How to Validate a Business Idea

This note consolidates the main points to validate a venture idea, combining learnings from two classes: one on indicators to create a product (Class 04) and another on market analysis and its particularities (Class 05).

Introduction

  • Market Access: It’s fundamental to have people or agents who facilitate access to the market. For example, club agents in professional sports are often “shielded,” which can limit entry into certain segments.

Class 04 – Indicators of Product-Building Capacity

1. Understanding of the Problem

  • The deeper your understanding of the customer’s pain, the higher the chances of building a solution that makes sense.

2. Ability to Assemble a Team

  • Entrepreneurship is a team sport. A team with the right skills and aligned values is crucial to build and scale.

3. Knowledge of Current Solutions

  • Map existing solutions for the same problem. Identify pros/cons to find differentiation.

4. Willingness to Pay

  • Do customers already pay for a solution? That’s a strong signal. Also measure the cost of not solving the problem (money/time loss).

Class 05 – Different Markets and Their Particularities

1. TAM (Total Addressable Market)

  • The total size of the market your solution could serve. Larger TAM can mean more potential reach.

2. Growth Potential

  • Evaluate expected growth. Some markets stagnate or shrink—check history and projections.

3. Number of Competitors

  • Understand how many players already serve the audience. Identify what you can deliver better or differently.

4. Willingness to Pay (again)

  • If the market already pays, they value the solution. Also measure the cost of doing nothing.

Criteria to Score and Prioritize Ideas

Score each idea across five dimensions:

  1. People with the Problem: Is the market large or segmented?
  2. Trend: Is the market growing or shrinking?
  3. Access: How easy is access to the market?
  4. Capability: Can you build and scale the solution?
  5. Money: How much are people willing to pay?

Conclusion: The idea with the highest overall score across the five criteria should be your priority for focus and development.

This structure helps validate your ideas using product indicators and market analysis, providing a robust decision-making approach.