The beginning of every business idea is usually marked with super-excitement. You are convinced that your idea is the next big thing. And maybe it is if you follow the next 6 steps and know how to validate your ideas. We developed these 6 steps by guiding many corporate innovation teams and startups from their early idea to investment readiness.
The first contact with customers or experts often leads to the first point of complete frustration. Usually, it turns out that one has no clue about customers, their needs, market dynamics, and competitors. No innovation team is protected from wrong assumptions. It is key to learn as quickly as possible. This means formulating a hypothesis and collecting real market feedback to see if you are on the right track. Building your business on the basis of wrong assumptions can lead to critical mistakes instead of big success. So, don’t forget to continuously validate your business idea while working on the 6 steps:
1. Customer Exploration: The Customer is everything, but not every customer has to be yours
The first big step is to get to know your customers. No customer means no business. Define the major customer segments you want to address, elaborate on the ‘job they want to get done’, and state the major pains and needs they have in order to do so. Most important is to not force the solution. Try to really understand your customers. The more you understand your customers and their needs, the better the value you can create for them. Subsequently making your business more successful. Keep in mind that you don’t have to serve every customer. It will be a lot easier to concentrate on one customer segment and find a niche market. Check out our blog post “Step 1: Understand Your Customer” for detailed information.
After you have identified a problem you should prove if it really exists and if it matters to your customer. Validate if the problem you identified is really there and matters to your customer.
2. Solution: Develop your solution
The next step is all about developing a solution that fits the customer’s pain and needs. List the major pains and needs you identified and think about the major customer benefits you want to create. If you can quantify the customer benefit it’s even better (e.g. 20% faster, 2x cheaper). Next, think about what features your solutions need to solve the pain or need to create the outlined benefit.
Validate if you are able to solve this problem with your solution and if that leads to the value you propose (Customer Value Proposition).
3. Business Model: What’s your Business?
Develop a sound business model around your by now validated value proposition. The Business Model is about putting your knowledge of your customer and the work on your solution into one piece of paper. A business model describes how your business works and how you deliver, create and capture value to your customers. Define where and how to get in touch with your customers and build up a strong relationship. But also elaborate on how the value you are proposing can be created through activities, resources, and partners. And in the end, don’t forget about the money that keeps your business alive. Define the major cost drivers behind your business and the major ways you intend to make revenue.
4. Competitive Advantage: Just be better than your competitors
Even though you might think you are the only one- you are not. There is always competition. But you don’t have to be afraid of competition as long as you know who they are. To find your niche you have to identify and analyze your main competitors. List the major benefits relevant to your customers and evaluate yourself with your competitors. Make sure to identify your secret sauce.
5. Market Size: Crunch the numbers
To analyze the market size helps you to get a basic understanding of how big your target groups are and if the overall market is big enough to make a profitable company. The toughest part of this step is to find reliable sources for the numbers and to stay conservative. Keep in mind that your core mission is to find out if the customer segment you plan to target is big enough to build up a successful and sustainable business.
6. Finance: Do you make business or profit?
When you are confident that you have identified a market that is big enough with a problem worth solving, it’s time to put together a quick set of financial projections for your solution. It is important to look at your business idea from different angles to get a holistic perspective. Also, think about different scenarios that can happen.
Validate if you are able to offer the value proposition in a sustainable and scalable way. This means understanding your customer’s funnel from awareness to action. Along this journey you can measure important key metrics, that will help you to track and optimize your process.
Many companies have successfully launched products and services by using this 6 step process and validating their ideas and they still use our services and tools to stay productive and get their work done.
Let us know if we can also help you to turn your business idea into a success!