Evaluating Business Ideas
How to Test Your Business Idea
Written by James Garvin for Gaebler Ventures
Save yourself thousands of dollars by first testing and validating your business idea before fully committing to it. Entrepreneurs are eager to push their business ideas as quickly as possible, however conducting the proper short-term due diligence might just be the best insurance policy that you ever take on.
There are a lot of numbers thrown around about the percentage of new businesses that fail within their first year or two.
Some numbers peg the percentage at around 50%, but the number isn't what's important because those businesses that go on to succeed conduct the proper due diligence and execute better than the business that fail, so in essence lumping all new businesses into one pile is not comparing apples to apples.
Entrepreneurs are ambitious and driven and they like to move fast. Once that golden business idea has stricken their minds they can think of nothing else, entrepreneurs will often stop at nothing until they see that idea come to fruition. For some, this shotgun approach may work, for most it will ultimately fail. It doesn't fail from the lack of the idea being a good one, but rather it fails from not testing the idea to validate the assumptions it is built off of first.
There is a reason why many entrepreneurs state that their businesses today are nothing like what they had originally intended them to be. Business change as customer requirement and market forces change. What seems like a good idea one day, is doomed the next. Successful entrepreneurs know how to successfully test ideas before fully committing capital and resources behind them allowing them to change direction.
The phrase, "a picture is worth a thousand words" couldn't be truer for an entrepreneur. Before you go and build your actual product, create images and pictures of it that you can share with potential customers. If you're building a physical product, create 3-D prototypes and share the concept with potential customers. If you're starting a new retail store, share your store design layouts and retail concept with consumers before spending a dime on the physical store. If you're building an internet business, create and share screen mock-ups of what the website will look like and how your website will help your target customers before you start spending money on actual programming.
In essence you need to make the hypothetical idea as real as possible by creating the images that most closely resemble what you envision the final product to be. Imagine spending tens of thousands of dollars of your own money to go build your final product only to have your target customers tell you that they won't buy your product because it has a design flaw.
Ultimately an entrepreneur's time is limited and you must limit yourself to how much research and validation of your product or business you can do before launching. Not doing your homework before committing the capital, time, and resources can be a recipe for disaster. The key to researching and validating your business idea, isn't to go out and sell it to potential prospects, rather it is going to your prospects and engaging them in a discussion about your idea. The feedback you garner from prospects during casual discussions about their business and your potential product or business will help you narrow your focus on the critical features and points that will help you drive greater customer adoption.
James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.
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