How do you validate a business idea
Anyone looking for a business idea often asks themselves the question of the opportunities in the market with every idea. In today's guest post, Björn Erkens shows us a few smart tools and techniques with which you can explore the market for your ideas in 3 simple steps.
Björn successfully bootstrapped his own startup Explainr and brought it to six-digit annual sales within 2 years. At the startup success podcast, he interviews successful founders about their sales, marketing processes and strategies. In his daily work, Björn supports founders in growing on their own or in finding investors. To this end, he has put together a list of 650 free startup tools that can be downloaded free of charge. Björn is a father of two and lives with his family in Munich.
So Björn, let's go!
I've always had the need to start my own business with a great business idea and earn money in bootstrapping.
However, these great business ideas have usually remained exactly that: ideas. I fought for a long time to make the step from wantrepreneur to entrepreneur.
Today I would like to introduce you to a 3-step plan with which you can go from an idea to a salable product within a day. You learn like you do:
- Find your business idea,
- You can evaluate whether there is a market and willing customers for this idea,
- then make the idea big in bootstrapping.
These tactics have helped me bring my own startup to 6-digit annual sales within 2 years. I hope they bring you a little closer to the dream of your own startup.
Content of this post
Find a business idea
You have no idea for a new business? No problem, here are a few ways to get ideas quickly:
- Collect the things that upset you and that you often complain about
- Check out what people get upset about on forums and what they ask, i.e. what they're looking for help with. A source of ideas is e.g. gutefrage.net
- Check out what the bestsellers are on Amazon
Let's go through the whole thing:
Recently my watch stopped working. So I went to Karstadt to have the battery changed. It took the lady who changed the battery about 2 minutes. Now guess how expensive that was ... 10 €. And best of all, the battery is empty again. Makes me really upset.
Let's see if people on forums have the same problem:
Let's see what bestsellers are currently on Amazon. Here's something that somehow goes very well with what is currently upsetting me:
Ideas that came to me through this short research are:
- A “How to Fix Your Own Watch” info product
- Design and sell your own watch tool kit for self-repair
- Sell a watch tool set that is already on the market
Determine market size
Now let's determine the market size. We want to find out whether there is actually a sufficiently large market for your new business idea. There are the following options:
First of all the classic: the Google search. First, let's find out if there are enough people out there in the wide world owning watches. OK, Switzerland alone exported 29.2 million watches in 2012. And are watches often repaired? According to Statista, sales of almost € 40 million will be generated in Germany in 2016 with the repair of watches and jewelry.
Google Keyword Planner
In order to get closer to the actual market, in the next step we should research how many Google search queries there are for keywords such as "change watch battery" each month. To research more interesting keywords, we can look at the related searches suggested by Google below:
Then we throw all relevant keywords into the keyword planner:
And see how many searches there are monthly for the individual keywords:
About 1500 - 2000 search for our keywords via Google search every month. Let's assume that they are not always the same people. Then that means in the year 12 * 1500 = 18000 search queries.
Next, we look at Facebook Ads to see how many people we can reach there. Since we found out in our Google research that everyone actually owns a watch, I define the target group as people in Germany who have stated that they are interested in do-it-yourself. I think that people who like to repair or build things themselves correspond exactly to our target group:
Note: The better you can narrow down your target group, the more targeted your result will be.
Facebook tells me that there are 170,000 do-it-yourself enthusiasts in Germany, Austria and Switzerland.
What does that mean? Is the overall market big enough for your business idea? We are now looking at how much money watch tool sets are currently being sold for. A quick look at the Amazon bestseller reveals the following:
Let's assume the price for our business idea is 10 €.
If the market in Facebook is: 170,000 * 10 € = 1.7 million €
If the market in Google would be: 18,000 * 10 € = 180,000 €
Everything that makes up a total market of over € 1 million is worthwhile in my opinion for a bootstrapping business.
Test customers' willingness to pay
Before we buy watch tool sets, the customers' willingness to pay must be validated.
This validation should always be a hard commitment, not the verbal statement from friends that they would buy the product. People say a lot, only to find thousands of excuses why they don't need the product at the moment when they have to pull out their wallets. Hard commitment for me is: Entering an email or paying money.
Here are some suggestions how you can validate specifically:
Put a little bit of money in hand to advertise on Facebook within the previously defined target group. With 100 € you can reach 9,700 - 26,000 people according to Facebook:
The Facebook Ads Guide will help you create your advertising campaign.
Of course, only a fraction of the people who see your advertisement will click your banner. With a click on your Facebook advertisement, the interested parties land on your landing / sales page. How a good landing page should be designed, tools with which you can create it and what your call to action should look like can be found in this Medium article.
Alternatively, you can advertise on Google Adwords. We have already seen that the cost per click for our keywords is quite cheap. Here is the screenshot again:
Clicking on your advertisement costs you € 0.23 - € 0.77, which means that with € 100 you should get more than 100 interested parties to your landing page. In my opinion, that's enough to test how many of these prospects on your landing page would convert into customers (enter email or press the purchase button).
Money from friends
Probably the most direct way to validate your product is through your friends. Identify the friends who you think are your target audience. Briefly introduce them to your product and if they are interested, send them your account details and ask them to transfer the € 10.
It's not about your selling watch tool sets - although that might not be a bad idea at all ;-).My aim is to show you that you are not far from your own business.
The step of implementing a business idea is certainly the most difficult and scary one - for my part I always had a lot of problems with it and some of them still have today.
But if you have a way to validate your ideas quickly and cheaply, your new venture will be much more tangible.
Once you've validated your business idea, it's time to get traffic to your sales / landing page. Finally, I would like to introduce you to a tool from my startup tool list with which you can do this inexpensively. E.s is called snip.ly.
We have defined our watch repair target group as do-it-yourself enthusiasts. Sites that have cool articles on the topic of do-it-yourself are e.g. Lifehacker or IKEA Hackers.
If you now share articles like this on social media, tip the URL of the article to snip.ly beforehand. The tool lets you formulate your own call to action (e.g. for your landing page) and superimposes it on the external content that you are sharing. So you can promote your landing page for free, even though you are sharing third-party content. Here's an example:
That’s it. This is the exact validation and bootstrapping battle plan that I use for my new projects and that has proven itself for me.
Image source main image: Pixabay
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