Testing business ideas is a great way to validate them before you put time, money, and effort into building something that might not work. It doesn’t take much to test a business idea, either. It’s about sitting down and looking at your potential venture from all angles and considering the challenges and opportunities in front of you.
If you’re saying to yourself, “I have a business idea, now what,” the next step is to test and validate that idea. Let’s take a look at how to test your business idea and what market validation means before you move forward in starting a business.
Why is it important to test your small business idea?
Testing an idea is something every single successful business does. Huge conglomerates test products and services before they roll them out, and even startups need to get into the habit of testing before doing. The concept is the same for testing a small business idea: you want to make sure there’s actually market demand for what you’re offering—and that people will pay for it.
Here’s a look at some of the benefits of testing a small business idea, and why it always makes sense to test before you move forward:
- Get actionable data about what works and what doesn’t
- Learn clear information about your target audience and market
- Testing ideas helps them become leaner and better formed
- Save time, energy, and effort by avoiding bad or poorly formed ideas
- Identify your Strengths, Weaknesses, Opportunities, and Threats (SWOT)
What happens if you don’t test your business idea? If you’re lucky, things will turn out fine and you’ll have a valid business concept that gets traction. However, you always run the risk of bringing a business to market that just isn’t as successful as it could be—or worse, one that’s overlooked in favor of a competitor or a different solution.
How do you know if your business idea is viable?
Until you draft a business plan and get your test balloon up and running, there’s no way of telling if your idea will be successful. Testing opens the door to a trial run, which gives you experience and data you can use to continue shaping and refining your idea—or abandoning it if there’s a better concept to pursue. It’s only after testing that you can truly know if you have a viable idea.
Testing is the path from idea to business. That is to say, testing lets you know if you’re on to something. It can tell you if people are willing to pay for a product and how much. It can tell you what people love and hate about your service offering. It can help identify who your target market really is vs. who you think it is.
In a nutshell, testing gives you the confidence to say “yes, my idea is one that will work” or “my idea needs more work before it can become a successful small business.”
Ways to test your small business idea
So how, exactly, do you go about testing business ideas? You might be surprised to learn that much of the legwork is conceptual, meaning you can run experiments and use data to learn a lot before you ever launch a test balloon. It is important to actually test your idea in the market. That said, there’s actually a great process for how to test a business idea.
Here’s a look at how to test your business idea and identify market validation in just four easy steps:
1. Draft a business plan
Testing business ideas starts by looking at your business plan—or drafting a business plan if you haven’t already. A business plan will force you to consider every aspect of your business, inside and out. You’ll need to determine the who, what, where, and why of your idea:
- Who is your target market? Who needs your solution?
- What is the solution you’re offering, specifically?
- Where and how are you going to provide value?
- Why is your business idea, product, or service better than the competition?
Drafting a business plan means researching industry trends, understanding the market, getting to know the ideal customer, and identifying key challenges and opportunities. This is the single best way to test your business idea before actually launching anything. If you’re struggling to produce a business plan that’s exciting, it’s a sign you need to continue developing your ideas.
2. Analyze the competition
There’s no need to reinvent the wheel. If you want to test the validity of your small business idea, take the time to see what your competitors are already doing. What are they doing that’s effective? What do you think you can do better? What’s their approach? What value propositions and market positioning are they using to gain market share?
What most small businesses don’t realize is that competitors are useful! They’re doing experiments and testing their own ideas, and you can learn from them. If you look at the market and see competitors that are struggling to distinguish themselves, you’ll need to make sure you’re bringing a strong brand identity to the market.
3. Launch a test balloon
A test balloon is a test run of a product or service among a small group of potential consumers. For example, food and beverage companies like Pepsi or General Mills might launch a new product in a few key test markets across the country. They’ll use the sales data from a few cities to determine if they want to roll out the product to even more cities on the way to a nationwide launch.
You can do the same thing with your small business’ products or services. Launch your product to a select few customers through a pre-order sale or a members-only sale. Or, offer your services in a trial capacity for a heavily-discounted rate to see how customers feel about them. This is one of the best ways to get real, actionable data about your offering, your customers, your markets, and anything else that will help validate your idea.
4. Create a marketing plan
A marketing plan is a great step forward toward validating and launching your idea. Like a business plan, the marketing plan will help you identify the strategies you’ll use to appeal to customers: when, where, who, and how. This forces you to establish your key value propositions and understand different marketing channels. Essentially, it encourages you to determine who you’re talking to and how you’re talking to them.
Your ability to attract leads and create customers will define the success or failure of your small business. Creating a marketing plan is a low-cost way to determine if you have an idea that will accomplish this. Are your marketing messages appealing enough to attract customers? Can you target customers through the right channel using the right materials? Once you create a marketing plan, it opens the door to even more testing as you begin to execute it.
Test drive your small business idea before you launch
Testing business ideas is one of the most productive strategies for launching and running a successful business. The more you can experiment, the more confident you’ll be in your market validation. From there, all you need to do is follow through in launching your business! Never underestimate the importance of experimentation in the path from idea to business.