How to Validate a Business Idea Using Data

how-to-validate-a-business-idea

Over 50% of all newly launched food businesses fail within their first five years. Most were started with passion and energy. Many produce excellent and exciting products. Sometimes business failure is due to financial mismanagement or lack of funds for expansion. More often, it’s due to failing to address a simple question: What problem does the product solve for the consumer? In this post, we cover how to validate a business idea from the framework of solving real problems for real people.

Your Secret Weapon for Success: Solve Real Problems

The secret to any successful relationship, personal or business, is not to talk about yourself too much. Concentrate on what the other person has to say and needs instead. Whether you’re looking for a partner in life or a purchase order for your food product, your chances of success will increase by listening more than talking.

Take it one step further and offer the solution to a want, need or desire in the other person’s life and you’re on a home run.

How to Validate a Business Idea Using Data to Solve Consumer Problems

One of my businesses is a drinks startup, Boreal Botanical Brewing. Let me share how we used data to validate the purpose of the business and the kind of products the business would be creating in order to ensure we were solving real problems for people. (We did this even before we launched.)

At Boreal Botanical Brewing, we brew botanical tonics from medicinal mushrooms — chaga, reishi and lion’s mane. These drinks contain neither alcohol nor sugar. Our target market is people who choose to live sober or are sober curious. Most have removed alcohol from their diet for general health and wellness reasons.

(Sidenote: If this is a topic you’re interested in, consider reading Sober Curious by Ruby Warrington.)

Use Data to Validate Your Gut Feelings

I myself stopped consuming alcohol about three years ago. I found that even small amounts of alcohol, like two beers over an evening, were robbing me of energy and negatively affecting my sleep. I run several companies and have a young family, so functioning on adrenaline and coffee just because I had a drink the night before was not a sustainable way to live. 

I decided to take a complete 30-day break from alcohol to see what would happen. The results — better sleep, more energy and patience — were so pronounced that I never looked back and have since chosen to eliminate alcohol completely from my life. 

What to drink when not drinking?

But then the question arose: what could I drink, now that I wasn’t drinking alcohol anymore? Specifically, what could I drink in a social situation that was “adult” in taste and not full of sugar? 

It was an interesting question and I had a gut feeling that I could not be the only one going through this experience. 

Sure enough, when I started digging a little deeper, I found that this was very much a growing trend. Data from a wide range of global studies told me that the number of adults choosing not to consume alcohol is growing sharply. Alcohol-free or reduced-alcohol lifestyles are trending especially with younger consumers in their twenties and early thirties. 

That left many people with the same challenge I was facing: what to drink, when not drinking? The issue came up time after time, wherever I looked in this space, and tended to be phrased like this: “I don’t want to feel like the odd one out, now that I don’t drink alcohol anymore. What can I drink that still makes me feel like an adult and included with my drinking friends?”

The data was clear: there was a market for drinks that solved the problem of belonging without drinking. My gut feeling had been correct. 

How-to-Validate-a-Business-Idea

At this stage, and because I had been actively looking for another business opportunity for some time, I made the decision to enter this market in some form. It presented the opportunity to solve a real consumer problem while tackling a personal interest (see the graphic above). So I put together a team of partners, collaborators, and experts who shared my enthusiasm for the project and we got to work.

How to Validate a Business Idea Using Data

Now that I knew the space that I wanted to play in, I looked at several other factors to help me zone in on a product that we could confidentially launch. Competition, ingredients, and growth rates all factored into narrowing down our options into a specific product.

Consider the Competition

Other food startups had already set out to solve this same problem. (Other people read the same studies I had access to and had come to the same conclusion; or they just got lucky in picking a product to launch.) Kombucha, alcohol-free spirits like Seedlip, or one of the many alcohol-free beers currently entering the market are examples of products serving a similar customer base. Even CBD products play in this arena.

But activity in a market is a good thing — it’s competition, yes, but it is also additional validation that your idea is a good one. (And competitors can also help educate consumers on new products and ingredients, helping to grow the overall market size.)

Developing a Product

Next, the team had to decide on what kind of product to create. The existing market indicated that our options ranged from kombucha to alcohol-free beers or spirits to fruit-based drinks. But we wanted to do something a little different — and the data suggested that we should look at medicinal mushrooms as an ingredient. 

Five years ago, medicinal mushrooms were a fringe ingredient at best — but ten years ago, so was kombucha, which is now found in most supermarkets. When we started exploring data about medicinal mushrooms, we found that conversations about them had jumped from the fringe to performance athletes as well as to general wellness enthusiasts and practitioners. The category was growing.

Look for Early Stage Growth Categories

Here was an opportunity to enter the medicinal mushroom market early, but not too early. As one member of our team put it, it was the “opportunity to listen to Hank Williams at a dive bar before he got famous.” (Sidenote: Erin, the founder of this blog, entered the elderberry market in 2011 with Norm’s Farms, well before it was a popular supplement and ingredient — her business was acquired in 2017. Entering early, but not too early, can be a good thing indeed!)

Researching the medicinal mushroom category further, we found multiple data points and studies all agreeing that sales for products containing these mushrooms were on a very strong growth trajectory, with a compound annual growth rate (CAGR) of 9.85% forecasted for 2020 to 2027. This was far stronger than for any of the other ingredients on my shortlist. 

Data had identified a consumer need — and data showed a way to offer a solution to it. From there on, we developed the Boreal brand and product line with single-minded focus, never deviating.  

how-to-validate-a-business-idea

I know what you’re thinking. But, but, but — what about my grandma’s secret recipe? You’re killing my dream with all your talk about data. While using data is important to building a successful business, there is ample space left for emotion, passion, and even nostalgia.

Good Back Stories Can be Brand Assets

If you can identify an opportunity to solve a consumer need that your product delivers against, then the story behind your product will become a valuable brand asset. A good backstory is a reason for consumers to believe your brand promise — and purchase your product(s). 

A Real Example: Nonna’s Pasta Sauce

Let’s say, for example, that you’re interested in bringing your grandmother’s secret pasta sauce to market. You think you want to sell it to young families. Here’s the usual way many entrepreneurs might express their brand:

“You should buy this pasta sauce because it is my nonna’s amazing secret recipe that we make in house from organic ingredients, and everybody we’ve shared it with loves it.” 

How often have you seen or heard similar brand statements? They are always from the heart, they are always well-meaning — and they are almost always highly ineffective. 

As I stated in my previous post, both brands and people will do better in life if they spend more time listening than they spend speaking. Combine listening with solving real problems, and you’re ready to stand out from the crowd.

Combine Data Insight with your Personal Passion

In the example I provided above, you think you want to sell your pasta to young families. If you look at data that explores what parents care and worry about, there’s one recurring issue: How do I make sure that I am doing the best for my kids? 

This is a universal human desire, one that appears across all cultures and backgrounds. Parents want to raise their kids well. In light of this insight, let’s rephrase our pasta sauce brand statement to something like this:

“This amazing pasta sauce will help you be a good parent by making it possible for you to put real, healthy food into your kids — even when you only have five minutes left after a long and exhausting day.”

Now, add your origin story to support the above: “The reason you can believe this is because the recipe is my nonna’s secret and she has fed generations of my own family with care and love.”

Do you see the difference? The first statement, the kind we see all the time, talks only about the features of product (for instance, organic, tastes great). It is very, very hard to get people interested in new products, especially in a time where we get bombarded with over 5,000 marketing messages per day. 

Make an Emotional Connection

The second statement works because it helps time-starved and stressed-out parents — and let’s face it, that’s most of us — to avoid the most common of emotions once you’ve got kids: guilt that you’re not doing your best for your kids. Guilt that you’re not a good parent. And that’s something very, very easy to care about. 

Enabling parents who are starved for time to deliver good nutrition — and be good parents — to their kids is your core brand promise and now you’ve got my attention. Why? Because you’ve stopped talking about yourself and started thinking about me. 

market-research-tools

 

Ask “Why” to Understand Your Brand Promise

The easiest way to arrive at your core brand promises is to emulate a curious toddler. As the simplest market research tool that you can use on yourself, ask the “why” question until you reach your answer. And, like a toddler, don’t give up until you get there. Let’s stay with nonna’s pasta sauce for this example of how why can help you get to your brand promise

Why should people buy this pasta sauce? 

“It’s my nonna’s secret recipe.”

Why does that matter?

“It tastes amazing, is full of good stuff, and is made with love.”

And why does this matter? 

“This pasta sauce will feed your family just as well as it has fed my own for generations, but with none of the hard work.”

And why does this matter?

“You can show love to your kids just like my nonna loved us, even if you have no time left at the end of a long day.”

And why does that matter? 

“It helps you be a better parent.”

And, we’re done. Use a series of why questions to drill down on what matters for your product or brand and to ensure that you’re expressing your brand promise well.

Wrapping Up How to Validate a Business Idea Using Data

What if you’ve already started a business, or know exactly what business you want to start, and want to use data to improve your product or messaging? I cover that topic in my next post. Read on for specific tools you can use to validate your business idea.

A Little About Me

My name is Andreas Duess. As mentioned, I wear a couple of hats. As an owner of Nourish Food Marketing, I help food startups reach critical mass. Yours could be one of them. To talk more, just send me an email.

As a founder of the Boreal Botanical Brewing Company, I help people who don’t want to consume alcoholic beverages to not feel excluded in social situations. If this sounds interesting to you, you can find us at borealbrewing.ca or on Instagram @boreal_botanical_brewing.

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