If you’re a new business owner or someone looking to start one, you should be know that data shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years.
Only 25% of new businesses make it to 15 years or more.
What does that mean for you?
It means you need to make sure you’re doing all of the right things to ensure success. One of the most important things you’ll need to know is how to test business ideas.
Making sure your idea has opportunity is one of the easiest ways to avoid potential heartache, headaches, and bankruptcy.
Keep reading, and you’ll find out how to build a better business.
Why Is It Important?
Before we get into the nuts and bolts of how to test business ideas, let’s understand why it’s important. Doing so will help out big-time when you start testing.
You’ll save time, money, and resources. If you fly blind and throw products out there because they seem like a great idea, you won’t always be successful.
You certainly can build a strong small business by skipping this step (we don’t believe in impossible), but it only makes sense to decrease the odds of failure significantly by spending an afternoon doing some business research.
Many businesses rush the process all too often. That can be disastrous and usually is. Testing your idea or product will help you identify your target audience. It will also help find critiques for your business idea or similar businesses.
Asking questions is a good thing. It’s extremely important when starting a business and testing ideas.
Some great questions to ask are:
- Why do you want to start a business in the first place?
- What problem will you solve for people?
- Who’s your target audience?
- How big is the market for this product or service?
- Who’s your competition?
- What are your resources?
- What’s your goal?
Asking these questions and performing the research to answer them is going to be one of the best things you can do to increase the odds of your business succeeding.
It’s essential to make thorough notes during this process. Keeping a journal and taking copious notes is a great tool to ensure success during this step.
Research Your Competition
Once you’ve identified your competition, it’s time to look at their strategies. Find out what has worked for them and what didn’t. Knowing these trends will save you tons of time and money.
You’ll figure out what makes your idea or product unique. You’ll know how to find customers, because you’ll know what will make your idea stand out.
Success will always leave a paper trail, and reverse-engineering what you see working for other successful businesses in your space is a great way to identify the best approaches.
If you see your competition posting about huge customer success and you see that they are hiring that is a really good sign your industry is ripe and ready for you to get going.
If you don’t see signs of this in your competition it may require a bit more research. You can also check the stocks of the big players in your industry to determine how well they are doing.
Build Your Prototype
You’ll need to know how to make a prototype. That shouldn’t be a problem since it’s your business, and you probably wouldn’t have started it if you didn’t know the product.
A prototype can be a physical product or even a service. If it is a physical product, you need to build one, if it is a service, simply map out in a mock project scope what services you will be offering, for who, and how much it will cost.
Identify what key aspects of your business to focus on and build that out.
After you build your prototype, it’s time to show people. Show it to experts and non-experts alike and get their feedback.
Put their feedback in your journal and use it to mold your prototype into something unique and successful.
Wayde Gilchrist of TechStartRadio.com and startup consultant says, “You should talk [to] and/or survey at least 50 potential customers to see if they identify with the problem the same way you do.”
50 may be overkill depending on your industry, but we recommend starting with at least 10 so that you can gather enough data to start making decisions.
Chip Bell, founder of the business consultancy firm The Chip Bell Group, says, “Identify people in that target [group] you know to be skeptical and critical.”
Don’t show your prototype to your friends and family that will likely tell you how awesome it is because they love you, but rather find people you know will tear your idea apart and provide constructive feedback that will actually help you build a better version or go hunting for a new idea.
Once you have your prototype feedback it is time to build the MVP.
You need to build a Minimum Viable Product (MVP). Eric Ries, a Silicon Valley-based entrepreneur and the author of The Lean Startup (Crown Business, 2011), says An MVP is “the simplest form of your idea that you can actually sell as a product.”
With your MVP you can find someone willing to pay a discounted rate, since you are just getting started, and get moving.
Use this first customer to build out an even better business model and continue to improve upon each iteration.
Now You Know How to Test Business Ideas
Now you’ve got four incredible tips on how to test business ideas. You’re ready to put it into practice and get your business off the ground. You’re also primed for success with these inside tips.
Testing and validating business ideas can be time-consuming but it is hands down one of the very best ways to improve the odds of your success.
If you are interested in validating your idea we can help you do just that. Contact us for even more in-depth tips, training, business coaching, and idea validation.