Validate your business idea
Do you have a business idea that you have been kicking around for a while, but don't know if it's a good opportunity? The first step to validating your idea is to give it more definition. I recommend actually writing out the elements of your idea versus just thinking through concepts. Writing is one of the cheapest forms of prototyping your idea. If it doesn't make sense on paper, then your idea likely needs more work. However, you do not need to start with a full-blown business plan at this stage.
Instead, start by answering these questions:
• Customer and Problem: Who are the customers and what is the problem I am solving for them? It is important to be specific about your customers so that you can fine-tune your solutions to their problem or need. For instance, if your product is a women's clothing line, your customers are probably not all women, or even an age range of women. You might also consider income level, lifestyle and fashion preferences.
• Value Proposition: How is your idea truly better than the other options currently available? We call this concept “meaningful uniqueness.” How does your business solve your customer's problem in a way that is meaningfully different? It could be lower prices, but generally, customers are willing to pay more for a better solution for their need. Articulate how your product or service is a better value.
• Do the Math: How many potential customers are there in the market area you are planning to serve? What percentage will you reach with your marketing? What price will you charge? Is it a one-time purchase or does it involve repeat customers? If the latter, how frequently are customers likely to purchase from your business each year? On the expense side, what are the costs of materials, labor and overhead expenses, like rent or insurance? Given your estimates of revenues and expenses, is there enough profit potential to make it worth your while? Do not expect to know all of the answers at first, but put down your best estimate.
• Feasibility: Can you actually develop the technology or product by yourself or with help from others? Are there legal or regulatory considerations? Has the idea already been patented or trademarked?
Once you have your concept on paper, think of your answers to each one of these questions as hypotheses. Identify the ones that have the most critical risks and then, starting one question at a time, plan an experiment to test your hypotheses. Think fast and cheap at this stage. How can you find answers as quickly and inexpensively as possible?
A lot of entrepreneurs I know tend to start with the feasibility questions, but for most ideas, I recommend starting with the customer and value proposition questions. Surveys are one way to gauge customers' perception of your solution and its uniqueness, but you don't have to start with a huge market survey. Start with a smaller number — 30–50 people — to know if you are on the right track or if you need to rethink your concept.
After you have done some research, the next step is to analyze the results — what you learned. Use this analysis to modify your idea as needed and to identify other risks to address. Repeat this process until you have assurance that your idea has real potential. It's important to focus on the biggest risks first in order to move forward quickly and with confidence.
Finally, ask for help. Startupbangor.com and startupportland.com both have great lists of resources, many of which are available to potential entrepreneurs statewide. Having a sounding board can help you test your assumptions, and save valuable time and money on your path to starting a business.
Renee Kelly is director of Economic Development Initiatives and co-director of Foster Student Innovation Center at the University of Maine in Orono. She can be reached at rwkelly@maine.edu
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