For many people, becoming an entrepreneur is a dream come true. Realizing the dream, however, can be difficult. As many as eight out of every ten small businesses fail within the first 18 months, according to Forbes magazine. While a business can fail for a number of reasons, one of the most common reasons is failure to conduct market validation before committing to the proposed product or service.
What Is Market Validation?
If you are in business, or plan to be, then you must have a basic understanding of the economic principles of supply and demand. When the demand for a product is high and the supply is low the price goes up. Conversely, when demand is low and supply is high a product’s value plummets. Supply and demand economics can be used to explain the concept of market validation. Put in simple terms, market validation involves spending the time to interview hundreds of potential customers to verify that a significant market exists for the product or service you plan to offer. In other words, can you prove that people will people actually commit to buying your product or service before you make plans execute on it?
How Is Market Validation Accomplished?
There are a variety of methods that can be used to accomplish market validation, all of which involve conducting some type of market research and then confirming this research by reaching out to actual potential customers. This differs from plain market research. While market research may be a first step in finding a target market, taking it a step further- validating that it is what the proposed customer wants- is what helps makes a successful business.
Consequences of Not Using Market Validation
Failing to make market validation your first consideration as an entrepreneur can be, and usually is, fatal to your venture. By way of illustration, imagine that a real estate agent tried to sell you a home without ever speaking to you to find out your needs and wants in a home. The odds of making a sale are slim at best. The same concept applies to any business venture. If you fail to find out if there is a proven buyer for your product or service the odds of your success are slim to none. In addition to harming your business's chance for success, failing to conduct market validation can also hurt when looking to raise funds. Investors are much more likely to invest in companies that have taken the time to validate their market, and, as the saying goes, have taken the time to "sell it before you build it."