The Bulb | An Analysis of Business Idea Validation

Introduction

Everything starts with an idea and it depends on what you do with that idea, and what steps you take to turn your idea into a reality. Before we go into the details let’s define “What a business Idea means?

As there is no authentic definition of the idea, we can define it as under

“A business Idea is a unique concept that can be used for solving problem(s) being faced by potential customers and may be used for financial gain.”

Identification

The best way to arrive at a good startup idea is not trying to think up new startup ideas – that would be the wrong way. The ideal way is to look for problems and needs, preferably problems and needs you have faced yourself. Alternatively, it could be something you have seen other people, your friends or family, face regularly. And every time you think of a problem, think about existing solutions, its possible alternative solutions, and who all it impacts. Ask yourself:

  1. Who needs this right now?
  2. How badly do they need it?
  3. Will they buy it from someone they’ve never heard of?

If you can’t answer these questions favourably or if the problem is such that its existing solution keeps people happy, and they do not need or look for an alternative solution, then the problem may not be significant enough for you to solve.

Why is it better to work on such problems? First and foremost – it ensures the problem really exists. It sounds obvious to say that you should only work on problems that exist. And yet, by far the most common mistake startups make, is to try and solve problems no one faces.

It sounds obvious to say you should only work on problems that exist. And yet by far the most common mistake start-ups make is to solve problems no one has. For example, Layoffspace, a start-up launched in April 2007 and positioned itself as a new social networking site for the recently unemployed. It was designed like Myspace and LinkedIn and a hybrid for the unemployed, Layoffspace.com aimed to use social networking in finding jobs. Unfortunately, it failed as the founders failed to realize that people don’t want to bond with someone online over shared unemployment. Another problem was no one wanted to openly accept that they were unemployed. Another problem was no one wanted to openly accept that they were unemployed. Your aim should be to solve a problem that exists. Trying to solve for pain points that individuals or businesses face, can help you arrive at your venture idea.

But what if you are working on a problem which your consumers did not know they have? This is exactly what happened with Drew Houston when he came up with the idea of Dropbox, a file hosting service started in 2007 that offers personal cloud, file synchronization, cloud storage. The founders believed that File synchronization was a problem that most people didn’t know they had and that once they experienced the solution, they wouldn’t be able to imagine how you ever lived without it. Dropbox wanted to validate this assumption. So, they went about it in the following way. They created a video that demonstrated the working of their product to gain insights from consumers and to avoid the risk of building a product nobody wanted. This simple video drove hundreds of thousands of people to their website and their waiting list went from 5,000 people to 75,000 people overnight.

Assessment

After identifying a problem or need-gap, as an entrepreneur, it is important to assess your venture idea. To do so, you should aim to get answers to the following questions:

  1. Technical & Market Feasibility (Does the need exist?)
    1. What pain point are you solving for?
    2. Who are you solving this problem for?
    3. How are you going to solve the problem?
    4. Is anyone else doing it? How are customers currently solving for their problems?
    5. Can you do it differently from them?
  2. Financial Feasibility (Can you monetise the idea?)
    1. Would your customers pay for your solution to a particular problem?
    2. How big is the market? How many customers would potentially pay for your solution?

Q1. What pain point are you solving for?

Any business idea is about solving a ‘pain point’ and answer to this question gives a clear vision of what problems you want to solve. If you are your team don’t understand what problems your product is designed to solve, it is unlikely to come up with the most efficient way of building it or final product may not be solving the ‘pain point’ you wished to solve.

Let’s take an example of Airbnb one of the most prominent unicorn start-ups built with Ruby on Rails.

Airbnb was founded with the idea of a web platform that offers short-term lodging. The founders identified the following pain points:-

Problems for guests:

  • Want to save money while travelling
  • Booking a hotel room can be difficult during peak season
  • Hotels separate guests from a city and its culture
  • Want to get closer to the local culture
  • Want to visit various destinations

Problems for hosts:

  • Want to earn extra money by renting out their properties
  • Want to get acquainted with new people and introduce them to local culture

Q2. Who are you solving this problem for?

Defining customer segments helps our development team understand how to provide solutions to your customers’ problems. To clarify how this works, let’s go a bit deeper:

  • The business analyst gets a clear vision of who the end-users are (as well as how they’ll use the product) and delivers this vision to the development team.
  • The product designer designs the most relevant user experience for end-users.
  • The technical team identifies the main technical criteria during the development process.
  • The Quality Assurance team will come up with efficient testing scenarios.

For accurate startup idea assessment, you should not only have a general description of your customer segments but also have concrete portraits of your customers. The more details, the better technical solutions will come up.

For example, in case of Airbnb, the target customer would be number one the host, who wish to monetize its extra space and second would be the traveller who wishes to save the money and wants to witness the city culture. The Host segment may be further divided in sub-segment based on the type of property like the entire place, private rooms or shared rooms. In the same way, traveller segment may be sub-divided based on various criteria like the purpose of visit, type of room required etc.

Q3. How are you going to solve the problem?

Defining the perfect solution leads to judge or determine the importance of worth and quality. Every solution may differ slightly in the way and the reach to which it achieves your various goals.

 

To define the perfect solutions Ask yourself these questions:

  • Is your solution unique?
  • Does it have some special value proposition?
  • Is it sustainable in the long term to become a revenue-generating business?

In the case of Airbnb, the solution was an online platform where the host may list their property and traveller may book a space to stay with local citizens. If we try to find out the answer to the above question, that would be as under:

  • Is your solution unique?: Yes, it is. There was no such platform which connects local hosts with travellers.
  • Does it have some special value proposition? Yes, the solution is a win-win situation. The host is able to earn some extra income and at the same time, travellers are able to save money as compared to staying at hotels.
  • Is it sustainable in the long term to become a revenue-generating business?

Q4. Is anyone else doing it? How are customers currently solving for their problems?

Before starting a business, your competitors are the ones who already found their problem, customers, and solution. Your competitors have found a path to their destination.

List all your direct and indirect competitors and assess how you perform against them in every aspect of the solution: cost, performance, speed, etc. It should be a fair match overall, but you must significantly outweigh them in at least one aspect.

Q5. Can you do it differently from them?

Answer to this question gives a clear view of how your startup will create and deliver business value to the users.

Each operation, process, or activity is aimed at delivering value to a person who performs it. The main idea of any product is to multiply the value for end-users as much as possible. Understanding key value propositions are instrumental for building any product, since a mismatch between key values and final solutions may lead to failure.

In the case of Airbnb, there were various existing players in the market like Craigslist, BedandBreakfast.com, vrbo.com and hostels.com etc. Founders of Airbnb found that existing players were either too much costlier or there was no streamlined process for online booking and payment. Travellers are either connecting couch-surfing community or Book rooms in hotels which provide discounts whereas hosts either rent out their properties or Take in couch-surfers.

The value proposition of Airbnb would be as under: –

for guests:

  • An authentic local experience and household amenities
  • The choice among a variety of unique properties
  • Lower prices than hotels
  • Stay in places where there are no available hotels
  • Ease of use − book in three clicks
  • Transparent property ratings

for hosts:

  • Get money from renting out living spaces
  • The simple and quick listing process
  • Easy to get payments for rentals
  • Easy to find verified guests through profile ratings
  • Meet new people

 

Q6. Would your customers pay for your solution to a particular problem?

Businesses operate to make money, so defining a revenue structure is a vital part of startup idea evaluation. It helps you devise a relevant pricing model and prioritize investments.

When you are providing a unique value to the targeted customer, the customer will pay for your products.

In the case of Airbnb, they charge convenience fee from the travellers and commission cut from the host in exchange of value provided to them.

Q7. How big is the market? How many customers would potentially pay for your solution?

Let’s discuss it in detail in the next chapter.

Fine-Tuning

Based on the above assessment, you may have to finetune your solution so that it’s the very base of the ‘pain point’ of that it is setting out to solve and must avoid disruption of scope and cash burn. A fair amount of desk research, experiments and field research to fine-tune and build a proof of concept for market validation.

Need help to validate your idea reach us at [email protected] or drop a message at www.vPlus.co.in

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