How to Validate Your Business Idea

In my last post, I talked about how you can generate business ideas. Now, I would like to share some methods on how you can validate your ideas to see which ones you should pursue as a business. In my experience, most businesses don’t fail because they are undercapitalized, but because not enough research, testing and preparation were done initially.

In this article, you will learn to evaluate your idea, forecast potential profits and test whether or not consumers and/or businesses will even buy your product or service. By following these steps, you have a much better chance of launching a successful startup.

Step 1: Determine which of your ideas already exists

You may have an amazing idea, only to realize that there is another company doing exactly what you propose. The easiest way to see if your idea exists is via an online search.

Let’s say your idea is for a subscription gift box service for fish enthusiasts. You would Google “subscription gift box service for fishing” and would see that Mystery Tacklebox already exists. That’s not to say you can’t start a subscription tackle box service, too, but my advice is to pursue an idea that doesn’t have any competition yet, unless you think the competition is doing a poor job (e.g. they have a bad website, horrible customer service, or awful reviews).

After you search for each of your ideas online, delete any ideas that already have robust competition.

Related: How to Generate and Execute Your Next Business Idea

Step 2: Rate your remaining ideas based on these three attributes

Investment cost, personal interest and potential profit. Look at each idea of yours and assign three separate numbers to it based on this scale.

  • Investment Cost (on a scale of 1 to 10): 1 (will cost you over $2,000 to launch), 5 (will cost you $1,000 to launch) or 10 (costs less than $200 to launch)
  • Personal Interest (on a scale of 1 to 10): 1 (if you’re not interested at all in the idea aside from its potential profitability), 5 (you’re somewhat interested) or 10 (you’re very passionate and excited)
  • Potential Profit (on a scale of 1 to 10): 1 (less than $10K in annual profit), 5 ($100K in annual profit) or 10 (over $500K in annual profit)

After rating each idea with these three attributes, add up the total for each idea. Rank your ideas from highest total score to lowest total score. Focus on the ideas with the highest total score.

Step 3: Forecast your revenue and expenses for your top ideas

Create a simple spreadsheet for each idea. On one side, estimate your revenue. On the other side, estimate your expenses. You will have both overhead and operating expenses. Overhead expenses are costs that do not change based on the quantity of products or services you sell, i.e., incorporation, insurance and internet. Operating costs are costs associated with making a product or providing a service, i.e., cost of materials or shipping. Using your forecasts, you can get a better sense of profit for each idea.

Step 4: Get feedback from family, friends and potential customers

Pitch your ideas and see which ones they like the best. You can set up a free survey using Google Forms to send to your contacts. Since your friends and family might be biased, you also want to pitch to people you don’t know. You should talk to real potential customers about their needs, wants and expectations.

SurveyMonkey offers an Audience tool that lets you send a survey to a targeted panel of consumers. Here are some starter questions to ask in your survey:

Identify your target demographic

  • What is your age?
  • What is your gender?
  • Where do you live?
  • What is your household income?
  • What is your profession?
  • What is your education level?

Assess market and pricing

  • Would you use this service or product and how often?
  • What do you like about current products or services currently on the market?
  • What do you dislike about current products or services currently on the market?
  • What concerns/questions would you have about this service or product?
  • How much would you pay for this service or product?

Step 5: Examine your rankings collectively

Your total score from Step 2, forecasts in Step 3, and feedback in Step 4 should help you identify the strongest ideas on your list. Hone in on your top one to three ideas.

Step 6: Set up consumer tests to validate your remaining idea(s)

This step is critical and will save you money and time down the road. Before you spend all your money building an app or stocking up on inventory, make sure a significant number of customers will pay for your product or service.

You will have wasted money, time and effort if enthusiasm expressed by family and friends doesn’t correlate to market potential. Several of my ventures failed before I even started because I did not perform consumer testing. The dictum, “If you build it, they will come” does not hold true in the entrepreneurial world. Based on what your business idea is, there are several ways you can test it.


If your business idea is for a product, create a prototype of the product. You can create the prototype yourself or hire someone in that industry to create it for you. For example, if planning on producing drone cases, you can buy the material yourself and create a case based on your design. Or perhaps you plan to sell a unique smartphone accessory. You might need to hire someone in the industry to create a prototype to your specifications. Don’t worry about producing a large quantity; you just want a few items to photograph and show to potential customers. If you are not creating a new product, but reselling another company’s product, purchase a few items for photographs and to show to potential customers.

Once you have received the prototype or product you are reselling, you will want to see if customers are interested in making a purchase. Below are several consumer testing methods you can employ. Select two or three to pursue.

  • Use Shopify or BigCommerce to create an online storefront and start taking orders. This is a great way to test if consumers will really pay for your product. Set up an online storefront, take photos of your product, and upload them to the site. Set your pricing based on similar products in the marketplace. Create a few online ads using Google AdWords to direct potential customers to your site. If you receive orders, then you know that customers will pay for your product. Refund the customer after they order if you don’t have product to ship yet or be prepared to acquire product quickly.
  • Launch a Kickstarter project online. This option has the dual benefits of both raising you funding through pre-orders and building your customer base. However, it can be tough to get noticed amongst the thousands of ongoing Kickstarter projects. Plan on creating an eye-catching video so you stand out. Once your Kickstarter project is live, leverage your social network to get as much exposure as possible.
  • Create an online landing page and collect email addresses of interested customers. This is an easier option than creating a full-blown online store, but it’s not as effective since you cannot test if customers will actually pay for your product. You can use a service such as Unbounce to create a landing page where potential customers can enter their email address if they are interested in purchasing your product when it becomes available. You will want to run several online ads to direct potential customers to your site.
  • List your product on eBay or Etsy and see if you receive any sales. This is one of the easiest ways to validate potential customers, however, there are some downfalls to using either site. If your product is truly unique, users are less likely to find it on eBay since people usually search for pre-existing products. Etsy has strict product guidelines and may not target the right customers for your product. Once again, refund the customer after they order if you don’t have product to ship yet or be prepared to acquire product quickly.
  • Walk into retail stores in your neighborhood that sell products with the same scope as yours. Ask for the buyer (generally the manager in smaller stores) and pitch your product. Before you enter any store, make sure you know what your cost per item will be and what your wholesale price to the store would be. The store will markup your product to the retail price. Markup percentages vary by product and industry. For example, a shirt may cost a manufacturer $5 to produce. The manufacturer would sell the shirt to a store for $10 (wholesale price). The store would then sell the shirt to a customer for $20 (retail price).
  • Email and call retail stores outside of where you live about selling your product. Your goal is to see if stores are interested in stocking your product. If you don’t hear back from the buyer, follow up every few weeks. If you hear back and the answer is no, don’t give up hope yet. Reach out to the buyer again and say that you believe in the product so much, that the buyer can offer it on consignment. Consignment is where retailers will stock your product but will not pre-pay you for inventory. They will pay you only if they sell your item to a customer. Consignment provides retail stores with a low risk option to test your product.

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If your business idea is for a service, you need to assess if potential customers are interested in using your service. You can achieve this by using one or several of the following methods:

  • Create a website and start taking bookings. Using an online website builder, create a simple website with the goal being to receive customer inquiries via phone or email. After you launch the website, consider running online ads using Google AdWords to direct users to your site. Overall, this process will cost you about $100. It is well worth the investment since it will help you determine if people will use your service.
  • In place of creating a full website, create a simple landing page and collect email addresses of interested customers using a service such as Unbounce or Lander. Once again, you will want to run online ads using Google AdWords to direct users to your site.
  • Call and email potential customers to see if they would be interested in using your service. Let’s say you are starting a social media consulting firm. You could call local small businesses and describe your offering and pricing. Convince them to commit to your service. Post online to special interest forums related to your product or service. Ask members for feedback and gauge their interest in becoming customers. Think outside the box about ways you can reach potential customers and then execute

Once you’ve tested your ideas using the above methods, you should have a sense of how interested customers are in your product or service and know whether or not it is worth pursuing. It is hard to walk away from an idea, especially if you are excited by it, but your time and money are important, and you don’t want to waste it. Start generating more ideas and repeat the testing methods you’ve learned. Eventually, you will find an idea that generates enough consumer interest to warrant starting a business around it.

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