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Validate Your Business Idea

The First Step Towards Building a Successful Business

Ever heard the phrase “slow and steady wins the race”? It’s more than a line from a children’s book—it’s a way to approach starting your business. Diving right in could cost you a lot of time and money, but taking the time to validate your business idea first can help you—and your business—in the long run.

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Benefits of Validating Your Business Idea

Validating your business idea simply means making sure that your idea is worth pursuing—and it can help you in a few impactful ways:

  • Save time, money, and energy in the long run
  • Strengthen and improve upon your idea
  • Build your understanding of your target market and clients
  • Better understand your limitations as a potential business owner and how to address them
  • Get a head start on creating your business plan
  • Become more confident about your idea and being a business owner

How to Validate Your Business Idea

Take these steps to make sure you’re ready to turn your business idea into a reality:

1. Figure out if your idea is feasible.

  • Is your idea solving a problem or pain point—or filling a gap in the market? Clearly define the purpose of your business and keep that in mind as you develop your idea further.
  • Do you have the right people to get started? Talk to people who are familiar with the space you want to enter, like potential suppliers and anybody with related experience that may be able to offer advice. Plus, think about hiring—will you be able to find the skilled people you need to run your business?
  • Can you get the necessary licences, permits and registration? Depending on the type of business structure you choose and the industry you’re in, you may need certain documents to operate legally. Visit Ownr to register or incorporate your business and learn more about licences.
  • Will your idea make money? Use our revenue calculator to quickly crunch the numbers and see if your idea is going to generate a profit—see more about profit in step 4.

If you answer yes to all these questions, you’re off to a strong start. If not, you may need to revisit your idea.

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2. Determine your target market and customer by doing research.

  • Do an internet search. This can yield all sorts of results—from showing you related products in the market, to finding out what consumers are looking for, to inspiring you to hone in on what’ll make your product or service great. Plus, you can find industry information online to help define your target market and customer.
  • Talk to potential customers about your product or service to determine who may be interested and find out what they’re looking for. If you plan to operate a retail store, check out the neighborhood where you’re thinking about opening and chat with current business owners there.
  • Perform keyword searches to get an understanding of how many people are looking for a solution to the problem your business is solving.
  • Do some product testing. Get feedback and ideas about how to improve your product or service by trying it out. Consider having potential customers try it, too—that way you’ll be able to gather insights from people who are likely to support your business.

3. Think about how you’ll outshine your competitors.

  • Do your competitor research. Do similar businesses exist? If so, what are they offering? Is the market flooded or is there a spot for you and your idea? What are competitors’ websites like? Consider signing up for your competitors’ e-newsletters to keep an eye on what they’re up to and how they market.
  • Figure out your competitive advantage. Your advantage could be lower pricing, a product that outperforms existing ones, special features not found elsewhere or something else.
  • Conduct a strengths, weaknesses, opportunities and threats (SWOT) analysis. Along with the above, this is your chance to think through how you’ll outshine competitors and see what’s possible for your business—and what you’re up against. Learn more about how to perform a SWOT analysis or download the free SWOT analysis template.
  • Make sure you don’t infringe on any patents or other intellectual property (IP). IP includes things like branding and ideas, which are protected by trademarks, copyrights and patents. Learn how IP works and how to protect your business.

4. Do you have the money?

  • Figure out your start-up costs. These costs include things like rent deposits, licences, inventory, employee recruitment and training and other miscellaneous things you’ll need to get your business off the ground. See how to determine your start-up costs or try the start-up costs calculator.
  • Determine when you’ll turn a profit. Your price should encourage sales while helping you earn a profit after all your overhead costs are paid. Learn how to decide on a pricing strategy.
  • Explore your funding options. You’ll likely have to raise funding to start your business — luckily, there are several ways to get the money you need. From bootstrapping to crowdfunding, find a mix of methods that work for you. Explore six ways to finance a new business.
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Tip: Determine your start-up costs now with the Start-up Costs Calculator.

5. Are you up for the challenge—both mentally and physically? Starting a business is not for the faint of heart. It involves long hours, financial uncertainties, sacrificing your time and energy, the ability to juggle a lot of tasks and wearing a lot of hats. Check in with yourself to make sure you’re up for it.

Tips to Help You Get Started

Before ordering a huge inventory or putting all your time, money, energy and other resources into your idea, start with a small step, such as:

  • Create a prototype to better understand what will go into making the product you want to produce
  • Set up a basic landing page and email list sign up to see how many people are interested in your business
  • Allow potential customers to pre-order your product or try your service and provide feedback
  • Explore crowdfunding, which can provide funding you need and help gauge interest in what you want to offer
  • Test selling your product at different venues like art shows, tradeshows, etc. and talking to potential customers
  • Use social media to share about your product or service and collect feedback
  • Also, be sure to open a business bank account early on so you can easily track all your business expenses

Resources

Resources

The Founder’s Journey

Take a free online course taught by award-winning professors that will guide you through the steps of starting and growing your business idea. The course takes less than four hours and you’ll earn a certificate once you finish.

Take a free online course taught by award-winning professors that will guide you through the steps of starting and growing your business idea. The course takes less than four hours and you’ll earn a certificate once you finish.

Futurpreneur

If you’re a young business owner, you may be able to get financing, mentoring and support from this non-profit organization. Plus, find how-tos and templates and build your network.

If you’re a young business owner, you may be able to get financing, mentoring and support from this non-profit organization. Plus, find how-tos and templates and build your network.

Business Idea Checklist

Use this thorough checklist to ensure your bases are covered as you navigate your way to opening day.

Use this thorough checklist to ensure your bases are covered as you navigate your way to opening day.

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This information is not to be taken as legal advice and RBC is not responsible for any actions taken.