4 Ways To Test Your Business Idea In An Afternoon

My first business ideas were absolutely horrible.

It wasn’t that they weren’t going to work for one or two small reasons, there were massive holes in the logic-of-how-this-is-ever-going-to-make-anyone-any-money-ever.

I built an algorithm that tried to predict someone’s personality by looking at their tweets. I considered founding a government defense contracting company to bid on defense contracts. I thought about trying to visually map out all data on Wikipedia.

You get the picture.

Over time though, I began to see patterns in these bad ideas. I started to realize why so many successful people preach about the power of persistence and taking action. If you just continue trying stuff, you’re going to start building patterns in your mind of the types of things that work and don’t work. It’s as simple as that.

Today things aren’t quite as frustrating. I’ve built a couple of successful businesses so I’m more aware of what the common pitfalls are.

I’ve developed four thresholds that every new idea I have needs to pass before I’m willing to invest any significant time or money into it. Whenever I have a new idea or meet with an entrepreneur, these are the first four questions that need to be answered:

1. What burning pain are you solving?

Paul Graham sees a lot of entrepreneurs go through YCombinator and he says that the number one reason a startup fails is by,”not making something users want.” In other words, nobody cares about the problem. If the problem you’re trying to solve is painful enough for a given customer, they’ll be willing to compromise with a crappy solution, that’s the definition of an early-adopter.

About 80% of my initial ideas failed because of this: I didn’t validate that the problem I was trying to solve actually existed. It doesn’t matter if your product solves a particular problem better than anything else in the world, if it’s not solving a burning pain then it’s going to be very difficult to build a business around.

Be clear in your mind about what problem your product or business is solving.

2. What are your analogs?

An analog is an example product or service that people are currently paying for that solves the same problem that your product or service is supposed to solve. Find some examples of people paying right now to solve this problem.

Your product or service can be completely different, but you want to know that people are willing to open their wallets to solve this problem. (There are a lot of problems that are “nice-to-solve” but not “must-solve.”)

An example of an analog would be if I had an idea for a machine that could zap my teeth and they’d be clean for the rest of my life. People buy toothbrushes, toothpaste, floss and mouthwash right now so I have a general idea that people are willing to pay something to solve this problem. (How much they’re willing to pay is another story.)

3. How do you know your solution is better?

If you know that the problem not only exists, but is acute enough that people are willing to pay, now you can start determining if your idea is superior to the existing solutions. The best way to do this is through customer development (AKA talking to your customers).

Customer development is a technique used to help you objectively determine if the people who feel the pain you identified in threshold #1, who may even be using products or services you found in threshold #2, find your solution better. The best way to do this is to actually go out and talk to them.

4. Can you find 10 customers to pay you right now?

Most ideas, even if they’re highly product-oriented, can be made into a service to solve the problem. This doesn’t scale, but the process teaches you everything you need to know about the viability of selling your idea. Don’t get fancy – use craigslist, ebay, your local newspaper, whatever.

Put up a one page static site with a buy button. If you’re a hardware startup, use Kickstarter. Find your first 10 customers before thinking about anything else.

As George E.P. Box said,

“Essentially, all models are wrong, but some are useful.”

There is no entrepreneurship formula that works for everything – but there are formulas that make things much easier. In the process of taking your idea through this four-step process, you’ll learn a lot about the longer-term viability of your idea.