How to test a Business Idea?


If you have already read my blog posts on finding business idea and how to identify your perfect business idea, you should be in a position to test the idea that you have zeroed down on.

I have listed down 7  things that you should do in order to test your business idea.

1. Checking the need

Who needs your product or services? Thorough analysis of your customers should be done before launching any business once you’ve zeroed down on any idea.This includes age group of your prospect customers, area where they are found, their spending capacity, their purchase behavior, their likes/dislikes etc to name a few criteria. Also, it is fairly important to see if your business is really solving any problem in a way never thought of or in any optimized way. Launching another cola factory would not be beneficial if there is no difference in the way you make cola when there are established players like Coke or Pepsi. Well, why not go for a little survey (the old times method, tried and tested) and check this out. Survey might not just be in form of paper based questionnaire but you might think of reaching out in more creative way. If your idea appeals to young college students, a little drive at couple of colleges demonstrating your prototype and making people use it would be a great start to judge the need.

2. Checking the profitability of your idea

Doing a thorough analysis of how you will make money out of your business is very important even before you start it. You should start by analyzing the amount of money you will spend in your first launch plus the amount of money you will spend on keeping the business going for at least an year ass well as in first five years of your plan. This should include cost of any facilities that you would be using, scaling finances that you would need, employee costs, operational costs, taxes etc. At this stage keeping a note of how you will fund your business over these five years: listing down at what point you’d need how much funding, how much seed are you ready to invest, what are your planned revenue streams and how much you expect each to pay minus some losses. The more conservative you are in this planning, more secure you’d be at the time of running your business with all aspects taken care of.

3. Piloting your project

Making a prototype of your idea is a great way to check it within closed groups before you launch it in public. Prototyping of any idea will give a first hand experience of your own product development.
This should be done when you have a list of ideas to start your business and you’ve chosen the one you feel is going to be most profitable. Jumping on to any idea and start-off without giving it a dry run in a closed environment might result in a setback. Once you’ve built the prototype it would be best to run it through a group of people who can act as certain critic and provide some serious feedback. It would be wise to include people from varied dimensions and expertise into this review exercise.
Use the feedback you get in this exercise to make changes to your product/decide fate of this idea. If you make changes in your prototype based on these review comments be sure to run a second round of such feedback run including some additional people so you can be sure that it is improving and critics are not really biased seeing their feedback incorporated.

4. Building a Minimum Viable Product

If you are not sure how people are going to react to your product go for building the very essence of your entire business idea. Just least of what is at the core of idea. As you take your product through multiple iterations of reviews you’d come across a lot of requirements on your way, common of which you can incorporate within your product. Building a minimum viable product also ensures that you do not spend too much too early in your business and keep building your product as you build your base. This is particularly important when you’re on a shoestring budget for your startup and are a first timer in the segment you’re trying to build your base in.

5. Checking the competition and competitors

Before you launch your business, it is really important to identify your competitors. This is not just for the sake of knowing their names but also knowing their strengths, their weak areas,their consumer base, their prime target audience, depth of their pockets, their plans and vision, their market share, their pricing strategy, and in all just all that you could know about them. You should also find out about their success stories and failure stories, so you can take some learnings and also use those learnings to do things in a better way.

6. Checking the future scalability and possibilities

A business which cannot be scaled in future is no value proposition in real terms. Before you embark on your loved business idea be sure to figure out all possible scalability options of future on a peice of paper. Making a mind map of all such possibilities would be a really great idea. Startups have a success rate of 1 to 100. That is really small number and a lot of them fail within 3 years of inception just because they could not figure out what to do next. Scalability of a business idea must be in vertical as well as horizontal dimensions. For example, vertical expansion for a coffee shop business would be to open new stores in demanding areas and horizontal expansion would be to move further and bring more variety and offerings to the table. Take for example Cafe Coffee Day, they not just opened a lot of stores from busy city places to highways, but also brought a lot of things to table like snacks, ever increasing coffee variants, free wifi, coffee machines, merchandise and what not. This has certainly brought a lot of things on table for consumers who are not just sipping coffee but also buying a lot of stuff they may not buy elsewhere.

7. Identifying early stage partnerships and alliances

Starting up is very much about being an active ecosystem member. In order to succeed you would definitely need people and their services (of course you cannot build anything and everything you need). Before you start, give a thorough thought on the kind of alliances you would need to successfully carry out your business and focus on what you are good at. Again taking the same example of coffee shop, alliances with bean manufacturers, coffee machine manufacturers, interior designers, snacks raw material providers, apparel vendors, cutlery and disposable vendors, marketing providers and sales affiliates would be of prime importance. Giving a proper thought about the kind of alliances and their cost will not only bring you in position to price your product well but also have you learn a lot of stuff about your business from people in your alliance (since you are not the first one coming over for such alliance).


Mudit Khandelwal
Follow me

Mudit Khandelwal

Founder & Columnist at
Mudit Khandelwal is the founder and Chief Columnist at Venturepapa. He is an Electronics Engineer by education and has worked in multiple organizations with various businesses (small or Fortune 500). Always willing to be an entrepreneur, he started his entrepreneurial journey with an ecommerce website, later moving to software consulting and blogging (which happens to be his old time passion as well). Mudit is an avid traveller and you can find him going on nature trails very often.
Mudit Khandelwal
Follow me

Latest posts by Mudit Khandelwal (see all)