Every new business idea starts with a hunch. Passionate entrepreneurs work to brainstorm unique solutions to potential customers’ problems. However, private lenders aren’t going to fork over startup capital based on a hunch—even if it’s a really good one.
Investors want to know that a product idea has the potential to generate profit before taking a risk on a new business, and they’re right to be cautious. According to Bureau of Labor Statistics data, about half of all new companies don’t survive more than six years. To ensure your business can be a long-term success, you should test your business idea.
Why should you test your business idea?
The simplest reason to test your business idea is to mitigate risk. There’s always some amount of risk involved in launching a business, but testing business ideas can ensure you take what Briogeo founder Nancy Twine calls “smart risks.”
“I’ve always been taught to take smart risks,” the clean hair care company’s founder told Shopify Masters. “So I knew that if I was going to leave my career in finance to start my own company, I wanted to feel really good about what I was going to embark on.”
As you test your business idea, you’ll discover what does and doesn’t work so you can build the best possible versions of your products. Through the testing process, you may find an even better idea that’s more viable than your original vision.
Benefits of testing new business ideas
The benefits of testing your business idea include:
Attracting investors
Simply put, investors won’t give you money to develop your idea if you haven’t tested it. Testing shows potential investors you’re serious and that your idea can be profitable.
Validation
Testing ideas allows you to move forward with the best possible version of your product and can help you gain confidence about an idea. Before launching Briogeo, for example, Nancy wanted to know whether clean beauty was going to be a short-lived trend or a long-term change for the beauty industry.
Resource allocation
The amount of money you spend creating a test version of your product will help you estimate how much capital you need to fully launch your idea.
Proof of concept
Testing new ideas can involve creating a minimum viable product (MVP)—a bare-bones version of your product that you can show investors and other funders. Whether it’s a basic version of an app or a prototype of a physical product, your MVP will bring your idea to life for everyone involved.
Cost savings
When testing an idea, you can spend less money compared to those who might build out the final version of their product without testing it. If your idea doesn’t work or needs to be tweaked, you’ll save critical resources and valuable time by figuring that out in the testing stage instead of in the product development stage.
Innovation
Testing encourages continuous improvement. Soliciting feedback and making adjustments based on results can help you develop a stronger product and a more competitive business.
How to test a business idea
- Research your target market
- Talk to prospective customers
- Refine the product
- Crunch the numbers
- Consider crowdfunding
- Protect your idea
- Keep evolving
Ready to test your business idea? Start with these seven practical tips from successful entrepreneurs:
1. Research your target market
The first step in testing your business idea is to research what’s already available to your target market, or the group of people most likely to buy your products. This will help you gauge whether your product resonates with them, estimate the total market size, and get a sense of your potential market share. You may have already started market analysis as part of writing your business plan. If not, you'll gain valuable insights for your business plan throughout the testing process.
Before launching Briogeo, Nancy read trend reports to understand the market, telling Shopify Masters: “I wanted to make sure that I was launching in an industry that was growing and that had a large addressable market so that I had people to sell my products to.”
It might be harder to estimate your market share if your idea is in an emerging category. If you can’t find relevant trend reports or industry-specific business news, one quick (and free) way to gauge interest in your idea is to check the search volume trends for related terms on Google Trends.
2. Talk to prospective customers
Once you’ve identified your target market, start talking to people. Conduct small group interviews, survey your network on social media, or host focus groups. If your friends and family fit within your target market, they can serve as your first unofficial focus group.
Dandelion Chocolate cofounder Todd Masonis told Shopify Masters: “We started sharing with friends and family and knew we were onto something.” The positive feedback from their network encouraged the Dandelion team to conduct small market tests by taking their chocolate to their first farmers market. “We sold out immediately, and we knew there was something there.”
After soliciting honest feedback from your inner circle, find online groups or in-person events where you can speak directly to potential target customers.
3. Refine the product
Using what you’ve learned through market research and talking to potential customers, refine your business idea to the point where you can produce an early version of your product. Depending on your field, you might call this early version your MVP, sample, or prototype.
Founder Melanie Masarin collected as much feedback as possible from target customers before officially launching the non-alcoholic aperitif Ghia. “I think we poured a thousand Ghia before we actually finalized the formula and bottled it,” Melanie told Shopify Masters.
4. Crunch the numbers
Once you’ve found your product’s market fit through research, interviewed your target market, and tested a version of your product, it’s time to model what you need to start producing. “Then the question is, well, can you scale it?” says Todd, Dandelion Chocolate’s co-founder. “If you have a small facility and small-scale machinery, maybe you can only get to a certain size [of business].”
The work you’ve done to refine your product should enable you to determine what you need to satisfy increased demand and generate more revenue to become a profitable business.
Once you’ve figured out how to scale your product, the next question is one of unit economics. “If you’re making all of this chocolate, but you’re losing money on every bar that you make, then that’s going to be a challenge,” Todd says.
5. Consider crowdfunding
Along with raising money for your venture, Crowdfunding can also be a great way to test your business idea and develop a solid customer base.
Fellow founder Jake Miller told Shopify Masters that crowdfunding was a huge learning experience for him. Fellow’s first product, the Duo coffee steeper, raised an impressive $200,000 through crowdfunding, but it took 18 months and $300,000 to get the product out to funders.
Founder Jing Gao used crowdfunding to test Fly by Jing’s first product, the Sichuan chili crisp. She told Shopify Masters that crowdfunding is a “really time-consuming process, but it is rewarding.” Unlike other forms of funding, “at the end of it, you get your base of potential future customers.”
As a bonus, crowdfunders “are actually quite understanding of any delays and mishaps that happen when you are first starting out,” Jing says. “It’s good practice before you actually start your Shopify site.”
6. Protect your idea
“It’s important that you protect the work and your original ideas,” says Jake, founder of Fellow. Fellow has patents for many of its products, including its first product, the Duo coffee steeper.
Ultimately, the decision to patent your idea comes down to your industry and your budget. “Filing patents is not cheap,” Miller says. “So you’ve got this choice: ‘I have limited cash—do I spend this limited cash on marketing or sales or IP [intellectual property]?’” You may want to hire a lawyer to learn more about your patent, copyright, and trademark options.
7. Keep evolving
Your work isn’t done once your product goes to market. Keep your experimentation mindset, listen to customer feedback, iterate and improve your products, and design new ones.
“Every entrepreneur and any employee should obsess over what feedback you’re getting from your customers, [because] the voice of the customer is essential,” Jake says.
Test business idea FAQ
Can you get paid for business ideas?
If you have an idea for a product or business but don’t want to launch the business yourself, you can try selling your ideas to larger companies as part of a licensing agreement.
How do you know if a business idea is profitable?
The only way to know if a business idea is profitable is to test it. Start by researching your target market. If you have a product-market fit, make a test version of your product and start soliciting feedback from your target audience.
How can you refine your business idea?
To refine your business idea, solicit feedback from your target market via focus groups, interviews, and surveys. If you have an early version of a product, invite your target audience to test it out, and use their feedback to further refine your product.
Are there any online tools or resources to assist with business idea testing?
The US Small Business Administration offers a variety of resources for aspiring entrepreneurs, including an online learning center and a directory of local Small Business Development Centers. Many local public libraries also offer business resources, such as access to trend reports. You can create online surveys for your target market using tools such as Google Forms and SurveyMonkey and search volume trends for your idea using Google Trends.
