How to Validate Business Ideas?

What is the validation of business ideas?

The validation of a business idea is the process by which a set of relevant information is collected to determine the relevance and return on investment of a new project or initiative, as well as the resources required for its development. By validating an idea, the company is confirming its success potential.

In a continuous process that stretches from the ideation phase to the market presentation, the company’s main goal is to understand the viability and potential demand for the service or product. The design of a structured ideation process reduces risk, minimizes the costs of implementing the idea, speeds up the product’s market launch and avoids both unnecessary losses and the creation of a product of no value to the consumer. The validation of business ideas also makes it possible to determine if the timing of the implementation and development of the idea is right, and if the solution is efficient enough for the market.

Why should we validate a business idea?

The validation of business ideas is a key process for new and established companies in the market. The creation of a new business is usually followed by an entrepreneurial spirit, by its founders, with several ideas and goals defined for the project. The validation of ideas allows management to select those that add most value to the customer and the company, as well as those that the company has the skills to develop and implement. This process also allows the organization to avoid unexpected surprises and losses.

The inability to validate good business ideas can compromise the implementation performance of new projects. Factors such as optimism and lack of an external perspective of the organization can lead to problems related to the isolation of the company in the market, and the idea may seem more promising than it actually is.

On the other hand, a negative attitude can also compromise the development of an innovation due to the fear of failure and risk. The generation of an idea, and its consequent validation, depends on the balance between an entrepreneurial and cautious attitude by management, together with getting external feedback.

Validate the market appeal of a business idea

The validation of a business idea can happen in two ways: problem validation and solution validation. The problem validation occurs by looking for a situation, at the origin of the idea, that triggers the need to find a solution. This type of validation is the safest because it ensures that the idea developed by the company will solve a real problem or a genuine pain point for the consumer and, therefore, it is more likely to succeed in the market.

The generation of ideas by validating solutions consists in finding the best solution, from a set of options, that best suits the market and the type of consumer involved. This type of validation requires in-depth knowledge of the market and the consumer. Regardless of the type and solution chosen, the validation of a business idea must always be complemented by market tests to determine the degree of acceptance of the idea.

Test the business idea

The testing of an idea and business should begin in the close circle of the entrepreneur or company: friends, family, mentors and close associates. At this stage, honest and relevant feedback is sought even if it does not meet the initial expectations of the idea’s development. It is also at this early stage that some relevant questions for the development of the idea are raised:

• Where does my idea fit in?
• What chance does my idea have of succeeding in the market?
• What are the weaknesses of my strategy?
• How can I really validate my business idea, my products or services?

After the assessment of these questions, the entrepreneur is ready to start the idea validation process.

Which stages should we consider?

The validation of a business idea should follow a structured process that is easily replicable to other ideation projects. The stages in which validation is subdivided include the identification of opportunities until the development or dismissal of the final idea.

1. Identify opportunities

The identification of market opportunities allows the analysis of what already exists, as well as the discovery of new ideas, yet to be explored. At the starting point, it is important to assess the different possible scenarios, possible references in the market, resources needed to implement the idea and project feasibility.

The discovery of a product already existing in the market should not discourage the development effort of the idea, as there is always a way to improve or develop the existing product, offering more value to the consumer. Therefore, it is necessary to understand the relationship of the market with the current product and its improvement potential.

The identification of opportunities is a learning stage, sometimes difficult for the entrepreneur, but necessary to ensure the innovation’s success.

2. Create hypotheses

The creation of hypotheses, during the validation process, will allow the entrepreneur to assess the necessary assumptions for the idea’s success. At this stage, it is necessary to understand what is needed for the development of the business as well as the most difficult scenarios the company may have to face when implementing its idea. The definition of these hypotheses allows the intention of the company, or the entrepreneur, to be safeguarded and ensures that it is prepared for undesirable but probable scenarios.

3. Define and know the target audience

The specific needs of the consumer are different from one group to another and can determine the relevance of the innovation in the market. The company must ensure that it meets as many consumer needs as possible, and to do this, it needs to identify the target group it is communicating with.

Segmentation should be as restrictive as possible and can occur by gender, age group, consumer activity, or other relevant factors according to the idea in question. In an existing company, it is likely that the target audience to which the idea is directed is already known which will ease the idea’s implementation.

The creation of personas is closely associated with the ideation process because it allows us to draw with high specificity the fundamental characteristics of the innovation’s target audience, as well as their beliefs, experiences and values. A persona allows the company to identify the consumer, ensuring communication – and a product – targeted to their needs.

4. Research and develop a prototype

After defining the target audience, the prototype research and development stage follows. This stage involves the definition of the target audience to ensure that the prototype developed meets the customer’s needs. The company, or the entrepreneur, must have a profound knowledge of the product, innovation or business to be developed so as to define its ideal positioning in the market, compared to the competitors’ offer. At this stage, the specific characteristics of the product are defined, as well as the differentiating elements of the innovation in the market, with a high level of detail.

Minimum Viable Product

The development of a prototype – Minimum Viable Product (MVP) – is crucial for the validation of the product or idea to be developed, allowing insights and solid feedback through the development of a product, without the need for a major investment. The prototype should be as similar as possible to the final product, however, without major investment allowing the innovator or the company to redesign and adapt the product as many times as necessary. At this stage, it is possible to present the prototype to the consumer to obtain insights directly from the audience to which the innovation is directed.

5. Seek expert opinions

After implementing the necessary adjustments to the MVP, and in a stage before making the idea available in the market, the company, or the entrepreneur, should present the innovation, in a pitch format, to experts in the field to obtain criticism, feedbacks and observations. The specialists’ view may be the boost that the innovation needs to differentiate and establish itself in the market. With the improvements implemented, the product or idea is ready to be launched.

6. Build an identity

The generation of a business idea must be associated with legal measures to protect it from being copied or stolen by competitors in the market. The use of patents and trademark registration as well as the definition of terms of use and a privacy policy ensure the preservation of the idea’s individuality. The identity of the brand to be protected includes the name, digital address, products, its image and any differentiating and patent-eligible element that the brand has.

7. Market launch and possible adjustments

The market launch is the main test of the idea’s success. Consumer feedback, as well as the performance of the idea, will allow the company to adjust the innovation in a targeted way, based on the data collected. Collecting this data is crucial because it allows obtaining the real opinions and reactions of the market on a considerable scale. For this collection, the company should develop its processes digitally to obtain feedback through sources such as online questionnaires and even market indicators such as the number of sales and turnover.

The business idea generation process culminates after the idea has been developed and expanded and can be replicated for the testing and implementation of future ideas.

Despite the challenges inherent in generating new business ideas, such as possible failure of the idea, its associated benefits are exponentially greater often culminating in the creation of a new business.