Quick ways to test your business idea is viable

It’s a wonderful feeling to finally have a solid business idea in mind. Now, you’ll want to turn it into a start-up success story.

Remember:

• It’s possible to spend so much time (and money) on planning and analysis, to the point you may never get round to launching.
• Very few start-ups get everything right about their product or service from day one and it’s normal to make mistakes and learn from them.
• However, as most start-ups have limited resources, it’s best to avoid any obvious errors!

Let’s look at some of the quickest and lowest cost ways to establish whether your idea could work.

Three important checks are:

1. Feasibility check - is there a market?
2. Sense check - do people want or need your product or service?
3. Test - will customers actually buy your product or service?

1. Feasibility check - is there a market?

It’s always worth checking that there are enough potential customers out there for your business to survive and grow. To do this, you will need to work out some rough numbers on your market size.

Key questions to ask of your business:

• How many customers do you need to be profitable?

For your product or service, you first need to work out roughly how many transactions you will need to make a profit, and how many customers you will need to generate those transactions. For example, for a cleaning business, maybe you need 100 cleaning jobs a month to be profitable, but if customers will be weekly, then you need a minimum of 25, and then a few more to allow for churn.

• Are there enough potential customers?

Do a rough pen portrait of the type of customer who is likely to be interested in your offering, including elements like their location, age, gender and income bracket. Then look at population stats online to get a feel for some numbers.

For the cleaning business, you’d check if it’s realistic to find more than 25 customers in a small local area, who need and can afford a cleaner. Or, if you are creating a product or service for new born babies in Scotland and you know you need to sell thousands before you are profitable, it is handy to know that there are less than 60,000 births in Scotland each year. Realistically you would only convert a small percentage of these, which may lead you to decide you need to widen your market through digital channels across the UK or internationally to be able to sell the volume you need to.

• Does this market exist just now?

If you can easily identify direct competitors, then it will be obvious there is an existing market and you can undertake competitor analysis to identify how to stand out. Remember, if there are many competitors, then the market could be saturated, and you will need to stand out enough to encourage customers to switch to you instead.

If you have come up with something really innovative then there may not be an established market just now. On one hand this is good news - although you will inevitably have indirect competitors, direct competitors will not be an issue!

However, for an innovative offering, it can be hard for potential customers to see the same potential you do and for you to convince them to buy. In this instance, doing some form of audience research (see point 2) will be particularly useful for how you position your offering.

Data sources

To help you with the above research, there are free online data sources for market insights:

• Business Gateway Market Reports

To help gather market information, Business Gateway has an excellent section of over 100 free to download market reports covering a wealth of industries, such as Alternative and Complementary Therapies, Ancestral Tourism, Child Care, Civil Engineering, Craft Beer, Hairdressing and Music Tuition.

Many of these have been updated to take into account Covid impacts. For example, in the report on Maternity and Baby products, it highlights the long-term overall decline in the baby wipes market due to environmental concerns, but how Covid stockpiling will have reversed that in the short term. In spite of this short-term shift, there could still be good news here if you are looking to launch an environmentally friendly baby product or service.

The reports also include links to professional and industry bodies which may have additional useful statistics and insights. If you need further information, Business Gateway can access more detailed research for you and send you extracts from them.

• Office for National Statistics

The Office for National Statistics is also a useful source of population and demographic information.

2. Sense check - do people want your product or service?

If you’re confident you could have a market, it’s sensible to speak to potential customers to see if your offering could be a good fit and to get other ideas about how to sell it. It’s almost guaranteed that a few well planned conversations or surveys will give you fresh insights! You should cover the following areas:

• What do your customers actually want or need?
• Does your proposed product or service meet that need for them?
• If so, what are the features and benefits of your offering that they like the most and why?
• How do they want to buy? Online or in person? On certain days or times?

Before you start, make sure you can communicate your proposed offering in a concise way people can instantly understand (in other words an elevator pitch). This is never easy but always worth the effort.

Who to ask?

This is another hard step for many businesses, but push on - if you can’t find people to ask about your business, then you won’t be able to find people to buy from you!

During Covid, it’s possible that restrictions will impact any opportunity to run face-to-face focus groups or interviews. It’s time to leverage your network:

• Ask friends and family, and ask them to put you in touch with anyone they know who fits your target audience personas.
• Post on all of your personal social media accounts asking for feedback.
• Ask the admins of any social media forums or groups you are part of if you could post to the group for feedback (remember this suits if the members fit your audience profile).

If you ask in the right way, most people are flattered to be asked for their opinion so will often happily participate with no other incentive.

You’ll often find that after 10 to 20 conversations with your target audience, you will have flushed out as much as 75% of the insights you need to help get you to launch.

How to ask

• Direct: If you have permission, then phone, private message or email contacts to ask them their opinion.
• Surveys: Survey Monkey or Google Forms, can be linked to from social platforms or in an email. Include some open ended questions (with room for comments) and these could help you gather insights and ideas you may not have thought to ask about. If these aren’t suitable search online for ‘poll apps’. The likes of Survey Sparrow offers free trial and paid options.
• Social media polls: Facebook or Twitter polls work well if you are testing preferences for a couple of options - e.g. would customers prefer to collect their order or have it delivered, or would more people prefer the t-shirt design in blue or red.

Business Gateway has a useful guide covering the principles of market research.

Limitations of surveys

Remember to take survey responses with a pinch of salt. Speaking to people and carrying out surveys adds real value, however it can’t be completely relied on when making business decisions. The main issue is that people sometimes don’t actually do what they say they will do! This isn’t because they are deliberately lying, it’s just that psychology is complex - many people don’t actually know what they want, and people’s situations change.

This is why many businesses use insights gained from research to run small low-risk tests of their ideas, rather than heading straight to a glossy expensive launch.

3. Test - will customers actually buy your product or service?

The good news is that to test your business idea, you don’t need a stunning online shop listing hundreds of products, or to go to market with a whole suite of services. And in fact, that could be a waste of money if your test uncovers an insight that customers don’t want to buy your product online!

Simplify and prioritise

Hopefully your research will have narrowed down a few things to test first, to help you focus. For example:

• Online shop. Start with a handful of the top products you think people will be most likely to buy. This gives you the opportunity to test some basic advertising, web design, fulfillment and delivery and see if there are any issues before increasing your product range or switching to something else.
• New product. Try a limited number of designs, sizes or versions initially, informed by your research.
• Online classes. There’s so many different platforms so shortlist them and test some pilot classes on these. Before creating a whole end-to-end series, or selling tickets for a huge one-off event like a cookery masterclass, you can test the format with a short session for a small group. It’s fine to offer this free, but even better if you can charge at least something so you get honest feedback. Sometimes when people receive something for free, they don’t value it enough to turn up, or they feel guilty criticising it.
• Training courses. Create one course to start with and test the market - how do people respond to the subject matter, the depth, the visuals. Once you have feedback on the first one, you can develop more courses to be in line with your findings.
• Service. If you are launching a new service, consider focusing on a small number of key services to start, and even consider taking on a small number of clients initially, to test your pricing against how long the job actually takes.

Keep costs low

Many online tools such as eCommerce functionality, online booking systems or video conferences offer free trials or low cost subscriptions by the month. Use these for low cost tests that your business can work before committing to one approach and annual contracts. You may even be able to test two or more platforms to work out the best for you.

Keep gathering insights and adapt

Take the opportunity to survey your first customers where possible. The data from this will be more reliable as you will be asking people about an actual experience they’ve had with you, rather than an experience they might have.

And remember, it’s not a failure if you have to adapt your offering and approach - it shows your test has been successful and you’ve saved valuable time and money!

Watch our video tutorial on bringing your business idea to life to explore some of the important business planning tasks you should look at to help ensure your new business is set up for success.