How to tell if your business idea will make money?

Find out whether the idea will sell BEFORE building it

This post is one of my 🔥Multi-Part Product Guide series. You may also like my top-rated guides such as — No-Code MVP, Test Willingness To Pay, and Profitable SaaS Ideas. ✍️Join my free newsletter to receive these insights!

Today, I’ll share my frameworks for rapidly testing new ideas and determine whether your idea is worth pursuing.

Getting started: the validation plan

The best way to begin testing new ideas is to make a “validation plan”.

Ideally, you should have a general idea of:

• what you’re validating
• how you’ll go about orchestrating your startup experiment
• how you’ll get your prototype in front of your target customers

All of these factors can help you avoid creating the “wrong” prototype, which can lead to the wrong impression about whether the idea is working or not.

What to include in your idea validation plan?

• Goals. What exactly are you testing?
• Hypothesis. What are the riskiest assumptions related to your idea?
• Experiment. Decide which type of prototypes to use and how to build them.
• Test. Show your prototype in front of target customers.
• Validate. Metrics to measure the success of your validation.

Step 1: Set a Validation Goal

First of all, what exactly are you validating or testing?

I always tell founders: you can’t validate an idea. Instead:

You validate a series of factors that make the startup idea viable.

Here are some criteria that may influence the viability of an idea:

• The market: determine market-solution fit
• The customer: determine solution-customer fit
• The problem: determine problem-solution fit
• The solution: determine solution-problem fit

Example: Market-solution fit

If you’re just starting out with a startup idea, you’re probably at the market validation stage.

At this stage, you may want to conduct market research to determine whether there is customer demand for your potential solution.

Investigate how major players are solving customer problems and what niche markets are emerging to identify untapped opportunities.

Step 2: Create a Hypothesis Statement

When you first come up with an idea, you’re basing it on untested assumptions.

How do you know if it makes sense?

You can create a list of assumptions based on criteria like target audience, problem, product features, and pricing model.

Then, you rank each of these assumptions and test the riskiest assumption related to your idea.

This means that if you never find out if (the assumption) is viable, you will build the wrong products → no one pays/uses → no business → fail.

Example: List of hypothesis

• Customer hypothesis: Does X target audience resonate with this type of product? What if my target audience is Y?
• Problem hypothesis: Is the problem big enough? Am I solving a problem that X target audience resonates intensely? What if they don’t even care?
• Solution hypothesis: Do people use X feature to accomplish their goals? Is it true that people will pay money for this solution?
• Pricing hypothesis: Will people pay for this price to solve their problem?

Step 3: Set Up A Prototype

Now take one of your riskiest assumptions in Step 2 and build a prototype to test.

Let’s say you’re building a Gmail alternative that charges users $30/month to send emails (think Superhuman).

Your riskiest assumption might be:

• Will people want to pay this price to access features XYZ?

Next, choose the right prototype:

• mockup
• low/high fidelity prototype
• single-feature MVP
• proof of concept
• minimal viable product (MVP)

Regardless of how you define a “prototype,” which can be used interchangeably at times, it is essentially a basic version of a product or service with a few core features that provide value to your users.

Factors to consider when building prototype:

• Pre-product validation: Use mockup or low-fidelity prototype to quickly test the assumption of your startup ideas.
• Feature validation: Use single-feature MVP or high-fidelity prototype for validating certain new product features; it is more effective to create a feature-enabled MVP at this stage.
• Validation strength: Building a prototype with mechanisms that can get people to pay for your idea or experience your solution = stronger validation than asking people to enter their email addresses to indicate their interest.

Step 4: Test Your Ideas

At this point, you should have created something to show your prospective customers.

The question is, where do you find people to test, get feedback and collect data points?

There are two ways to do that…

Organic techniques:

• Do things that don’t scale.
• Leverage existing online groups, directory and communities.
• Announce your new ideas to your existing followers or email lists.
• Cold email or LinkedIn outreach to get people to test your prototype.
• Manually identify target customers and recruit them to test your prototype.
• Get out of the building: universities, local market, business premises, shopping mall, cafe.

Paid techniques:

• Paid traffic is great especially if you have no followers, email subscribers, or audience to begin with.
• Use social media ads (Facebook, Instagram, TikTok, LinkedIn) to drive traffic to your prototype (landing page, survey form, questionnaire).
• Use Google search ads to direct traffic to your landing page based on the keywords you want to target.

Step 5: Validate, Learn & Repeat

The next step is to assess how well your prototype performs.

Gather feedback, analyze metrics, and conclude whether you have validated or invalidated your assumption goals in Step 1.

Did they use it?

Did they pay for it?

Example of metrics that show validation signals:

• Conversion rate % from free or paid signups
• Pre-sale revenue $
• Usage of a single-feature app
• Successful matching % (if you’re testing an online marketplace idea)
• Taking next-step actions (could be scheduling a call, proceed to paid products/services, etc.)

After carefully examining your data, it will tell you whether to proceed, iterate, or abandon the idea and work on other ideas.

Danger Zone: How NOT to validate your ideas?

• Asking your friends, families, and colleagues about your idea.
• Asking investors about your idea. They could offer their unique perspectives, however, opinion does not equal validation.
• Showing your prototype to the wrong people. Asking someone who is not one of your target customers about your prototype when they are not experiencing the problems you are attempting to solve.
• Listen to words not actions. “Great concept”, “I love the idea”, “This is so cool” “I think I will pay for it” is not validation. Where is their action? Did they use the prototype? Did they pay for it?

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