You’ve been dreaming about starting your own business for weeks, months or even years. You are excited and think you are ready to start! Ask any new business owner about their product or service and they will most likely tell you it is the greatest thing since sliced bread. However, having a certain skill, being excited about being an entrepreneur and having friends tell you your product concept is great doesn’t necessarily mean you have a sound business idea.
The reality is that until you test your product or service with actual customers, you won’t have 100% certainty about whether there is enough interest in the market to support your theory.
There is a lot of risk involved in starting a new business, therefore it is very important to test your idea before you fully commit, especially if committing means quitting your day job. If your new business is going to succeed, there must be adequate demand for your product or service at the price you intend on charging to make a profit.
What should you do to test your business idea before committing?
Market research & consumer feedback
One of the best ways to figure out if there is adequate demand for your future product or service is to carry out some market research and gather honest feedback from these potential customers.
Don’t rely on your friends and family to test your idea, they are likely to have a biased opinion. Instead, reach out to the people you think will actually want to buy or use your product or service. These people are your true target market.
You will need to know who your customers are going to be and ensure that you speak to enough people to make it a reliable sample of your potential customer population. The more you test your idea, the more confident you can feel about its chances of success.
Be honest with yourself when considering the results of your market research and pay attention to the feedback you get on your product or service features and price. If the people you consult with are not interested in your offerings, ask them why and take notes. This might highlight an important flaw in your idea or plan.
Always focus on accumulating solid information about what your customers want to buy rather than what you want to sell them. Don’t skip this important step of figuring out if you are actually solving a real world problem.
While you share your business idea with your potential future customers, notice their reactions and remember what words resonate with them. Those are the words you will want to use with others to describe your business, as well as weave into your marketing plan and branding.
Common methods to perform market research include:
- One-on-one meetings with potential buyers
- Door-to-door questionnaires
- Phone call surveys
- Direct surveys on the street
- Online surveys on social media sites
Government programs & incubators:
Another way to test your business idea is to pitch it to organizations or groups which have experience screening and validating business ideas such as:
- Government funding agencies
- Regional innovation centers (RICs)
- Incubators and accelerators
- Savvy investors (angels and venture capitalists)
These organizations and groups are used to hearing a lot of different business ideas and are most likely to be brutally honest when you pitch your idea to them. This is the kind of feedback you need before you decide to fully commit.
Savvy investors are especially quick at identifying fantastic opportunities as well as holes in your business model and plan. They will also have prior entrepreneurship experience and can share valuable insights and lessons learned. If they show interest in your idea, that’s a great sign. Who knows, one of them may even write you a cheque and be your first investor!
Depending on what industry you are in, find someone who knows that industry inside and out and has a unique understanding of what customers are like in this market.
Above all, remember that the feedback you receive are opinions. Sometimes even government funding agencies, regional innovation centers, incubators, accelerators and savvy investors are wrong. Asking their opinion to test your idea will provide you with insight, rather than a concrete answer as to whether you should move ahead.
Making the jump and deciding to commit to your business full-time from its inception is risky since you will not have any other income to keep you afloat. Another solution is to start part-time, while you keep your current job and further validate your idea. There is nothing wrong with easing into the business gradually to make sure you are taking all the necessary steps to increase your chances of being successful.
Just be aware that building a business part-time while holding down full-time work is difficult. You will need strong self-discipline and exceptional time management skills. You will eventually have to decide whether or not to commit full-time if it becomes hard to balance both commitments as your small business begins to flourish. This is a good problem to have!
You will know when it’s time to go full-time if your business starts earning a steady revenue that can cover your monthly expenses. Other key signs are if you’re struggling to meet current demand from new customers or if you start obtaining guarantees of future customers through locked-in contracts.
Ready to commit?
Once you’ve validated that there is a demand for your product or service at the price you want, this does not mean you are ready to launch.
Before embarking on the entrepreneurship journey, your final considerations should include these scenarios:
- Do not count on bringing in any income in the first year of your new business. Make sure you have six to 12 months of cash reserves to cover your first-year “burn rate”.
- Conduct a detailed SWOT (strength, weakness, opportunity and threat) analysis of your business idea and perform a competitor analysis in order to find out how many businesses are offering a product or service similar to yours in your target industry. Having some competitors is not necessarily a bad thing as this indicates there is a market for your idea. However, if you cannot beat or match their prices and/or terms, there is a good chance your business idea is not viable.
- Assess your capabilities to make sure you have all the skills required to successfully run your business. If this is not the case, learn what you need to know or make sure you build a team of people who can complement each other’s strengths and weaknesses.
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