Instructions for starting a business – Step 3: Validate your business idea Stefan Zangerle 11. January 2022

Instructions for starting a business – Step 3: Validate your business idea

Validate a business idea
Validate a business idea
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In the new series of articles “Instructions for starting a business”, you will learn step-by-step how to found a company, what you have to consider and how you can avoid mistakes at the start of your entrepreneurial career.

further articles in the series:
Step 1 – Find a business idea
Step 2 – The founding team
Step 3 – Validate a business idea (current)
Step 4 – the business model

How can you validate a business idea? Many founders think that you need a finished or semi-finished product in order to be able to validate the business idea for the first time. But that thought is not correct. In this article you will learn how you can validate your business idea quickly and with little effort.

Don’t hide the idea

Again and again you get to know founders who just don’t want to reveal too many details of their business idea and would prefer to sign an NDA (non-disclosure agreement) with everyone. The fear that the idea will be stolen and that the competition will implement the idea themselves is too great. For the most part, that’s understandable. You invest a lot of time in finding and developing your own business idea and are firmly convinced that you can turn the market upside down with it. So why would you want to risk someone else picking up on this business idea?

The answer to this question is very simple: an idea alone is worthless! It always depends on the implementation of the idea – i.e. the team, the vision and the business model. Besides, you’re definitely not the first and only one to come up with this idea. My business administration teacher used to like to say: “There is nothing that has not already been invented by someone else.” And she’s right about that 99.9% of the time.

Talk to people

So you shouldn’t worry too much and talk to as many people as possible about the business idea right from the start. You will hear sentences like “It already exists!” Or “That won’t work!”, But you shouldn’t let that dissuade you. You still collect a lot of valuable feedback from outsiders and can incorporate this directly into the development of the idea. But not only that – you also learn to sell the idea better. After you have said your elevator pitch for the 30th time (a short 30 second presentation of your idea), you already know exactly what you need to focus on and already have answers to the most frequently asked questions.

Plus, talking brings people together. So it may well be that you can find a co -founder or contact your first customers.

Validate business idea

Talking about the business idea brings a lot of feedback, but validating a business idea means a lot more than that. To validate an idea, you have to find people who would be willing to pay for your solution right away. In other words: you have to test the hypothesis that you have made.

hypothesis

One hypothesis is, for example: “The target group of craftsmen is willing to pay 9 EUR a month for an app that makes it easier for them to win customers.” But how does the checking of the hypothesis or the validation of the business idea actually work – especially when you are at the very beginning?

Prototyping

A simple prototype of the idea is usually enough to validate your idea in the first step. A prototype is a minimal version of your product, something that you can create yourself with little effort. For example, for an app, the first prototype could be a sketch or an animated PowerPoint version. For a technical product, a cardboard prototype may be sufficient in the first step – you really shouldn’t think too complicated here.

If you go to a potential customer with a prototype of this type, he can better imagine the idea and assess whether he would buy something similar at price X. This requires little effort and you immediately have a certain validation of the idea.

Fake door

If you want to know more, you can also develop a “fake door prototype”. What does that mean?

Example – fake door prototype

Imagine that you are on a shopping street and stand in front of a shop display. A stylish logo adorns the facade above the shop and there are a few products with the associated prices in the display. A product appeals to you in particular, so you want to go to the shop and buy the product. When you open the door to the shop, you suddenly find yourself in front of a bricked up wall. So you’ve just found a fake door prototype for a shop.

Of course, in order to develop a fake door prototype, you don’t literally have to build a fake door. It’s about having an appealing facade or a beautiful front that convinces potential customers that the product already exists and that they can buy it.

It’s very easy to do on the Internet with your own website. You no longer need to be able to program to design an appealing website. Thanks to providers such as WordPress , Wix and Jimdo , even laypeople can create a modern and convincing website in a few hours.

With one of these providers you create an offer for a product / software / service and offer the possibility to buy this product. As soon as a visitor to the website clicks on “buy” – you confess that the product does not even exist yet. In the next step, you offer him to subscribe to the newsletter and be the first to be informed as soon as the product is on sale.

This approach has two advantages. On the one hand, you have a “real” validation of the business idea – because visitors were really ready to pay for something and, thanks to Google Analytics , you can even measure the number of buyers in a verifiable manner. On the other hand, over time, you also collect the contact details of interested people, who can easily be turned into paying customers after the “real” launch.

Case study

To make the whole thing clear again, the following is a case study from my company Flaterio , where we currently have a fake door prototype in operation.

Case study fake door prototype: Flaterio

Fake-Door-Flaterio-1

The users see an explanation of the product and the price on our landing page. Interested users believe that they can run the product by clicking on “Start now”.

Fake Door - Flaterio 2

After clicking on “Start now”, we confess that our product is still under development and offer the option to subscribe to the newsletter in order to stay informed.

We have defined a goal in Google Analytics (click on “Start now”) and can then automatically evaluate how many users have achieved this goal every day.

Google Analytics Zielvorhaben

As a popular alternative to the fake door prototype there is also the “Wizard of Oz prototyping” . The user believes he is interacting with a system or a machine, with a person performing the actions covertly. Simple example of this:

Example – Wizard of Oz – prototyping

A startup wants to develop an innovative chatbot. Instead of training the chatbot with AI & machine learning for months, a first prototype of the chatbot is presented to the users. In fact, it is not an AI that answers, but a human.

In addition to the methods presented, there are many other options and, above all, specially developed tools, how to create the first prototype of a business idea without much effort. I will introduce these tools again in a future post.

Conclusion

A business idea and its underlying hypothesis can be checked easily, quickly and in most cases even free of charge. Don’t be afraid to hit the market with an idea as early as possible and review it. The feedback that is collected through the use of prototypes can flow directly into product development and ensures that development does not go past the market.

Now for the next article Step 4 – Read the business model!

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