It all starts with that nagging idea you just can't shake. There is a market need not being satisfied. There is a product that needs to be improved or created. There is a better way to do something. It's that unshakable idea there is an business opportunity. You talk to friends. You talk to family. They all think it's a great idea. Of course they do, they are your friends and family. It's time to validate your idea. It can take less time than you think.
Are you familiar with your market?
Do you know the players in a market? Are you familiar with the companies who provide products and services, the buyers of those products and services, and in the case of mass consumers, the specific profile and numbers of buyers out there?
If your answer is no then you need to become an expert fast. You need to do research online and go to your local library and speak to the business librarian. Any city library with a population of 60,000 people or more will have a reference librarian familiar with business databases the library will license. (how to create a market profile, SIC codes,etc.) If this is a local business then you need to visit the players and speak to the managers and owners.
Is there existing competition?
Are there other companies, products and services serving the market you're looking at. They don't need to be exactly the same. If they are a viable alternative to you then they do exist. Competition is not a bad thing. It validates that a market exists. If you can't find anyone doing what you want to do in and in the way you want to do it then there may be a very good reason. The road to your success might be filled to those that died trying. (Article No Competition, That's Bad)
Do you have a compelling difference in the market?
So if you enter an existing market then you need to compete. To compete well you need at least one key difference. This difference could be a cost advantage, a product advantage, a knowledge advantage. Also, this advantage needs to be compelling to buyers. They need to be able to easily recognize why you're different and better. The difference also needs to be compelling enough that they will buy from you.
Can you figure out a way to test this compelling difference? Can you create prototypes (i.e. software or goods)?
Can you create marketing materials as if the company already exists and try to sell like you're up and running already? You need to get into the market place with the real people doing the real buying and find out what their thoughts are on your benefits, features and your pricing. Just those three things are the keys to understanding market reaction.
Do you know how to position your services and products in your market?
Since you're familiar with the market how does the pricing you charge fit in. This the underlying financial fundamental of how much revenue you can generate and ultimately how much money you can profit from. Are you the white glove service at the premium price or the cheap and useful service anyone can afford? You need to figure out where you fit in relation to competitors.
Do you know how much in operating cost it will take to generate revenue?
You will have two sets of costs to consider. One set of costs are your start up costs. These are typically one-time costs like legal fees, licensing fees, purchasing equipment, paying for software development, creating basic marketing materials, etc. You need to be thinking about this but assuming it all existing today. How much would you need to pay out in labor, shipping, etc. to provide your goods and services to someone willing to buy. This becomes the second key financial fundamental to take a look at.
Take your revenue number and subtract your cost number. Are you profitable by at least 30 percent? If you make a dollar and you have 30 cents left over after you pay the direct expenses to earn the dollar then you pass the "sniff test". Most businesses can make a go at the market with this kind of margin.
Are you competent to start a business?
Have you started or run a business before? You don't need to create it yourself but do you know how to get it done for you. Do you know what to do with legal, accounting and hiring to get started? Do you know how to get created basic marketing materials (i.e. business cards, brochures and a simple web site). Do you know how to create processes for product delivery, invoicing and payment tracking?
If the answer is no to any of the above items do you have the drive to learn or can you tap into others who can help you bridge the knowledge gap?
Can you sell?
Do you already sell products and services? Do you have a whole list of relationships and contacts in the industry you want to enter? Do you have thousands of names for consumers who buy similar things that you can send emails to? In starting your business the quicker you can sell the better your odds of financials success are.
If you have no sales experience then maybe you should sell for someone else for awhile to learn, build confidence and build a network of contacts.
Do you have the money to get started?
You need startup capital. Even if you are going to do a "bootstrap startup" (Article What Exactly is a Bootstrap) you need at least a little money to get things started. Do you have some savings you can tap? Do you have friends and family who believe enough to spot you a loan? Are you willing to take on some personal debt to get the ball rolling? Do you have some "skin in the game" yourself? It's hard to ask others to chip in when you haven't.
Make a list of the startup costs and the money you'll need month-to-month to keep going. For each month put a list of sales goals and direct sales expenses. This will give you rough idea of your cash flow. If you don't pay yourself and you do all the work you may not need much money month-to-month but you will probably limit your growth as well. (example simple startup "back of napkin")
If you've said yes to all eight questions consider your idea validated! Get moving you're onto something. If you've said yes to most then do your homework and then launch. If you've said yes to only a couple of the ideas then move on. Let that idea go. More will come to you soon.