Validating business ideas
May 29, 2013 - Elliott Draper
In our last post, we discussed how the business you always wanted to start might be right under your nose, waiting to be explored. It might be a passion or a hobby, or something you have a lot of experience with - but by finding the right way to monetise it, you could turn it into a source of income, and therefore freedom. Or it might be that your idea is more about making a change rather than making money - that’s great! But you still need to ensure it’s a valid idea, with a valid audience, in order to succeed.
So let’s get to the nitty gritty - how do you know if your idea is a good one? What if you have several ideas, and you have no idea how to decide which one is the best one to progress with? Well there are a few different tools at your disposal to find out audience and market data that can help inform your decisions, and we’re going to run through those now.
The first step is the simplest - Google for your idea. You might have a few ways that you can search for your idea in mind - the best thing is to try to put yourself in the shoes of someone trying to find you. What are the kinds of things they might search for? Make a list and try them all, and keep an eye on what the top results are, how many results there are, and whether any of the results are that similar to what you had in mind. Bear in mind that as you are validating the market, and therefore your idea, you should actually hope to find some competitors. If it’s something incredibly revolutionary then there may not yet be an existing market for it, but for everything else it’s unlikely you’ll be without competitors - unless it’s not a particularly good idea. Other people with a similar idea or in the same market as you serves two purposes. For one, it proves that it is a good idea, or at least good enough to get to the point that someone else thinks it is valid too. And secondly, it allows you to gauge your own site copy, information, and even price points with a direct comparison to a competitor, which will help you to make your idea the most attractive and competitive it can be.
Once that’s done, and you are happy that there are some people that would be receptive to your idea, then the next thing is to quantify that market a little. You can do this using the Google Keyword Tool. This tool lets you specify a search phrase or word, and will let you know how many people approximately are searching for that term each month (globally, and within specific locations), as well as providing the stats for a whole bunch of related keywords and search terms too. You can compare the figures amongst keywords and search phrases, to see what seems more important to people.
The next tool for establishing the reach of the target audience is to use Facebook adverts. You can go through the process of creating a Facebook ad without actually posting it, and doing so will let you narrow the target market using various different filters (such as gender, age, and other pages liked) in order to find the total reach for your advert. This isn’t an exact science, but given the vast amount of people that have Facebook accounts these days, and the fact that you can narrow things to just your target market, it provides a valuable tool in establishing the rough market reach for an idea, and as a way to compare multiple ideas against each other it is pretty useful.
Putting it into practice
Let’s put this to use with a concrete example though, so we can see how these tools work in practice. Our great idea that we want to validate is an iOS app that will let you track the number of cups of coffee you’ve had in a day. Incredible right?
First off, we’ll start with some Google searches:
As we can see, there are a few competitors in this space, and specifically there is already an iOS app. This is good in as much as we’re not the only ones to think of this idea! But the downside is that we’ll have to bring something else to the table to be a worthwhile alternative to this existing app. For now though, is the target market big enough to make the app worthwhile?
Here we can see the keyword breakdown for our search terms - as we might expect, the other keywords are dominated by things that people search for a lot more - coffee, coffee shops, and coffee beans. There is a fair amount of people searching for “coffee counter”, but still perhaps not as big a market as we would have liked - or perhaps it’s simply already exhausted with the existing competitors.
However, let’s take a look at the Facebook research to see what the potential market reach would be there:
You can see most of the main filter options there, alongside the very easy to use audience number on the right that will change as you alter the advert parameters. We have a potential audience of almost 16.7m people that like coffee in the UK and USA, between the ages of 20 to 40, so maybe this app isn’t such a bad idea after all!
In all seriousness, the Facebook reach needs to be taken with a pinch of salt, and you shouldn’t be basing your actual business plans or revenue models on this data - it’s mainly useful for comparison purposes, and for smaller niches.
The value of a niche
One other thing to bear in mind is that sometimes you might have a product or idea that is very specific but valuable to a niche, and therefore would have much smaller figures using these tools. If you had an idea to sell a $0.99 app to a potential audience of 16.7m people, and a $10K training course to 20K people, then you’d make more money (assuming you were able to completely saturate both markets, and ignoring overheads) from the training course! The point is that these tools will work best when comparing ideas within a similar scope - perhaps when comparing the different types of training you might offer, or if you wanted to write a book for a specific field but wanted to narrow down the most interesting and sought after topic.
So now you have some tools for comparison - simply running through your list of ideas should let you prioritise to bring the ideas with the best potential to the fore. The next step is to setup a landing page for the idea (or for all of the remaining ideas, if you are still whittling them down), to gauge interest for an idea or concept by asking them to register for more information, or even pre-order if applicable for your product. We’ll work through how to set this up in next weeks post.
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