’t be disheartened if the market doesn’t respond to your brilliant idea the way you thought they would. It’s much better to abandon an idea early on than it is to press forward and find out the hard way that your idea wasn’t viable after all.