You Can Test an Idea Without Spending Tons of Money
Robert Babboni
While in Thailand four years ago, Joe Demin rested on a locally made hammock that was so comfortable he immediately sensed a business opportunity. Though he'd never started a company, he felt certain he could make a living selling the ultrasoft hanging beds to consumers back in the U.S. over the Web.
But Mr. Demin's girlfriend, Rachel Connors, wasn't as convinced and urged him to test the idea before quitting his senior job at a large consulting firm. "I thought he might be riding the nostalgia of vacation," she says.
Mr. Demin obliged and purchased just a few hammocks to take home. He and Ms. Connors then began trying to sell them on weekends at craft fairs and festivals.
The six-month experiment was eye-opening. For example, the couple was surprised to learn that while most hammock shoppers consider comfort an important part of their purchase decision, they also want to know if it's easy to set up. Shoppers also said they care a lot about durability, since the hanging beds are often placed outdoors.
Based on that insight, Mr. Demin and Ms. Connors adjusted their sales strategy before investing in an e-commerce site. Later they made additional tweaks upon tracking their online sales before turning their trial into a full-time venture in 2011.
Today, the duo operates Yellow Leaf Hammocks, a profitable e-commerce venture in San Francisco.
Have a brilliant idea for a business? Even if you're confident that it's a winner, consider taking steps to validate it before diving in too deep. You may find that your assumptions aren't quite on the mark, and the intelligence you gather could help you avoid costly mistakes.
"First you fall in love with your concept, but then you have to get over that and fall in love with your customer," says Caroline Daniels, a lecturer on entrepreneurship at Babson College in Wellesley, Mass. "You have to observe what your customers are doing and then build your product around that."
There are simple ways to test a business idea—without spending a lot. Hunter Walk, a former YouTube executive turned venture capitalist, says a good start can be to approach people standing next to you in line at a public place, like a supermarket or coffee shop. Ask if they have a need for your product or service, whether they'd pay for it and how much.
"If you're not willing to go up to a stranger," he says, "you may not be up for the challenge of starting a business from scratch."
Keep in mind that you may need to refine your pitch before you see results. "You're practicing how to describe your idea so other people understand it," Mr. Walk says.
Another technique is to approach prospective customers by email. A large volume of positive replies could help show potential investors that your idea is worth funding.
Craig Baldwin, with partners Ryan Watson and Ryan Baker, did this in 2011 before starting Sqrl, a Cincinnati provider of communication software for professional-services firms. Having worked in accounting for years, they felt that traditional ways of exchanging information and following up with clients were too cumbersome. They had a better solution, but before spending thousands of dollars to have it built, they sent emails to target customers seeking feedback.
To identify them, the budding entrepreneurs looked up an accounting-industry magazine's list of the top 100 firms, which listed email addresses for many of the partners. They also found a list of prospects, including email addresses, on an accounting-software firm's website.
About 50 people responded warmly, and a few even offered to contribute money toward the trio's development costs, Mr. Baldwin says.
Next, they put up a single-page website with a short, low-cost video describing their product and the problem it would solve. Visitors were invited to enter their email addresses so they could be notified when the software goes on sale. Mr. Baldwin says he and his partners collected about 200 addresses this way over six months. Using the responses to pitch investors, they raised $550,000 and hired a developer to build the product, now in beta.
"It really comes down to pounding the pavement and validating your idea with potential customers," says Mr. Baldwin. "It's still something we do each and every day."
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