In 2020, Statista published a report that revealed the average startup failure rate in Africa to be 54%, which is 1 in every 2 businesses. Now, while this was a bit lower than the global average, it’s still a bit high, with the averages for some countries on the continent being over 70%.
Running out of cash or lack of funding has always been the biggest reason why the majority of startups fail within their first to fifth years, according to research conducted by several firms on the continent. The second was that their startup idea didn’t fill a market need, meaning either they skipped the process to validate their startup idea or it wasn’t done properly.
Starting a business requires a lot and every entrepreneur hopes to see the day that they can turn their dream into a thriving firm or business. However, that isn’t always the case. Many startup ideas fail to gain traction despite significant investments of time and money and the challenge lies in deciding which ideas are worth chasing and which ones are not.
With the looming possibility of failure always present, it will be a disaster to waste time and money on a non-viable business idea, especially considering that investors typically only back ventures they believe have the potential for profitability. Thus, it’s crucial to validate your startup idea before starting a business.
Is there a need for your product/service and are people willing to pay for it?
This article guides you through five essential steps to validate your startup idea in Africa to ensure it’s a viable one.
Step 1: List the main assumptions about your business idea
Before investors decide to invest in or buy equity in your business, they want to know how profitable it will be. Does it have the potential to be the next big thing on the market? Is it worth their time and money? If you want the time and money of an investor, then you need to be able to answer probing and challenging questions about your business idea.
- What are your projected sales within the first month or year?
- What makes your product or service different from that of your competitor?
- At what point do you expect to break even?
Asking yourself these questions will help you clearly define your business idea and identify key assumptions that support your decision to start that business.
But that isn’t all. These assumptions only serve as the foundation to validate your startup idea. The real work lies in gathering data to evaluate these stated assumptions. Can these assumptions become real numbers in your business? And to find out if it could, you need to consider how you can make it happen.
- Who is your target market? Are there enough of them to meet your targeted sales?
- What problem are you solving for your target market and is it something they are willing to pay for?
- How will you make them see that you have a better product that can solve their problem?
- And how will you reach them? Through which marketing channels?
If you don’t have all the answers to these questions yet, then you need to first conduct market research to find the answer you seek in evaluating your assumptions. With your key assumptions evaluated, you can have a strong direction for the next steps to take to validate your startup idea.
Step 2: Talk to your potential customers
Personally, your idea may sound good. It may even sound good to a few of your friends or colleagues, but that isn’t enough to get started on your business. The real data and insights lie with the people who will spend their hard-earned money on purchasing your products or services. Hence, they are the people you should be talking to.
Find means of connecting and speaking directly with your potential customers, whether through in-person or online interviews, surveys, open forums, or even social media. By engaging with those who pass as your potential customers, you gain firsthand knowledge about their needs, preferences, and pain points.
- Ask probing questions that help you understand them better and see things from their perspective.
- Ensure your interview is diverse and factor in different people in your target market. Try not to interview people from just one sub-group of your target market. Mix it up to capture a voice from all sub-groups of your target market.
- Be willing to listen to your potential customers and take suggestions on how to better tailor your product or service to their needs.
- Record their feedback and analyse it. Using it to find patterns, trends, and common concerns can help you validate whether your business idea addresses a genuine problem and resonates with potential customers.
Step 3: Show your potential customers a prototype or an MVP
If you have a prototype or Minimum Viable Product, it will help you better illustrate your product or service to your potential customers so they can know exactly what they will be dealing with. It will also help you better communicate your vision with investors who may want to invest in your startup when it’s time to access funding.
Your MVP doesn’t have to be perfect, since it’s likely you will be iterating along the way. However, having an MVP allows you to demonstrate your idea’s core functionality to potential customers tangibly.
You can also consider offering different iterations of your product or service based on what you think your potential customers would want and letting them choose the one that resonates best with them.
By gauging their reactions and feedback on the prototypes, you can assess the viability of your concept and identify areas for improvement to better suit the preferences of your potential customers.
Step 4: Determine how much your potential customers are willing to pay for the product or service
Realizing your potential customers like the idea from your research and MVP is still not enough to determine if it will be a viable business. Sometimes people like an idea but that doesn’t mean they are willing to pay for it. And even if they would, they might not be willing to pay the amount that would make it a sustainable business in the long term. What they might be willing to pay might be too small to keep the idea running.
This is why it’s important to determine how much customers are willing to pay for your product or service before establishing it as a business. To determine how much they are willing to pay:
- Ask them directly. Once you show them the MVP or explain the features and benefits of your product or service, ask them how much they are willing to spend on such a product.
- Research the prices of similar products or services and see how much the competitors charge for them.
You can test different pricing strategies or points on a few of your potential customers to monitor their buying behaviour and assess which pricing points they are willing to pay for your product or service. This step helps validate whether there’s sufficient demand at a price point that allows you to gain profit and scale your business in the long term.
Step 5: Iterate and Refine based on feedback from your research
Asking for feedback from potential customers on your product or service is the best way to ensure you are producing something that your consumers would want to buy. So don’t hold back. Ask through your interviews what they think of your idea or the MVP.
Through their feedback, you can gather insights to iterate and refine your business idea, prototype, or MVP. There might be something you are missing or some ways you can make it better and honest feedback will increase the likelihood of you developing a product or service that truly meets customer needs and stands out in the market.
Validate your startup idea in five simple steps
The process it takes you to validate your startup idea is a careful one that demands significant time and effort. While we have compiled the process into five steps, the groundwork for each stage requires weeks of careful research to get accurate insights.
Despite your best efforts, there’s always the possibility that the idea may not gain traction. In such cases, be prepared to go back to the drawing board, reevaluate your startup plan or idea and assumptions, and make necessary adjustments to increase your chances of success.
Keep in mind that every stage of the validation process offers you the chance to learn more and improve your concept, so do not just go through the motions; instead, pay close attention to make sure you do not miss anything important.
