How to validate a business idea in five steps?

Trial and error. Before getting started, startups conduct tests to see if their project has a solid foundation for success. One of the first steps is to validate the business idea, a process through which entrepreneurs can obtain answers to the hypotheses raised and ensure that their proposal is feasible and sustainable over time.

To validate a business idea, the development of the minimum viable product (MVP) is essential, although there are certain similarities due to its advantages: it saves costs and time by not developing products that are not demanded by the market or by adapting those that work, and it helps to obtain quick and valuable feedback from potential customers to improve the idea.

What steps should be taken to validate a business idea?

There are five steps that any entrepreneur can take to validate their business idea, according to the Harvard Business Review.

1. Define the market segment and scope of action

The first phase focuses on defining the target audience that the startup will focus its services on. This will help to understand their needs and who the right people are to validate the business idea. As a practical example, in the Foodtech sector, it is not the same to conceive a solution focused on the food delivery segment, as in the case of Glovo (focused on people living in big cities and cosmopolitan areas), as it is to develop plant-based food, as in the case of Heura Foods, whose target audience is people who have animal protein as a mainstay of their diet, but want to make changes to their lifestyle.

To complement this in-depth analysis, it is possible to use the Value Proposition Canvas, which allows entrepreneurs to match the needs of a market niche with the characteristics to be offered. The aim is to further define the customer segments and the value proposition.

2. Define hypotheses and goals.

Once the market segment has been defined, the high-growth company can formulate appropriate hypotheses and set the final goals. To do this, the entrepreneur asks two key questions: what is the level of demand in the market and what is the proposed business model, i.e., what formula should be used to create value for its customers in the market.

At this point, entrepreneurs can use two tools to better understand their business model:

• Business Model Canvas (BMC). It defines nine categories that identify the basic components of a company (market segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, partnerships and cost structure) and gives them the visibility to repeat those aspects that work best.
• Business Model Navigator (BMN). A collection of 55 business model patterns that, when used together, help define the business model of high-growth companies.

3. Research the level of web searches and keywords.

For any high-growth technology-based company, it is necessary to understand the behaviour of potential customers. In order to validate the initial idea and develop a business model with projections, it is advisable to carry out web searches for keywords to find out if there is a demand for the service or, on the contrary, if there is no interest at that moment.

If you want to analyse user behaviour and learn about new trends, there are specialised tools such as Semrush, Ahrefs or AnswerThePublic. This type of resource can also serve as an inspiration to find keywords that can be used to develop the business idea and position your proposal as one of the main alternatives to be considered on search engines.

4. Validate the value proposition with potential customers.

Once the market opportunities and needs have been identified, the next step is to gather direct feedback from customers about the product or service being developed. This process may involve conducting focus groups, a qualitative research method that brings participants together to give their opinions on products, as well as holding meetings with experts and leading profiles in the market.

The aim is to extract information about their motivations and preferences for a particular service, a task that is supported by companies specialising in market studies and research. At this point, once their opinion is known, the entrepreneurs can go back to the hypotheses set and confirm whether the assumptions that were made are correct or not.

5. Test the product.

Once the hypothesis about whether the product has a place in the market has been confirmed, it is necessary to ensure that the most efficient version is launched. In this last step, we proceed to the development of the minimum viable product (MVP), which consists of a product with its essential characteristics, improved through validated learning, a method that allows the entrepreneur to know what does not work, but also to discover some important details to be tested in the future. This is an essential final step, because if the product designed is faulty or difficult to use, customers may prefer the service offered by a competitor.

When developing the minimum viable product, companies can use the lean startup method to turn an initial idea into final products and services that meet users’ needs. In this context, adaptability becomes a key quality that allows entrepreneurs to change the initial focus of their idea or pivot their business model.