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A 7-Step Guide on How to Validate Your Business Idea

Seven out of 10 businesses fail within 10 years. Sounds alarming, right? The statistic strongly resonates with Asian startups, especially in Singapore, Malaysia, and the Philippines where failure is a major cultural taboo.

A CB Insights analysis found that the top reason why businesses fail (according to 42% of startup founders) is the lack of market need for their products or services.

Novelsys experienced it firsthand. The Singapore-based hardware startup folded up in 2016 after two years of developing wireless charging sleeves for mobile phones.

In retrospect, Novelsys co-founder Kenneth Lou wrote about this heartbreaking story in a blog post: “We failed to build a scalable business to enter retail in the competitive hardware space… We failed to find a product-market fit.”

To find that product-market fit, which is critical at the early stage of startups, Lou shared the things he would do differently. He suggested focusing on the customers’ actual problems rather than perceived problems and understanding the market through an extensive market research.

Have a business idea that you think will become a big hit? Learn from the mistakes of startups that failed. Here are seven steps to validate your business idea:

7-Step Guide on How to Validate Your Business Idea

1. Make Sure You’re Truly Interested

The CB Insights analysis on failed businesses reveals that 9% of startups lacked passion for their niche, while 13% lost their focus and got sidetracked from their business.

The key takeaway from these common reasons for startup failure: Your business is bound to fail if you aren’t interested in it.

So, when validating your business idea, ask yourself: Do I genuinely care about it? Am I motivated enough to sustain it beyond earning a profit?

If the answer to both questions is a no, then the idea isn’t worth pursuing.

2. Identify Your Target Market

Being passionate about your business idea isn’t enough. Consider also if your product or service has a market. Is it something people need and will buy?

Who do you want to help? No single business caters to everyone. You have to target the right people whose problems you’ll solve through your product or service. Are they entrepreneurs or end-users, low or middle-income earners, young or old, students or professionals?

Once you have a clearly defined target market, you can start reaching out to some potential customers for your market research.

3. Gather Honest Feedback on Your Business Idea

Testing a business idea with your target market helps you determine if customers find it valuable enough to pay for it at the price you set.

Talk to anyone who might be interested in your idea. Start with people who are closest to you: family, friends, and colleagues. Online communities such as Quora, Reddit, Facebook groups, and LinkedIn groups within your niche are also good places to seek honest feedback.

Begin your outreach by pitching your business idea and asking the person’s thoughts about it.

An effective way to validate a business idea is asking questions that dig deep into your target market’s pain points. Here are some questions to ask during your market research:

  • Does the business idea solve your biggest problem or challenge?
  • Is there another problem you’d like to be solved? 
  • How do you feel about the solutions/products/services provided by existing businesses? What do you like (and don’t like) about them?
  • How could these be improved?
  • Would you buy my product or service? How much are you willing to pay for it? (It also helps to set a price and ask people if it’s fair to them.)

When you’ve identified your potential customers’ pain points, you can better develop a product or service that will solve them. It also keeps you from just assuming what your target customers want—a costly mistake that can lead to your startup’s doom.

4. Consider Crowdfunding

Crowdfunding is more than just a way to raise funds for a project. Startups also use it to test the market and see if their idea has the potential to grow as a business.

Try submitting your business idea to crowdfunding sites such as Kickstarter, Indiegogo, and FundedHere. You know your idea will take off if you’ve raised significant funding through these platforms. This means people are willing to pay for it.

5. Create an MVP

Once you’ve determined that your business idea has support from potential customers, consider building a minimum viable product (MVP).

The MVP is a working prototype of your product or service that you can give to a small yet diverse group of end-users for testing. The goal is to observe how users are using your prototype and find out if your target customers will definitely use what your business will sell.

Successful startups such as Uber and Airbnb started out by developing their MVP (a beta version of their app or website) to test if their ideas could solve customers’ problems. Uber’s solution was to provide a convenient and fast means of transport, while Airbnb’s was to offer cheap accommodations. It turned out that these business ideas not only solve a market problem but also generate huge profits.


6. Develop Your Competitive Edge

When validating your idea, don’t just focus on your own business. Look also at your competitors. What are they doing and how can you do better? How will you ensure that your target customers won’t go somewhere else?

Competitor analysis is a critical step in your business idea validation. Here are a few tips:

  • Check your competitors’ sites and subscribe to their email list to know their products or services, features, benefits, and prices. Compare these details to your own.
  • Consider purchasing directly from competitors. This way, you’ll get a feel their website’s user or shopping experience, offerings, and customer service.
  • Review your notes from your market research, paying close attention to your potential customers’ feedback on competitors. Spot any useful insights, trends, and similarities.

Based on your findings, develop the unique value proposition (UVP) for your business. The UVP will be your competitive edge that allows you to attract and retain more customers than your competitors. It’s what sets your business apart.

Check any issues your target customers have with your competitors, such as defective products, poor customer service, and unreasonable prices. Think about how your business idea can fill in those gaps.

Take your cue from how a Singaporean web hosting business developed its UVP and differentiated itself from the highly competitive market for hosting in the country. Exabytes was up against more popular international web hosting companies in Singapore. But the local brand was able to sell its services at more affordable prices than its competitors.


7. Refine Your Idea

After conducting market research and competitor analysis, you should be able to identify possible problems with your business idea early on. Adjust it as necessary until you’re sure that it can provide value to your target customers and is valid to move forward with.



Taking risks is an unavoidable part of your journey as an aspiring entrepreneur. So is failing. However, you can avoid their costly consequences. Validate your idea to know if you should go ahead, scrap, or fine-tune it before launching your business.  To ensure a smooth launch, be sure to choose the right business tools such as Taxumo, so you can easily get your  business  registered with the BIR and file taxes online instantly.

About the Author: 

Jason Acidre is the Co-founder of Grit and the SEO strategist at SaleHoo. He’s a seasoned digital marketing consultant who has worked with numerous highly-valued startups and Fortune/Inc. 500 companies. He also documents his strategies/case studies on his SEO blog: Kaiserthesage.


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