How to Test, or Validate, Your Business Idea
Testing, or validating, your new business idea significantly reduces the risk associated with starting a new business. It is THAT important! The testing process also helps you articulate your message so it resonates with potential customers, and helps avoid building a product/service that no one wants to buy. So … how do you test, or validate, your business idea? See below to find out.
First: Create a Minimum Viable Offer (MVO):
An MVO will confirm that there is an opportunity to be exploited. It differs from an MVP (Minimum Viable Product) in that it is more of a draft of your concept rather than a rough prototype of the product/service itself. You are articulating your concept using the minimum number of benefits needed to sell it. It must answer the question around what value your product/service delivers to what specific niche that would deliver what desired result.
Henry Latham of the Agile Insider uses the following outline to create an MVO:
We help [NICHE] achieve [DESIRED OUTCOME] with [OFFER].
For example: We help busy business leaders save time with a lightening fast email app.
A good MVO will be low cost and still be able to accurately measure your early adopters’ interest. In other words – how likely are the people-who-have-the-problem-you’ve-identified to purchase your solution.
The MVO is a tool to help your potential customers gain an understanding of your solution, without requiring a product to be built … yet.
It can be a statement, a simple website, an explainer video, a social media page, a diagram or mock-up, or a blog post.
An MVO is not the same as an MVP. A Minimum Viable Product (MVP) has just enough features to gather validated learning about the product. It is the most basic thing you can create, and sell, to test whether the customer really wants what you are building. The MVO describes those features, or value, without actually building the prototype yet. You test the idea with an MVO. You test the product with the MVP. Critical to remember … your MVP must deliver the value you promised in the MVO.
The MVO describes the value. The MVP delivers it.
Second: Conduct Customer Validation Interviews:
You’ve developed an MVO so you can test your idea by asking potential customers what they think. That’s your goal. Now it is time to see if anyone will actually buy your idea. You’re going to ask potential customers who will tell you.
If you have been using Lean Startup principles to start your business, you would have already talked to some people in your potential target audience (people who have the problem you’ve identified) about:
- the problem they are experiencing,
- what they really want in a solution and
- what they are currently using as a sub-optimal solution.
Hopefully you used their language and feedback to develop your MVO. They are the best people to go back to now to find out what they think. They’re the ones who are your early adopters, so now is the time to say…I listened to you and this is what I came up with. Did I get it right? And if not, why not?
- Set up at least 20 customer validation interviews (more is better) with people who have the problem you’ve identified (your early adopters). Bring your MVO with you.
The Customer Validation interviews will help you validate your offer. Remember, the MVO articulates the benefits of your idea and the outcomes your customers will experience. These interviews will help you find the answers to some of the next steps you’re going to take.
- It is important to be open ended in your questioning and not leading.
This is your chance to find out if your product has legs so get the good, the bad and the ugly! If it isn’t going to work, you want to know NOW, before you invest more time, energy and funds into building a version that no one wants to buy. If they say they don’t like it now, they aren’t going to like it later unless you fix it.
Talk to your customers about how they want the solution to look. Do they want a website or a mobile app? What features are most important to them?
- Remember to ask open-ended questions and only stop when you’ve had validation from at least 40% of your interviewees.
Validation means they agree about the existence of the problem and your proposed solution. If you can’t easily get to 40%, try pivoting. Most founders pivot several times before reaching idea validation. You want to land on the idea that people want, and will pay for. Before you pivot, make sure you are talking to TRUE early adopters, the people who need a solution to the problem you’ve identified.
End by asking them if they would sign-up/purchase your product/service. And test different pricing models.
- Keep pivoting and testing until at least 40% of the people who hear your offer say “YES” and confirm demand for your solution to their problem. When you get to this point – you have validated your idea!
Keep track of each interviewee’s answers individually so you can compare them later, looking for similarities. A sample Customer Validation Interview worksheet is below if you need it:
You need to hear the same message again and again before you know that you aren’t just talking to outliers. Research shows that if you don’t get 40% of your customer interviews giving you a thumbs up, you need to go back to the drawing board. If you get 40%+, you can keep moving forward and develop your MVP.
Why might the number be less than 40%? There are several reasons, but it is possible that no one is interested in your MVO. It also may be that some are, but not enough. Maybe you didn’t correctly figure out the value proposition or maybe you aren’t talking to the right people – ones who are actively looking to fix that issue.
As mentioned above, if you’re less than 40%, pivot. Most companies pivot at some point –pivoting isn’t a failure; it is a sign that you’re doing the appropriate testing along the way and only moving forward when your hypotheses are validated. It means you are being a smart entrepreneur, and you’re maximizing your chance of having a successful startup.
Customer validation interviews are the most important part of how to start a business. So keep going until your results indicate you are ready to build your MVP. Then you’ll go back to your Early Adopters to get their feedback on it.