Let's validate that business idea

Updated: May 9

If you're entrepreneurial, no doubt you will have had many business ideas, but how should you sift out the average ideas from the good ones and eventually identify that idea that could become the next TikTok or Xero? This is where idea validation comes in.



Most businesses are started from people who already have a great feel for the industry and market they'll be working in. For example, an electrician heads out on her own after working for a larger firm for five years, knowing she has six months of work locked in already with friends and family. So, she has five years plus ready and willing customers to validate her idea already. The same could be true for an experienced hairdresser setting up a new salon or a lawyer starting their own practice, but what about a totally new product?


For new products—whether it's software or a manufactured product—before we commit 100s of hours and 1000s of dollars to this idea, can we test it out to have a better understanding of its potential for success?


Here are four steps you can try to see if your business idea might have some legs:


1. Understand Your Assumptions: Every new business idea will carry with it a bunch of assumptions. Let's say I have an idea for the Airbnb of pet sitting. The success of this app would depend on the following assumptions:

  • That pet owners are happy for their pet to be looked after in a stranger's house or alternatively give that stranger access to their house while they're away.

  • That pet sitters would be willing to look after stranger's animals.

  • That sitters and owners would like to use an app and there are enough of these people to make a scaleable market.

  • That my app works well and has a good user experience to keep sitters and owners coming back.

  • That an adequate exchange of money would take place for this service.

  • That this exchange of money would allow for enough revenue for your business to clip the ticket and this wouldn't deter usage of the app.

  • That we can utilise marketing channels to spread the word about the app to gain early market adoption and hit the critical mass required for the app to be effective (i.e. have enough sitters and owners in each neighbourhood).

  • That once pet sitters and pet owners have been connected, that my app isn't by-passed for future pet sitting.

  • That my app couldn't easily be ousted by a larger competitor moving laterally into the space—like Facebook Market Place did to TradeMe and taxi companies could have done to Uber.

As you can see, the list of assumptions that make up a "good idea" can be substantial. And it's only when you lay them all out that you can set about stress testing them.


2. Test Them Out: Each assumption will need a different stress test. Gauging the number of pet owners could be relatively easy by digging through publicly available statistics and the demand for sitting in any neighbourhood could quickly be estimated by calling up pet sitting businesses to check availability for upcoming holidays. However, testing the specific idea may be a bit trickier.


Many businesses will use focus groups and street or phone surveys to test the specifics of a business idea. But one great tool that the internet gives us is using advertising for yet-to-be-made products/services in order to test click-through-rates and enquiries. For this you'd just need to set up a basic web site (that says "Pet Sitting App coming soon, for more, please hit the Tell Me More button below") and a couple of different image adverts. Then run some Google ads for a week or so for the app and observe the click through rates, cost per clicks, and number of "tell me more" messages as a tool for estimating the real demand in the market. The benefit of this technique is that you're testing actual behaviour of the market, not what they politely tell you in a survey or focus group. And, on the note of politeness, the worst people for testing your idea on are definitely your friends and family!


3. Be Prepared To Pivot. Testing will inevitable point out some glaring weaknesses in your idea. Often, it's just a matter of pivoting your product to better suit the needs of the market. For example, my pet sitting app may require all pet sitters to be police vetted, provide references and have completed an online competency quiz. These pivots are often the most important steps your new business can make toward becoming successful, but you'll need to be both brave and humble to let elements of your idea go.

4. Be Prepared To Let It Go. The most humbling part of this whole process is realising when the idea just needs to be let go entirely. This can be very hard. You may have poured money and time into an idea. You may have told friends and family you're working on this exciting project and there will be social consequences for bailing out. But sunk costs of time and money are just sunk costs; many times letting them go and cutting your loses will avoid future bigger loses. Plus, by being prepared to let it go may well open the door to a new, better idea—there are no shortage of ideas!


And, always remember, even if you need to hit the eject button on a business idea, the professional development of following the idea validation process is intrinsically valuable regardless of whether the idea comes into fruition or not. Consider it like a real life MBA. This way, whatever happens, it's a win, win for you!


Got a business idea? Or a start-up asking for growth? Check out Innovate Taranaki, a 10-week mini business accelerator! Entries close for 2022 on 27 June. Find out more here: innovatetaranaki.kiwi