How To Validate Your Startup Idea In 7 Steps

So how do you do this? It's essentially to go through these seven steps. If you can make it through each step, go forward. If you can't make it through a step, then you have a choice.

You can give up on the idea, or you can do more work. However, I'm betting if you get 80% of the way there on each one of these steps that you’ll know whether you’ve got a good startup idea.

 

Step number one: Validate the market size.

 

You have to understand how big the market is that you're playing in. So, how do you do this quickly?

In today's world, you we have Google. You can search for this, and you can get a basic idea of how big the market is that we're going after.

There are two methodologies you can do here. The first is top down. In other words, you understand the global market size for what you're going after is X.

The second methodology is bottoms up. For example, you know that each unit that you’re going to sell, you charge X for. You know that there are Y number of customers out there in the world for what you're doing next time.

That gives you the size of the market. You can do the bottoms up and top down analysis really quickly using Google.

So why do we need market size? Well, what if the market is not big enough to achieve what you want for your business. Then you got to go back to the drawing board again. That's why it's important to understand how big the working is.

 

Step number two: Can you recruit the team you need to win?

 

Can you recruit your team? Can you find the people you need? Will they join you? And do you need co-founders? Those are the questions that you need to answer.

Let's say that you are an engineer and you've got a great idea for a product. You’ve validated the market. And now you're thinking, “well, what do I need in co-founders?” Maybe it's other engineers. Maybe it's a marketing person or a businessperson to augment your engineering skill.

The question is can you find these people? What other team members am you going to need in you first year to two years of operations, and can you recruit these people, and where are they located?

You've got LinkedIn. You’ve got your existing network. So, between these two, you should be able to know if you can recruit that core team of people in the first year to two years of operation of the company.

 

Step number three: Can you build whatever product or service that you're trying to build?

 

This seems simple enough. Are there special technologies you need access to? Are there special processes you need to access to? Are the facilities you need access to?

What are the special things you need? Maybe there's nothing. Maybe it's just you need to code and code away. And, as long as you've got access to a computer, you're good.

Whatever it is, make sure that there's nothing that's going to knock you down here.

Let’s say you're building a hardware device. What do you need to do this? What facilities do you need? Do you have access to this? How much is it going to cost?

You can do a thumbnail sketch of what's required pretty quick. And you'll get reasonably close to the answer.

 

Step number four: Competition.

 

Every company on earth has a competitor. Even for a new business segment, there's always the old way of doing things. So, what was there before you that people do if your product or service didn’t exist?

Well, that’s your competition? Who are they? How big are they? What are their strengths? What are their weaknesses? And how can you beat them? You can build a quick thumbnail sketch of who you're competing with.

Here’s the question you need to answer. Are you significantly better where you’ve made the decision a no brainer for your potential customers to buy from you?

 

Step number five: How are we going to make customers aware that you exist?

 

I know you might be thinking, “if we build it, our customers will find us.” The problem is that doesn't work. It never has and never will.

So, don't delude yourself on this one. You need to have a thoughtful strategy of how customers are going to find you. So spend some time thinking about this.

I'll bet you, if you spend five or 10 minutes brainstorming, you can come up with a reasonable strategy of how people are going to find you your company. It's obvious how they're going to find you.

Maybe it's marketing, maybe it's advertising, maybe it's SEO. I don't know what it's going to be in your case, but you have to think about how are customers going to find you? How much is it going to cost to acquire your customers? Do you have the budget for this?

These are all critical things. Maybe it's word of mouth. Maybe it's your personal network to get to your customers. Ideally it is something that costs very little at the beginning. Think it through. Come up with the answer and make sure that it's something you can execute on.

 

Step number six: How are you going to get customers to buy from you?

 

What is your business model? Every company has to make money at some point, unless you're Uber, but that's another story. So, you have to make money.

How are you going to turn a profit? What's the price yo're going to sell at. And how are you going to entice your customers to buy from you?

The goal early is making it a no brainer for your customers to buy from you. So, think about what's the no-brainer going to be for you and business.

 

Step seven: Money.

 

How much money is it going to take to build this company that you're talking about? It's always good to figure out how much it's going to because if you leap in and you don't know how much it's going to cost, you could be set up to fail from the start.

For example, do you think it's going to cost you $1 million, and you only have $100,000 and access to $100,000. What are you going to do about the other $900,000? That’s kind of important, don’t you think?

How much are your salaries going to be? How much are you going to have to spend on tools, equipment, rent, marketing costs, and sales? You can build a thumbnail sketch for the first year to two years of your business to figure this out really fast.

Then you can figure out how much revenue you think you’re going to make. This simple analysis is going to tell you how much money you need. Then I’d double that because you're likely to be off because everybody's optimistic. Now, you'll have a reasonable idea of how much money you can spend.

Each step in the process is a go/no go step. You have a startup idea worth pursuing if you believe you can execute each step. You’ll, at a minimum, have to figure how to solve any step that you don’t think you can complete before going forward.

 

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