How to avoid the mistakes of the others by validating them. The beginning of every business idea is usually marked with super-excitement. You are convinced that your idea is the next big thing. And maybe it is, if you follow the next 6 steps and know how to validate your ideas. We developed this 6 steps by guiding many corporate innovation teams and startups from their early idea to investment readiness.
Validation – There’s no harm in asking
The first contact with customers or experts often leads to the first point of complete frustration. Usually it turns out that one has no clue about customers, their needs, market dynamics and competitors. No innovation team is protected from wrong assumptions. It is key to learn as quickly as possible. This means formulating hypothesis and collecting real market feedback to see if you are on the right track. Building your business on the basis of wrong assumptions can lead to critical mistakes instead of big success. So, don’t forget to continuously validate your business idea while working on the 6 steps:
1. Customer Exploration: The Customer is everything, but not every customer has to be yours
The first big step is to get to know your customer. No customer means no business. Define the major customer segments you want to address, elaborate on the ‘job they want to get done’, and state the major pains and needs they have in order to do so. Most important is to not force the solution. Try to really understand your customers. The more you understand your customers and their needs, the better the value you can create for them. Subsequently making your business more successful. Keep in mind that you don’t have to serve every customer. It will be a lot easier to concentrate on one customer segment and find your niche market. Check out our blog post “Step 1: Understand Your Customer” for detailed information.
After you have identified a problem you should prove if it really exists and if it matters to your customer. Validate if the problem you identified is really there and matters to your customer. Here’s our video on Problem Validation.
2. Solution: Develop your solution
The next step is all about developing a solution that fits to the customers pain and needs. List the major pains and needs you identified and think about the major customer benefits you want to create. If you can quantify the customer benefit it’s even better (e.g. 20% faster, 2x cheaper). Next think about what features your solutions needs to solve the pain or need to create the outline benefit.
Problem Solution Fit
Validate if you are able to solve this problem with your solution and if that leads to the value you propose (Customer Value Proposition).
3. Business Model: What’s your Business?
Develop a sound business model around your by now validated value proposition. The Business Model is about putting your knowledge of your customer and the work on your solution into one piece of paper. A business model describes how your business works and how you deliver, create and capture value to your customers. Define where and how to get in touch with your customer and build-up a strong relationship. But also elaborate how the value you are proposing can be created through activities, resources and partners. And in the end don’t forget about the money that keeps your business alive. Define the major cost drivers behind your business and the major ways you intend to make revenue. Click here for some business model inspiration.
4. Competitive Advantage: Just be better than your competitiors
Even though you might think you are the only one- you are not. There is always competition. But you don’t have to be afraid of competition as long as you know who they are. To find your niche you have to identify and analyse your main competitors. List the major benefits relevant for your customers and evaluate yourself with your competitors. Make sure to identify your secrect sauce.
5. Market Size: Crunch the numbers
To analyse the market size helps you to get a basic understanding of how big your target groups are and if the overall market is big enough to make a profitable company. The toughest part of this step is to find reliable sources for the numbers and to stay conservative. Keep in mind that your core mission is to find out if your customer segment you plan to target is big enough to build-up a successful and sustainable business.
6. Finance: Do you make business or profit?
When you are confident that you have identified a market that is big enough with a problem worth solving, it’s time to put together a quick set of financial projections for your solution. It is important to look at your business idea from different angles to get a holistic perspective. Also think about different scenarios that can happen.
Product Market Fit
Validate if you are able to offer the value proposition in a sustainable and scalable way. This means to undertand your customers funnel from awareness to action. Along this journey you can measure important key metrics, that will help you to track and optimize your process.
Many companies have successfully launched products and services by using this 6 step process and validating their ideas and they still use our services and tools to stay productive and get their work done.
Let us know if we can also help you to turn your business idea into success!