The essence of being an entrepreneur is spotting the right opportunities at the right time.
A crazy business idea — roughly defined as an idea that is original, unique, innovative and risky, like the Pet Rock. Usually your crazy business idea will stem from a real gap in the industry where you are working, or you see a marketing demand that nobody covers.
A crazy business idea — may also represent your own personal answer to a simple customer fix, a problem that hasn’t been solved by the existing product or service providers.
Being driven by passion rather than industry knowledge comes with its fair share of problems. Specialists found that 50% of small businesses fail in the first 2 years, while another 50 percent of the businesses remaining fail after another 2 years.
The failure may be due to the idea in itself, the management or the economical national background, but first and foremost, you need to know how to validate your crazy business idea and set sail.
Finding Your Way Around
Macro-Research vs. Micro-Research
It is unlikely that Alex Tew, the student who sold one million pixels of advertising space for $1 a pixel, had conducted a macro-research before making it to the top craziest entrepreneurs who scored a million dollars in less than six months. However, he did some research and concluded that this particular idea was the best solution to solve his problem.
Since your idea is an answer to an issue, you need to see how it is positioned in the macro-economical landscape. This means that if you plan to build the next eBay with a twist, there are some things you need to look at:
- Global e-commerce trends
- Global spending trends.
- Economic tendencies for the next few years Upcoming technologies to use to make your business more efficient.
- Read research, articles and case studies related to the issues that interest you the most.
These are just a few examples, but you get the point. Macro research (large-scale, national/global trends and processes) is paramount for you to understand if there is really openness towards your future product or service.
With Macro research you will be able to determine where the larger economic and political landscape will allow you to further develop on your idea.
Micro research: (small scale, local trends and processes), is recommended when you want to open a refreshment bar in your neighborhood that also offers beds and comfy sofas so your corporate customers can take a quick power nap in the afternoon.
In better words, you need to research how many companies are in your neighborhood, how many employees are looking for refreshments, what are the spending routines and trends in the area, and how your innovation will make them throw money at you instead of your competitors.
Don’t Make This Mistake!
Many entrepreneurs believe that if their idea is crazy enough, there will be no competitors to worry about. This is a rough underestimation that might break the deal for you. There is some level of competition everywhere, in every field. Do your homework well and answer these questions:
- Is there no competition because everybody else has dropped the idea for not being viable?
- Is somebody else out there doing almost the same things as I want to do?
- Is my idea truly so original and insane that nobody has ever thought of it yet?
You will coin and design your future product/service depending on the answers to these questions. For the argument’s sake, let’s say you are about to create something completely new. There is no product or service like yours on the market while there is a real human need for it. In fact, you can try to create the need yourself.
Related Read: Thinking Outside The box: Validating Your Crazy Ideas !
As we all know people get enthusiastic about things they didn’t know they wanted in the first place. The Pet Rocks together with other legendary insane business ideas that actually worked in the past are good examples to take a look at.
Get Bureaucracy and Politics Out of Your Way
This is a very important step that many entrepreneurs overlook to their own detriment: are there any regulations or restrictions related to your future product or service? Learn about them before you start investing time and money into your crazy business idea.
Here’s How to Validate Your Business Idea in 3 Steps:
If your idea doesn’t get suffocated by rules, restrictions and regulations you can’t handle, it’s time to get to work on it and work to make it big.
1. Understand your product/service
This may sound like a no-brainer, but the understanding of your product/service will help you place it better on the prospective market you want to enter. There are some questions you need to answer before moving on with your plan:
- Is your product/service made/provided by yourself?
- Is it manufactured/offered by a partner?
- Is it wholesale purchased and resold or the result of a dropship?
The answer to this question helps you understand your future profit margin, inventory needs, and supply and demand strategies, the need of human and technological resources and so on.
Shipping & Storing
What is your product’s size and weight? This will help you calculate your future shipping and storing costs, together with price and markup.
How fast and cost-efficiently can you provide the service?
How durable is your product? Will there be problems with shipping and storing? Will there be complaints about the product’s frailty — leading to extended warranties, maintenance services and refunds?
Pain vs. Passion
Products and services usually solve a person’s problem or feeds one of their pleasures (see vacuum cleaners vs. books). Does your product/service solve a passion or pain? Depending on this answer you will validate and market your idea properly.
Make sure you understand if people really need it to solve a serious issue or if these people feel it would be nice to have that product/service available just for the fun of it?
A very important part of your future budget and business plan prediction, the real need of human resources is something that mustn’t be overlooked. As a corollary, envision your crazy idea in the long term: is it going to create more careers for the future or are you going to work by yourself for years to come? This answer will help you design your business plan and budget flow for the next years.
The question here is if you need to include in your business plan/budget a certain number of employees, investments in tech means, investments in logistics, headquarters, vehicles and so on.
Where are you going to find the money to cover all these expenses? You may have to find an investor, take money from the bank or throw in all your savings in to your business, to make the business set sail.
Location, location, location
What area can your service cover? Is it restricted to your neighborhood, the entire city or can be extrapolated country wide? The answer here will help you design a long-term strategy. You may believe that a crazy idea is enough and you will cross all the bridges when you get there, but given the economy we all live in it is a smart move to plan ahead and see how far can you actually go.
The Big “When”
Are you selling a seasonal product/service? What are you going to do during the months they don’t get sold? If your crazy business idea is limited to a certain time-frame (let’s say winter months for instance), you need to figure out what to do in spring and summer.
You still have to pay your employees, taxes, the company’s maintenance costs and so on. Can you find yet another crazy idea to complete and complement the main business so your company survives throughout the year?
One Time Deal vs. Repeatability
Consumable products are usually a safer bet for a crazy business idea – because people will always use it. Also, consumable products make marketing easier due to the repeatability factor as these products require lower marketing costs and increased average customer lifetime value.
One time deals, on the other hand, need permanent marketing, triggering higher costs and increasing your efforts to find newer and newer customers permanently.
Is the product perishable? Are you selling fresh fruits or books (and even books come with an expiration date at some point). This answer will help you design your inventory, selling, and marketing strategies better.
2. Understand the Market Demand
Now this is the trickiest part. Is there an actual demand for your product/service? Only a few ways to find out! Your idea needs to be validated, and this is a long and sometimes mind-grinding process, but you need to get through with it if you want to succeed. Your crazy business idea can be validated through a number of strategies.
SEO Is Not Dead Yet
One of the simplest ways to learn SEO is to use the Google Keyword Planner Tool. It offers you the number of people searching for keywords related to your business each month. This tool is intuitive and you can quickly understand your position on an existing or emerging market. While there is still no urgent need to get help from a marketing agency, you should also keep it in mind when you design a long-term budget.
The Keyword Planner: offers you a rather straightforward piece of information: if people talk about a similar product/service, you have some chances of tapping into a potential market. You will want to keep track of these potential markets.
Social Media and Online Tools
As tools and platforms are concerned, you have plenty of options to choose from or to mix together in a broader strategy:
- Topsy is a good tool to provide you with insight on how many people speak about things related to your business each day.
- You can also use Google Trends to learn if the business you have in mind is a trend, a flat, a fad or a declining market.
- A Twitter search gives you a clue on how many people speak about things related to your product/service, while BuzzSumo gives you the trends in social media.
Use Facebook Ads to validate your idea. This case study is quite relevant on how to proceed.
First-Hand Market Research
Asking real people real questions and understanding their custom answers and feedback is one of the most important strategies to employ as a start-up. Use polls and surveys to understand what people want — this is how any business plan should start — and you shouldn’t skip this step.
Moreover, you can organize interviews and focus groups with relevant representatives of your future customers. You will get first-hand information on the viability of your idea and receive plenty of feedback and suggestions for improvement. There is a difference between what people say/think they want and what they really want when put them face to face with the product or service.
You can also read reviews of similar products and services if there are any. Online product reviews are like focus groups. People give their pros and cons and often express their wish for an even more efficient product/service or an alternative one. If your idea matches the wishful thinking of the people, you may have a market.
Crowdfunding as a Validation Strategy
Tell people about your crazy, insane idea and compel them to invest in it. You don’t need to ask for exorbitant sums of money, but you should deliver what you promise once the campaign is over. If you reach the goal, you already have a pool of customers to rely on.
When you run a campaign, make sure you utilize all the comments and customers’ feedbacks. If the word “scam” shows up in comments more than “why didn’t I think of this before,” you need to solve a trust issue really quickly.
Offer a Demo
This is a type of focus group, only taken further. Instead of telling people what you want to do, show them what you did. A product prototype will help you and your potential customers get a realistic feel of it, and through feedback and brainstorming, you will actually make something that people really want, not consider they might want at some point in the future.
3. Understand the Customers
You now know that there is a demand in the market for sunglasses for dogs. Some dog owners and veterinarians said the product might be viable. The pet accessories industry is on the rise, and social media is absolutely in love with funny dog videos.
Now let’s see how to really understand the customers, as a few people answering a poll is not enough. You don’t want to learn later that the people needing your product/service can’t purchase it because you can’t ship it where they live or can’t buy it altogether because they are in the low-income range or don’t even have a credit card because they’re minor.
- Take it to Twitter and other social media platforms to understand the demographics of your customers: male vs. female, age, geographic location, interests, etc.
- Use Google Trends again to learn where your customers live and whether they are shy on spending money on products and services at least vaguely similar to yours.
- If you would compete with other major players in the same field, you can use Alexa, Compete or Quantcast to learn about the demographics of your potential future customers. If there are no other competitors to analyze via their websites, you will have to rely on your own research and statistics.
And Now for the Boring Part: Financials
As crazy as it may be, your business idea should go through the motions of financial viability. It is not the pleasant part of the job, but the process can help you understand the real dimension of your own insanity and future success.
- You already sketched a business plan and a budget as you answered all the questions above. If you learned that there is enough appetite for your product/service on the market and the potential customers can benefit from it fast and easy, now you need to play with the numbers.
- Where are your potential finance resources coming from?
- What is your potential selling point?
- What is your potential profit margin and losses you can afford?
- Are your cash flow and balance sheets realistic?
- How fast will you be able to make a profit?
- Can you offer subscriptions for your product/service to retain customers?
- How much will your marketing cost?
- What is the provisioned ROI of your marketing efforts?
Of course, these are not the only questions you need to answer when you make up your business budget plan, but they are good starting points. Now that you have the boat and some good wind at your back, it’s time to leave the harbor and start conquering the world!
Startup Grind is a Silicon Valley-based organization that educates and mentors entrepreneurs through monthly business events and speaking series in cities across the globe.