Step-by-Step Guide: How to Validate Your Business Idea Now

Unlock business success with this FREE template to validate your product idea.

Have you ever had a great idea for a business or product that you were sure would be a hit? It's an exciting feeling, and it's easy to get caught up in the possibilities of what could be. However, as attractive as these ideas may be at first, the reality is that they can be costly if not properly validated.

Validating a business idea may not be the most glamorous part of entrepreneurship, but it is crucial. Without it, you could end up investing a lot of time, effort and money into an idea that has little chance of success. In fact, statistically around 42% of startups fail because there is no market need for their product or service:

• According to Forbes, an estimated 90% of startups fail.

• Harvard Business Review reports that 75% of venture-backed startups fail.

• Small Business Trends reports that 20% of small businesses fail within their first year, 30% within their second year, and 50% within their fifth year.

• Exploding Topics says early-stage startups need to spend up to 3x longer validating their target markets than their founders anticipate.

The benefits of validating in early stage

Validating a business or product idea before developing it helps to reduce the risk of failure and increase the chances of success. Here are five reasons why it's important to validate business ideas:

1. Saves Time and Money: Early validation can help to avoid costly and time-consuming mistakes. By testing assumptions and validating hypotheses, businesses can quickly identify which ideas are worth pursuing and which ones should be abandoned.

2. Confirms Market Demand: Helps to know whether there is a market demand for the product or service being offered. Helps to avoid the situation where a product is developed that nobody wants or is willing to pay for.

3. Identifies Target Customers: Helps to ensure that the product is developed with the needs and preferences of the target market in mind, which can increase the likelihood of success.

4. Guides Product Development: Provides insights into what features and functionalities are most important to customers. This can help to ensure that the product is developed in a way that meets the needs of the target market.

5. Attracts Investment: Validating a business idea can also help to attract investment by providing evidence that there is a market demand for the product or service being offered. Chances are, it can  increase the likelihood of securing funding from investors or other sources.

So how to validate your ideas?

There are a variety of ways to test your assumptions and make sure your idea has a solid foundation. One tool that has been there from several years now and is easy to start with, is the Lean Validation Board.

The board is designed to help teams validate their assumptions and test their hypotheses in a structured and iterative way, regardless of the type of business idea they are working on. At the end, you should be able to test your MVPs and then build a product.

Typically, the core elements of a validation board includes:

1. Problem: This section defines the customer problem or need that the team is trying to solve.

2. Hypothesis: This outlines the team's assumptions about the problem, the solution, and the target market.

3. Experiments: This section lists the various experiments that the team will conduct to validate their assumptions and test their hypotheses.

4. Metrics: This section defines the key metrics that the team will use to measure the success of their experiments.

5. Results: This section summarizes the results of the experiments and whether or not they validate the team's assumptions.

6. Learnings: This section captures the team's learnings from the experiments and how they can be used to improve the product or solution.

Hypothetical Example: Airbed & Breakfast

Let’s suppose we are Chesky and Gebbia and we are struggling to make a living in San Francisco. We attend a design conference and suddenly a big idea emerges: generate money by renting air mattresses in the living room of our apartment. How can we validate this idea?

1. Problem: Find affordable and unique accommodations for travelers.

2. Hypothesis: Let’s assume that there is a market of travelers who are looking for more authentic and personalized experiences than what traditional hotels offer. Let’s also assume that homeowners and renters are willing to share their homes with travelers.

3. Experiments: We need to run experiments to test these assumptions. This might include creating a simple landing page with photos and descriptions of potential accommodations to see if people are interested in booking them. We also conduct customer interviews and surveys to understand travelers' needs and preferences.

4. Metrics: We define metrics to measure the success of these experiments. It might be the number of people who visit the landing page, the number of bookings made, customer satisfaction rate and the insights from the interviews.

5. Results: Based on the results of the experiments, we determine whether our assumptions were valid or not. For example, if we see high levels of interest and bookings on the landing page, this would suggest that there is a market for this idea.

6. Learnings: Finally, we use the insights and feedback gathered from our experiments to improve our product and make adjustments to the business model. For example, if we find that travelers are primarily interested in booking accommodations in certain locations, we might focus on expanding our offerings in those areas.

Start validating your assumptions with this Validation Board

The template contains instructions and a live example so you can use it right now. Feel free to play with it and validate the craziest idea you have.

Essential elements of the template:

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In Summary

A Validation Board can be used to validate a wide range of business ideas, including new products, services, and business models. Is particularly useful for startups and early-stage ventures because teams can quickly and efficiently validate their business ideas, reducing the risk of wasting time and money on ideas that may not work.

Rather than spending a lot of time and resources building a product or service before testing it with customers, the validation board helps product teams identify the most critical assumptions they need to test and then design and run experiments to validate them. They can also use it to pivot their approach and adjust their business model based on the results of their experiments, improving their chances of success.

So remember, before you dive headfirst into your next big idea, take the time to validate it. It may not be the most exciting part of the process, but it could save you a fortune in the long run!