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Business Idea Validation: Why You Need to Do It

Matt Alcock Matt Alcock
Jul 23
7 min read

You’ve thought of a business idea you think could be a solution to someone’s problem. Nice one! 👍

But taking an idea from a rough concept to a living-breathing business is no small task. So… what’s next? Do you proceed right away, build a team and start making things? Or do you first validate your business idea?

Business idea validation rocks 🤘

Let’s take a look at why you should validate your business idea first before going into the real world.

How Airbnb Started

By now, most people know what Airbnb is — especially those who travel a lot.

Airbnb — an online marketplace for lodging, which is now worth $38 billion. (Business Insider)

It was late 2007 when Airbnb founders — Brian Chesky and Joe Gebbia — moved to San Francisco from New York. ✈

At that time, they couldn’t pay their rent and they were looking for ways to earn some cash.

They knew there’s a big design conference coming to town and most of the hotel rooms in the city were already booked. Of course, they didn’t let this opportunity pass by.

They then bought 3 air mattresses, arranged them in their loft, and created a site called “Air Bed and Breakfast”.

Now, here was how the founders validated their idea:

They had to rent their own houses and went from home to home asking people if they were willing to host people they didn’t know.

With their effort, they had 3 guests — 2 men and 1 woman — who each paid $80 to stay on the air mattress.

Now, they have more than 4.5 million listings over the world with $2.8 billion (estimated) annual revenue.

Two Primary Reasons Why You Should Validate Your Business Idea

The story of how Airbnb started is inspiring, isn’t it? 😊

But they started out the same way as any other startup: business idea ➡ validation.

Here are the primary reasons why you should validate your business idea first before going big:

1. Measure Demand and Check Timing

If there’s no real demand for your business idea, it would be close to impossible for your business to succeed. ❌

Demand, in terms of economics, means the amount of some good/service that consumers are willing and able to purchase at each price. (Principles of Economics by Rice University)

So how do you measure demand and see if it’s worth it?

There are a lot of techniques and tools you can use. Here are a few examples:

  • Online surveys
  • Focus groups
  • Interviews
  • Google Trends
  • Google Keyword Planner
  • Amazon Research
  • Intent Testing
  • Ad Testing
  • And many more

For example, if you’re planning a business idea around alternative milk options, a quick search on Google Trends across the US would reveal how Oat and Almond milk are trending.

The information you get will help you realize if there’s a demand for your idea — and if there is, would it enough to justify the financial risk in launching the minimum viable product? 🤔

The founders of Airbnb knows that there’s a real demand for a hospitality business in San Francisco during that time for two reasons:

  • There’s a big design conference coming to town.
  • Most of the hotels are already booked.

Bottom line: Check if there’s an “actual need” for your business idea.

2. Minimize Costs and Reduce Risk of Failure Due to Lack of Product-Market Fit

Here’s the brutal truth:

90% of startups fail — that’s 9 out of 10! 😱

And you know what’s one of the top reasons?

According to CB Insight’s data, the 2nd top reason why startups fail is that they ran out of cash.

And the first was market need!

So finding a market fit fast is really important as it affects both the top 2 reasons startups fail.

“How do I get started with validating my business idea?” 🤔

No worries! We’ve got you covered! 💪

How to Start Your Business Idea Validation

There are different ways to validate a business idea.

But for starters, let’s simplify the process into 4 steps:

1. Define Your Concept

Validating a business idea is one form of idea management — the systematic process of getting the most out of your ideas.

In this step, all you have to do is learn the aspects of what you want to validate — your assumptions and ideas before launching your service/product.

To get the most out of this part, ask yourself questions like:

  • Who are your customers?
  • What is the problem you’re trying to solve?
  • Is solving the problem worth it? Is there a demand for it?
  • How is your product/service going to solve the problem? What are the main features of your product?
  • What is your pricing and business model? Could you scale your business?
  • Is the demand high enough to work with your pricing model?

Of course, the questions you can ask aren’t limited to these.

But your goal should be to identify the most important assumptions and elements of your business idea:

  • Problem
  • Solution
  • Business model
  • Pricing
  • Core features

After you identify these things, prioritize those you think are critical to your startup’s success. 📊

2. Have a Minimum Success Criteria

This next step is simple:

You’ve got to come up with a statement — a hypothesis — to test your most critical assumption.

The founders of Airbnb thought of a solution (marketplace for lodging) to a problem (hotels are booked).

The important assumptions for Airbnb that time were:

  • Are visitors okay with sleeping at stranger’s houses?
  • Are homeowners willing to rent out their homes for strangers?

Obviously, the success of Airbnb depends on these two assumptions.

If during their research/survey they found that only 70% of homeowners are willing to rent out their space for strangers, does that mean the business idea wouldn’t work? 🙏

That’s why you’ve got to come up with your own minimum success criteria.

3. Test Your Assumptions

Once you’ve got your success criteria, it’s time for experimentations.

There are two things to keep in mind when testing your assumptions:

  • Time
  • Money

Track how much time and money it takes to test your idea in practice while using the least of both resources as possible.

For example, Airbnb — despite its net worth today — started out only with 3 air mattresses and a website.

Of course, what works for one business doesn’t mean it would work for another. There’s no one-size-fits-all test.

Here are different ways for you to test your idea:

  • Building a minimum viable product (MVP)
  • Interview/survey
  • Crowdfunding platform
  • Intent/signup testing

In this step, not only will you get to test your assumption — you would also get ideas on how to improve your product/service. 👌

4. Confirm and Develop

This is the step where you validate your assumption, see if it’s valid or invalid and if it has potential.

Passing this part doesn’t always guarantee success. There are other factors after this that would make or break your business.

However, validating your most important assumptions and studying out everything you’ve learned from experimenting is definitely a good start.

Once you’re ready, you could then start developing more or improve the prototype you’ve made during the experimentation step.

Always Validate Your Business Idea

The purpose of validating your business idea is to see whether or not your idea has the potential to take off.

Remember, there are a lot of startups in the world — and 90% of them have failed.

Don’t be one of them. 💪 and have fun! 🤩

Say hello!

👋 Let us know how we can get in touch. We’re excited to help!