7 Steps to Validating Your Startup Idea
When evaluating your startup idea, you need to take a multi-step process.
Let’s use an hypothetical idea of selling ice cream, on-demand.
How would you evaluate if it was a good startup idea?
1. Look at the existing methods people use to solve the problem of not having ice cream when they want it. Here you’re guessing how people solve the problem if it even is a problem. You want to figure out how the problem is currently being addressed to understand how you can compete.
Do they go out to the grocery store or convenience store and buy it?
Do they ask their neighbor?
Do they ignore the craving?
2. Are there any existing solutions to the problem of not having ice cream on demand?
A quick google search using “ice cream on-demand” as the keyword, reveals over 108MM results:
So we see Haagen-Dazs and Ubereats are both attempting to solve the problem of satisfying ice cream cravings. I’ll go more in-depth into why this is good news on point 4. Additionally, you see what users are searching for as an indication of interest in on-demand ice cream, so far so good.
3. Who craves ice cream on demand and is willing to pay for it (your target customer)? Here you want to collect demographic data such as age, location, sex/gender, household income, etc. You also want to look at psychographic data such as spending habits, personality type, interests, etc. These answers will help you hone in on your target customer segment so you know how to market to them. I go more in-depth on this in Point 6.
4. Who is currently competing in the on-demand ice cream space?
Back in point 2, we saw both Haagen-Dazs and UberEats were both in the market as your competitors. Many founders would want to give up at this point, thinking it’s futile to compete with these giants. But, what’s more interesting is to take a closer look at who they are currently serving and identifying any gaps in their service or if they’re missing any valuable customer segments. Another important point is to observe where they’ve failed in many areas, so you can avoid costly mistakes.
5. What is the state of the market for ice cream on demand? Is the market growing? Is there an increase in the number of people who crave ice cream? Is it a seasonal occurrence, do people crave ice cream more in the summer, than they do in the winter? This affects your marketing strategy, which I’ll cover in point 6.
6. How are you going to engage with people who want ice cream on demand (Marketing)? In point 3, we asked ourselves a few questions on what type of person would buy our on-demand ice cream. Are you going to reach them via social media? Another quick search on Instagram reveals ice cream is pretty popular, with nearly 38MM posts:
7. So far we know the problem, the solution, the customer, the competition, the market, and how to reach the market. Next, how do we make money (business model)?!
First, what would it cost us to deliver on-demand ice cream?
Is the ice cream made by a third party or do you also manufacture ice cream?
How do you get the ice cream to your customers?
What if…
We could charge per ice cream delivery or a subscription for a set number of icecreams a month.
We’d need drivers, a route, containers for the ice cream, uniforms, insurance, taxes, etc.
How much can we earn from each ice cream delivery? Obviously, we need to charge enough to cover our costs, plus profit.
Let’s say we charge $8 per ice cream…
It’s enough to cover our costs, plus 20% gross margins. Not bad…
But, is $8 a realistic price our target customer is willing to pay for 1-time ice cream? Here we could refine our target customer to find who would be willing to pay $8/ice cream or we could refine our costs to make the ice cream price more suitable for the market.
OR…
We could take a short cut and look at how much Haagen-Dazs or Ubereats are charging…
Do we charge less, at least in the beginning, to gain market share?
Do we charge more, claiming to be a premium ice cream provider?
The answers to these questions will vary based on your short term and long term strategy.
As you can see, there’s a lot that goes into evaluating a startup idea. I didn’t really go in-depth as I normally would, for the sake of brevity.
The research you conduct before you’ve invested any more money, time or energy, in the beginning, is worth gold! You would either confirm you have a good idea or realize it isn’t feasible. This is the most critical step founders often miss by not doing the research.
I hope that you found this post insightful!
If you’re interested to learn how I can help you address specific bottlenecks in your startup, I also offer 1:1 consulting.
During our session, you can ask me specific questions about your startup ideas, operations, financials, recruiting, marketing, sales and/or professional development.
