If you’re reading this right now, there’s a good chance you want to start a business. Or you already have. And if so, you’re probably doing some agonizing about your business idea.
No, I’m not a psychic, but I have spent an incredible amount of time during the past five years planning, strategizing, and growing my own company Rich20Something. So I know a thing or two about what it’s like to be in your shoes.
Coming up with and testing a great business idea is one of the most challenging parts of entrepreneurship. And you can’t get around it—it all starts with an idea.
Your idea certainly isn’t everything. Contrary to popular belief, ideas are not the end-all-be-all of business. A genius idea can flop if it’s poorly executed. A mediocre idea can soar with brilliant execution.
Yet the question remains: How do you know if your startup idea is any good to begin with?
While I was working on my new book (plug!), I developed a simple method called Three Question Validation to determine whether you’re headed for a business breakthrough—or simply a breakdown. Here’s how it works.
At its core, Three Question Validation involves asking yourself, no surprise here, three pivotal questions to determine if your business idea is likely to succeed. There are plenty of great tutorials and insights out there for validating business ideas, but this one is an especially compact and simplified method to test if your idea holds water, before you waste the time, energy, and money on something that isn’t going to work.
If you can say “yes” to all three of them, you have an idea that’s likely to do very well.
If you can’t say “yes” to all of them, it’s time to go back to the drawing board.
Here are the questions:
Question 1: Is there competition in my space?
Contrary to what you might expect, you WANT competitors in your space.
If you find a market that’s 100 percent unoccupied, you’re either the first one there (risky in itself, in that nothing has been tested) or the last one there (other people have tried unsuccessfully and abandoned the market).
Being the first isn’t horrible, but there’s less of a roadmap to follow. It’s also much less common.
Being last doesn’t mean that you can’t find a way to make your idea work in the marketplace, but it will take considerably more work.
So you actually want to pick something where there appear to be many other people doing what you’d like to do. For example, I look at job board sites such as Upwork to see what types of freelance skills are popular at the moment. You can literally scroll through the list of job postings and decide which area of expertise you would like to pursue.
If you can answer “yes” to this first question, it’s time to move on to the next question.
Question 2: Are my competitors making money?
A bit of a no-brainer, but very important to consider. Even if there are people doing what you want to do, you need to make sure they have enough customers or clients and are making the type of money you’d like to make.
This step will ensure that it’s worth your time to invest in your idea. There are a bunch of different ways to tell how well your competition is doing. You could look on their website for testimonials and client success stories. Browse through their portfolio if they have one.
You could even stop in (if they are local) and talk to them, or give them a call over the phone. Ask about rates, schedule, and typical client experience. You don’t have to tell them why you’re doing the research.
I love looking at unbiased third party sites like Yelp and checking to see what their rating is, and in particular, what customers have to say. You don’t need to get exact revenue numbers. The point here is just to get a general sense for how they’re doing.
If other people are successfully bringing in clients and customers, so can you.
Question 3: Can I do my product/service/idea differently and/or better?
This is the question that ties everything together. You’ve found your competition. They appear to have some business. Now what?
It’s time to make your stand by standing out.
In order for customers to buy your idea instead of another company’s (or in addition to), you must show why your product or service is different and/or better. If you can show why you’re unique, you’ll attract just the right customers who are perfect for your business. They are the type of clients who will buy from you time and again, and who will continually refer you to all of their friends.
This point of difference between you and your competition is called a USP, short for “Unique Sales Proposition.” I didn’t make this term up, but I love it.
Here are five ways to stand out in a crowded market (aka your USP):
1. Better (Lower) Price — Typically, I don’t like competing on price. I prefer to provide greater value and get paid accordingly. However, when you’re just getting started and you’re not 100 percent confident in your skills, it may behoove you to have a lower price point than more experienced competitors.
You won’t have to stay here forever as long as you increase the value of your services, but undercutting your competition and then providing stellar work will help to get your first few customers in the door. And they’ll bring their friends. There’s a reason why Walmart continues to lead the retail game. Everybody knows that their USP is “Always Low Prices.” Again, I want to stress that the quality of your work still needs to be very high. That’s key, since most people expect that lower prices equate to lower quality work. Blow their expectations out of the water and you’ll most certainly draw attention, recognition, and a steady stream of new business.
2. Convenience — Making your products or services more convenient for the customer to use or access gives you a huge advantage. As a society, we’re used to getting things not just now…but RIGHT NOW. Call it the Uberization of the world.
A few weeks ago, I ordered a FitBit to track my sleeping patterns. Amazon shipped and delivered it the same day. It was on my wrist by 7pm that night, just in time to start logging my sleep. You can take advantage of this trend by making your products and services extremely simple to access.
For example, one of my students, Micah, is a personal trainer. But rather than have clients come to him, he makes the process extremely easy on them. Micah’s gym is mobile. He bought one of those old white vans and wrapped it in a giant sticker with his face and logo. Every morning, at your appointment time, he shows up to your door, pulls you out of bed and works you out. You don’t even need to change out of your pajamas if you don’t want to. All the equipment is in the van already—weights, resistance bands, kettlebells. After your session, he provides a healthy snack. Because working out with him is so much easier than getting dressed, fighting traffic, and dragging yourself to the gym, clients are flocking to him and he can charge increasingly higher rates than his competitors. Convenience pays.
3. Better Quality/Aesthetic — In my house, I have two Macbooks, an iPad, a 27” iMac desktop, 2 iPhones, and an Apple Watch.
And I don’t even own Apple stock. (Seriously rethinking that right about now.)
I also don’t consider myself a diehard Apple fanboy. But I do love the way all my technology looks. Despite arguably slipping a few points every year in their technological advancement, there’s one thing Apple does really well: Make beautiful products that don’t break easily or often.
The quality and attention to detail you put into your products and services are huge factors in a customer’s buying decision. If it looks or performs better than the competition, I’m more likely to buy. That’s just basic human psychology.
4.) More Variety — Did you ever see that Subway commercial where they touted that you could make over 1,000 different sandwiches? To a former SAT instructor, this irks me a bit, as it’s basic multiplication of toppings, not an indicator of sandwich superiority—but the campaign was highly effective.
In a world where everything is instantaneous (see above), we want to get started quickly and have the maximum amount of flexibility with our choices. If you can provide that, you can stand out!
5. Superior Customer Service or Guarantee — most competitors in your space are going to have average or below average customer service. They’ll get back to people soon-ish, but with no urgency.
They’ll offer refund or exchange policies, but only ones that are designed to protect the company’s best interests, not the customers. There’s a huge opportunity here for you to rise above and provide first-class service and a better overall experience.
If your competition provides a 30-day money back guarantee, make yours 60 days … or 180!
If they usually respond to clients in one business day, make it a point to respond to any inquiries the same day in four hours or less.
There’s a certain medical marijuana delivery service in Los Angeles that I’ve certainly never used. They offer service from 11 a.m. to 11 p.m., 365 days a year. Even holidays. Their competitors are always closed or busy.
You know who I’d hypothetically call when I wanted to get blazed on a Friday night? Exactly!
Customer service, people!
These seemingly small tweaks to your offer are big in your customers’ minds, and really add up over time. In addition, they are free-to-cheap to implement, so there’s really no reason not to do this. It’s such a low-hanging fruit if you want to stand out.
Starting a business is one of the hardest things you can do—and as some of these examples should demonstrate, the answers can often be quite counterintuitive. But you don’t have to do this alone.