Chapter #1: First Steps To Validate Your Business Idea

Do you have a million-dollar business Idea in mind and don’t know HOW to proceed? Whether it is worth, investing time, money and effort?

This is the question that haunts many entrepreneurs and demotivates them from working on their business Idea. The best way to start when you have a business idea in your mind is to think of the problem it is trying to solve.

In this blog, you will figure out the WHAT of problem, WHO of problem, HOW of identifying and validating the problem. I will be explaining this with the help of interesting examples and correlations.

This blog gives an in-depth view of the first step mentioned in my previous article: Came up with a great Business Idea? What Next?—Which is about 6 steps to validate a Business Idea. Here we will go through 3 steps to identify and validate the problem.

The “WHAT” of your Problem

So, you have a new business idea in mind. The first step is to figure out the problem that it is trying to solve. There are many ways in which one can look at the problem.

I will come up with a simple and unique approach of looking at it. This approach will help you in identifying and figuring out problems in a logical way.

So WHAT is a problem? A Problem is any deviation from Standard/Ideal. This definition will solve our purpose for now.

To explain it, I will be viewing our life proceedings from a process point of view. Let us call it Life Process. Every activity we do is part of it and helps shape it. With every event or activity, we try/want to achieve something. We will name the result of activity as Resultant. Problem occurs when we cannot achieve it.

I will be defining two states here. The State defines our condition, status, experience, and standing. One is the state which we are experiencing currently. Let us call this Current State. The other state is the one which we expect/prefer to experience, will name it as Ideal State (Standard).

With states defined, you can always calculate the difference between them at any particular Event or Happening. The difference is the problem which we need to figure out and solve. It can be positive, negative or zero. We need to focus our attention on those Negative deviations.

Kindly have a look at the graph below to have a better understanding of what I am trying to convey here.

I am assuming the behavior of both the states to be linear to make things simpler. The behavior shown here is just for the sake of explanation. Kindly don’t go into its technicalities. The activities that we perform or events that take place in our life, forms the X axis, while their result forms the Y axis.

This graph will vary from person to person. At the first event, we can see that the person experienced the unexpected (positive deviation from Ideal State), while at the 3rd event we can see that he experienced some type of problem (negative deviation from Ideal State).

For example, UBER was established to solve the problem faced by people in hiring a cab in San Francisco. People had to wave their hand until they can hail a taxi in snow, rain, wind and even after boarding the taxi they had to negotiate with driver for change and tip. The overall experience of Taxi hailing was frustrating. We will call this state of people as their Current State. People wanted something better, they wanted a better experience. Their expectations or wants define the Ideal State. UBER just narrowed the gap between the two states and thus solved the problem.

The above explanations demand us to look at the problem from a different perspective. Following things define the WHAT of problem:

1. Ideal State (preferred condition)
2. Current State (existing condition)
3. Event that triggers the states

We should not only look at the Problem, but also the Event that triggered it and Expectation of the audience from the result of that event (Ideal State).

For UBER the problem is the pain experienced by people in Taxi hailing, the Ideal state is on-demand and cheap Taxi-hailing service and the Event is the act of person looking for Taxi.

 

Categorizing the “WHAT”

We have defined the WHAT above, It’s time we dig into it and break it down further.

WHAT is divided into categories based on the Intensity of the problem (extent of deviation from Ideal State) and Frequency (number of occurrences of Event):

1. Common problems:

From the process point of view, these problems are the usual, historical, quantifiable variation in a system. All problems which come within X deviation from the Ideal State. We will call this X, Tolerance limit.

Though we experience them, they don’t affect us psychologically. These are the problems that we don’t mind, don’t think about.

2. Key problems:

From the process point of view, these are problems which occur outside X deviation from the Ideal State.

We experience these problems, they affect us psychologically. These are the problems that we mind, we think about, we hope that a solution existed for solving them.

3. Routine problems:

From the process point of view, these are problems which occur routinely. The frequency of its occurrence is more than Y.

These are the problems which we experience frequently in our day to day life. The Event that triggers their occurrence happen at least daily. These form part of our habit.

4. Non-routine problems:

From the process point of view, these are problems which occur rarely. The frequency of its occurrence is less than Y.

These are the problems which we experience rarely. The Event that triggers their occurrence happen rarely. These don’t form part of our Habit.

Take a look at the below graph to gain a better understanding of the theory explained above:

This chart is a day’s picture of Male, White, 25–30 years of age, Bachelor, living in San Francisco, working as Manager, earning $40,000 per year and who loves to party.

The Ideal state, Current state, and Tolerance limit is of the profile described above. This data comes after doing in-depth research on your target audience, which will be done in the next stage.

Here we can notice that the Event of going anywhere be it office, home, or for the party is giving rise to key and routine problems. While in other cases like Getting ready or Working in office, problems experienced are common and non-routine problems. UBER just identified and solved the key and routine problems.

 

The “WHO” of your problem:

We have defined and categorized the WHAT of problem. It’s time we validate things we have defined, let’s define the WHO.

States defined above namely Current and Ideal depends upon a lot of parameters such as WHO of the person, WHAT of his/her ability, beliefs etc.

For simplicity, these parameters have been grouped under the below mentioned Standard Customer Market Segmentation Categories:

1. Geography: Based on regional variables such as region, climate, population density and population growth rate.
2. Demography: Based on variables such as age gender, ethnicity, education, occupation, income, and family status.
3. Psychography: Based on values, attitudes, interests and lifestyle.
4. Behavior: Based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought.

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We have defined the WHAT and WHO of the problem, it’s time we validate them. Kindly follow the following steps for market segmentation and problem validation:

1. The WHO can be you, me, anyone. Do profiling of the identified WHO based on the above-mentioned categories.
2. Do profiling as precisely and focussed as possible, as this is the first step where you define the target audience.
3. Make a list of known people who qualify your defined profile. If you cannot make up a list of minimum 70–80 names, find the remaining people via LinkedIn or referrals from the existing people.
4. After figuring out 70–80 names, it’s time we contact them. You can contact them over mail, phone or any other social networking platform, whichever is feasible.
5. Try to arrange a short meeting. Be prepared with the set of questions you need to ask. You can use free online services like Survey Monkey or Google Forms for creating surveys.

Extract the following information while contacting your target audience:

1. Try to extract as much information about the person as possible. This will help you in getting more insights about your target audience. Fill in as much segmentation fields as you can.
2. Their daily schedule.
3. WHAT are the problems s/he faces, HOW key are those (Intensity), WHY and WHEN do they arise (Event), HOW often do they arise (Frequency).
4. Also ask HOW s/he solves them, WHAT s/he expects the solution to achieve (Ideal State). It will be better if you can make a sheet with problems forming the rows and validations columns.
5. Put your identified problem in front of him and ask the above questions.

After the above exercise, you have at least 30–40 responses with you. It’s time we analyze them. The following steps will help you analyze them:

1. Write the responses down with problems as rows, validations and profile of the person as columns.
2. Just have a look at the all the responses. You will more or less figure out whether your identified problem is a key problem or not.
3. Group the same problems together, Write the number of people for whom it is a key problem, take the average of frequency, write the other things as it is.
4. Analyze the responses of your problem. See whether it is a key problem for at least 20 people out of the interviewed. If not, figure out what went wrong. Either the problem that you are solving is not a key problem or the target audience that you selected is wrong. But don’t be disheartened, you have learned a lot on your way to validating the problem. You still have a list of other problems to solve. Make the required changes in your approach and proceed to the next step.
5. Check the frequency of your identified key problems. Key problems that arise routinely are the ones you need to solve.
6. Also, check the expectations of your target audience from the result of the event (Ideal State).

After performing the above exercise, the relationship between Event, Problem, Target audience and Ideal State will be pretty much figured out. You can always iterate to refine your results and understanding. All of your assumptions are validated now.

Now you have enough data to make the graphs explained above. The graph will help you visualize things in a better way as it will give you a unified view of every parameter figured out till now. It will help you in analyzing the existing data and predicting trends for similar market segments.

The next steps that you’ll need to take will involve searching for existing solutions for the problem that you have identified in this step. For a quick look on the remaining 5 steps, check out Came up with a great Business Idea? What Next?.

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Also shared on the Startups.co Medium Publication.