If you read this article, then it means that you are among the 20% of potentially successful entrepreneurs who want to test their business ideas.
Did you know?
- Over 80% of business ideas never get tested?
- Nearly 90% of untested business ideas fail within a year.
- Around 60% of validated business concepts become successful for at least five years.
You probably know the classic business fail stats. 6.5 million companies launch every year. Startup failure rates continue to hover around 90%. This ratio shows fundamental shortcomings in how most new entrepreneurs approach their ventures. At the same time, these statistics confirm that business idea validation is a critical part of a business creation strategy.
How to validate a business idea?
If you have previously read other articles about business idea valuation, you will know that most writers talk about either internal or external techniques. External validation techniques are the ones to consider. Internal validation in an actual testing concept does not make sense unless you build the business to sell for yourself.
You need to test your business concept in a real-world environment as much as possible. There are various levels to this.
Large corporations like Coca-Cola, Mercedes or retail brands like Marks & Spencer have been investing in market research since their humble beginnings, which remained a key factor in their continuous growth. Most large corporations allocate millions of dollars in continuous market research and feedback analysis in each region they are active in.
For new businesses, the first step is comprehensive market research to understand customer pain points and untapped demands. Once the initial business concepts are ready, the concept testing process can start.
How do companies test business concepts?
Back in the early 2000s, online and e-commerce business ideas often got tested by launching sales campaigns for nonexistent concept products. This was done by simulating a website with product concepts only, without actual products. The best-performing products made it into production, while other ideas got scrapped. Customers got refunded in most cases.
In the late 2010s, online market research became available and affordable for small businesses, which enabled lots of then-startups and now-successful companies to navigate successful market entries and continuous growth since then.
Today, the standard business validation tool is market research. Most investors require verified market research or concept test results from startups who apply for funding. Market Sampler’s Brand Auditor is a trusted business concept verification provider.
Business concept validation is all about collecting feedback data from target customers, and turning that data into information that either proves or disproves the analyzed business concept.
What is the best business validation method?
There are various methods to acquire consumer insights, but the most common is survey research. To conduct survey research with representative information value, you need to keep the following in mind:
Determine the required number of responses. A statistically significant sample size needs to have an approximate 95% confidence level, which is calculated based on the population or target market in the case of business research.
Define your target audience for your survey research, and do not settle with respondents that do not match your criteria. Market Sampler lets you target respondents by age, gender, interests, occupation, industry, education, career level, and a lot more.
Get non-incentivized responses. Most survey platforms utilize paid survey networks that offer a small incentive for anyone who answers their survey. This business practice is fundamentally wrong, as incentivized survey networks attract fraudsters and people who attempt to abuse the network with answer-bots or deceive the system by creating fake profiles.
Market Sampler gets non-incentivized responses from completely publicsurvey distribution that attracts respondents genuinely interested in giving feedback.
How much does business validation cost? Is it worth investing in business validation?
Opinions vary but remember the business failure statistics. Doing a business validation will not make a flawed idea successful, but it will save significant time, effort, and sunk costs by highlighting the likelihood of failure.
The good news is that business validation is an inexpensive process. Acquiring survey data to check your business concept will not require more than a few hundred dollars at most.
Most entrepreneurs who use Market Sampler or Brand Auditor to validate a business idea invest between $100-$200 to acquire 150–350 responses from their target market. In most cases, this already gives a clear indication of whether a business idea will work or not.
What assets do you need to test a business idea with Market Sampler?
Your potential customers will need something to look at to provide feedback. Most of our clients already have a website or a landing page that describes the business idea clearly.
If your company does not have a website yet, or you don’t even plan to have a website, then the following options are possible:
- Upload a presentation
- Upload a video
- Link a video
- Link a social media page
Practically this is all you need to know about business idea validation and business concept testing. To recap, you need to be able to demonstrate your concept and get a few hundred genuine survey respondents to provide feedback about it.
Market Sampler offers all the tools needed to conduct a proper business idea valuation. Should you have any questions, or in case you are planning to do an analysis for your business, please do not hesitate to contact us.