How to Validate a Business Idea Using Data

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. Because I run several companies and have a young family, functioning on adrenaline and coffee just because I had a drink the night before was not a sustainable way to live. 

So 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. 

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.  

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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