15 Questions to Validate Your Startup Business Idea

Many of us are very impulsive when we have a new business idea. The lightning bolt of inspiration strikes us, we get excited and we get to work! We buy the domain, start designing the product, begin to build a website and imagine the promotions and partners we’ll connect with. The ball starts rolling. Then, a day, a week, or a month later, we wake up and start to see the holes in our plans. Or we see the competitors who are already dominating in our space (and actually have some pretty good ideas we hadn’t thought of). Or we realize that we don’t know if anyone really wants what we’re selling. Has this happened to you? It has to me.

If it has happened to you, then you may want to do these four things:

  • Collect your ideas in one place and document why you were excited about them
  • Sit on them for a few hours or days before starting to invest and work on them
  • Get feedback from people who have some understanding of the customer
  • Evaluate each idea against the same set of questions to help you think through the true business potential

I started to study successful startups and how top VCs evaluate ideas. Based on this, I developed a set of questions to ask myself before going too far down the startup path. Note that I don’t include questions about team here as I’m looking purely at the idea. But you should also consider whether you have the right players in place (and if you’re the right person for this idea). Whether you use this set of questions, adjust it, or use a completely different set, I recommend you run your ideas through a structured process before investing too much time and energy in them. If you’ve downloaded the Startup Idea Grader from the IOS App Store, you’ll recognize these questions (and this can serve as a guide to the grading part of the app). As you go through the list, I recommend that you have an idea in mind and test it against each question.

15 Questions to Vet Your Startup Idea

Without further adieu, here are the questions.

  1. Is the solution is well-defined and easily understood by the target customer?

Is the solution, as you dreamed it up, going to be clear for your target customer? Is it clear what it will do for them, how they use it or why the need it? If not, define

2. Is the solution aimed at a very specific customer profile?

Are you aiming for a specific customer persona (e.g. UX designers for software companies) or are you going broad (e.g. small business owners). Having a very defined persona helps you get input from them, develop features for them and find them (when you want to market). Going too broad can mean that you’re building a swiss army knife to solve everyone’s problem and makes it very hard to market. In the small business owner example, an accountant’s needs are very different from the needs of the owner of a dry cleaner business. And you won’t find them at the same convention or reading the same websites!

3. How motivated will customers be to buy and use this product or service?

Is the problem you’re attacking a major pain point for your target persona? If it’s just “nice to have”, chances are they won’t pay for it.

4. Is this solution 10x better than all other alternatives on the market?

Most startups will have some form of competition in the market. In fact, the competition can show that the market has potential, especially if people have been around for awhile. You’ll have much more success if your solution isn’t just slightly better than those of the incumbents. If your solution is 10x better (or 5x better), than your likelihood of success goes way up. To give an example — rather than reducing a real estate agent’s need for paper documents by 10%, can you completely eliminate it? Or reduce it by 90%?

5. Is you solution within the budget of the target market?

One problem with some ideas is that, while they are 10x more effective, they are sometimes 2x-10x more expensive than current solutions. It’s like comparing an LED bulb to an incandescent bulb. If people can’t stomach the upfront investment (even though the long term savings are there), then you can have a problem scaling up.

6. Is the sale complex, requiring buy-in from several people in the target company?

In the past, software companies that started selling to larger and larger companies would need to build out bigger and bigger teams — to close the transaction, to implement the solution, and to support the enterprise client. These large, multi-year contracts with heavy implementation and support costs would require untold numbers of people to be involved in closing one of these deals. Today, some SaaS startups can get traction and grow but selling first to one person in an enterprise or to just one team. From this beachhead, they spread into other departments and eventually (based on evidence of internal demand) can move from multiple smaller deals in an enterprise to a larger deal (see Tomas Tunguz’s arcticle on B2C2B sales). If your sales process requires less people to sign off, you’ll have a better chance of scaling fast within companies.

7. Has there been a test or example of customer willingness to pay for a similar solution?

Has there been proof that customers are willing to pay for this (or a similar) solution? Talk is cheap, so if pilots have been run or if competitors are able to sell their solutions, then this helps validate the fact that there’s a willingness to pay.

8. It it clear how you’ll make money? Is there a clear business model?

Is there a clear way to make money? Or is this another social network where “you’ll figure it out after your massive”?

9. Is the purchase one-time, recurring or periodic?

Is this a product or service that lends itself to periodic and ongoing billing (e.g. security software, storage, analytics, insurance)? Or is it a product or service that is a buy one time thing (e.g. wedding photographer, home purchase, TV, banquet hall rental, etc.)? With the one-time purchases, you need to find a new customer to make another sale (which is where referrals and increasing the total deal value for each sale become very important). With periodic products or services, retention and increasing customer lifetime value (e.g. by upgrading or adding services) become important.

10. Is there a massive market opportunity for this solution?

Is this a large market? Is the market growing? If it’s massive and you have a much better solution, the potentially is obviously huge. Look at Uber. It may have started in a small number of cities, but the overall market opportunity was massive — how many people need a ride in cities across the world? Lots. For eBay, it started as a platform for buying and selling collectible Pez dispensers. Craigslist started as a local email and ended up eating up the US classified ads business. On the other hand, some solutions are so focused on a specific niche and don’t really have massive growth potential.

11. Is there a possibility to be the top player in this space?

Is it within reason that you could (at some point) become the top player in this space? Can you be one of the top, with the right investment? Or, will you be one of many players fighting for your small share of the market? This peice of wisdom came from Fabrice Grinda.

12. How defensible is the product or service?

Do you have any unique intellectual property (IP) related to your solution? Have you (or will you) make significant investments that will help create a barrier for competitors? Do you have a unique market position due to partnerships, contracts or geographical location? The more defensible your solution, the better. If competitors (especially big, well-funded ones) can quickly replicate your products or services, then you need to think about how you’d counter that.

13. Are there major technical, design, adoption or manufacturing hurdles to be solved?

I think it was from Grant Cardone that I got this bit of wisdom. If there’s one major miracle that needs to happen to make your solution a reality, that can be overcome. If there are two or three miracles, then you really need to consider this idea very deeply. For example, if there’s a major technical hurdle, that’s one. If there’s a government approval or exemption needed, that could be another miracle. If there’s the need to get millions of people aware of your solution to make it work (e.g. a social network), that’s a third miracle. This may be too many for you to overcome.

14. How dependent are you on partners, providers, regulators, manufacturers or other companies?

On a related note, are you dependent on a particular partner, regulator, customer or manufacturer for this business? For example, if you’re only able to provide your app via Facebook (a la Zynga), you’re dependent on their terms of service, their algorithms to aid (or hurt) discovery of your app. If your whole business would involve selling to one customer (with no easy way to expand to others), then that can also cause your company problems. Any change in leadership, demand or that company’s fortunes could kill your busines.

15. Do you have clear ways to reach to your target market?

If you have a clear customer persona, that may lead you to very obvious ways to reach your customer base. For example, if you’re selling toys or games, there are buyer’s conventions that would need to be a key part of the distribution of that product. If you have alliances with companies that are already reaching your target customer (e.g. selling software through a big IT consulting company), that can also be a way to reach your market. If you’re selling to everyone (e.g. “small business”), the path to the individual customers is less clear.

How did your idea do against the questions?

Did the questions help you evaluable your idea more deeply? Are there other questions you would add? Let me know if in comments and please share this list.

If you liked the questions or are always coming up with new startup ideas, try the Startup Idea Grader for IOS.

Show your support

Clapping shows how much you appreciated Tom Treanor’s story.