Throughout this article, we will see how to evaluate and validate our internet business idea correctly and in a practical way. To do this, we will first see how to specify our product, idea, or service and then create a unique value proposition. Finally, we research the competition, analyze relevant keywords, and determine economic viability.
Do not waste your time and money building a project on the Internet without spending at least 10 minutes reading this article, throughout which we will analyze the 5 steps to analyze our business idea on the Internet correctly:
- The Product/Service/Idea (PSI)
- Your unique value proposition
- Competence
- Keywords
- Viability
Throughout the article we will listen to Steve Black in his client development methodology and Eric Ries with his famous Lean Startup, methodologies or even philosophies that are highly recommended and useful for building projects on the Internet and obviously starting startups.
But what is your starting point? A business idea!
We assume that the idea we have had is viable and we jump into the pool. Without checking if there is water. Mistake! It should be mandatory to analyze your business idea on the Internet, before starting your project and much more before setting up a company and starting your startup.
We have experience analyzing business ideas on the Internet, as associates of various networks of private investors “Business Angels”, we have experience building our own projects on the Internet and starting and growing our own and jointly owned businesses on the Internet. In this article, I explain our 5-step method to analyze business ideas on the Internet.
The 5 steps to analyze business ideas on the Internet
Before we even begin, let’s set a clear goal. If your goal is to develop a project on the Internet to compile human knowledge (like Wikipedia), then our method may not be appropriate.
The objective of the analysis is to search quantitatively, this is in Dollars or the currency of your country, the possibilities of the idea. If we classify products and types of businesses on the internet, we will see that in the end, they sell:
- Physical products, yours or third parties (Dropshipping)
- Your or third party services, courses or infoproducts (Affiliation)
- Advertising in any of its formats.
So let’s start at the beginning, what do you sell?
1. The Product/Service/Ideas (PSI)
It is essential to be specific, you must be able to describe what you sell in a couple of lines.
- If you are not able to explain what you sell in a couple of sentences, maybe you are not clear about what you are selling, or maybe you want to sell several things, well in this case I advise you to focus on the one that has the most possibilities and forget the others.
- We will analyze the idea from the point of view of an investor or an entrepreneur, it doesn’t matter to me, they both want the same thing, to make money.
- It wouldn’t occur to me to invest or start building any project on the Internet that I couldn’t explain in 30 seconds or a minute, the so-called elevator speech. Do you have it? Practice it!
It is necessary to expand that description, you can fill half a page expanding in some paragraphs with a little more detail of what your idea consists of and another half page with characteristics.
- But only after having the two-line description. Although now you can improve it.
- This is when we emphasize passion. You can undertake it without passion, you can, but we do not recommend it.
- You must love that product/service/idea (PSI), be willing to work 24 hours a day, 7 days a week. Don’t waste your life dedicating it to making money with something you’re not passionate about…
- Convince me or yourself that you have full access to the product/service/idea because you are going to need it. Access to the stock of the PSI product, to be able to have quality photos, to know its production costs and sales prices, all its characteristics, etc.
Later we will need a couple of figures, it is time to start thinking about them:
- You must estimate (hypothesis) what the average income will be on each sale.
- And you must know the cost and therefore the gross margin.
It is essential to have full access and passion for your PSI product. It is the first validation.
2. Your unique value proposition
In this phase of the analysis, the key question is: Why me? Why would someone buy your PSI product?
At this point my advice is to use the Lean Canvas methodology. The lean canvas was designed by Ash Maurya, building on existing work and is explained in his book Running Lean. If you want, you can expand the information on how to use the Lean Canvas here.
When you start on the internet, a recurring mistake is trying to sell a wide range of products and of course to any client or target audience that may be interested. That doesn’t work, not in low cost mode, as you probably intend to start.
Our experience with our own projects on the Internet is that what really works is the sniper strategy, I mean, a very specific product for a very specific group of clients. I am referring to niche, or micro-niche, markets, that may have possibilities.
- For example, niche cemetery tombstones, those on the wall, not floor tombs or pantheons, only niche tombstones, for clients who bury their relatives far from where they usually live.
- Or custom countertops, only kitchen countertops and in three price ranges, practical, elegant and personalized, for clients with a second home for their own enjoyment or for rent.
- And yes, I have several marble clients!
Therefore, specify your PSI product and decide which type of client you want to target.
- Analyzing an internet business idea for a PSI product that already exists offline is easier because it starts with an ideal type of client that you already know.
- If this is not your case, you must imagine that client, give him a name (make it up, Sergio), where he lives, what family he has that he works for, in short, put yourself in the client’s shoes, put on his shoes to think like him.
- Sergio and all those like him are your main customer segment.
The key is that you develop your PSI product with Sergio in mind,
- In the mornings when he gets up, what hurts Sergio? Regarding your PSI product.
- What are the problems that are on your mind? What worries Sergio?
- Write down your problems on the Lean Canvas.
- You may detect other ideal clients, another segment of clients, analyze if they have the same or different problems.
We have a group of clients who have common problems, what is your proposal for them?
- We have reached the key moment in this second validation.
- What’s your proposal? What value do you bring to the client? How are you different?
- In short, tell me your Unique Value Proposition.
- Why me? Why is Sergio going to buy your PSI product?
This is one of the keys to business success on the Internet, if not the most important:
Ideate, develop and build unique value propositions (different and innovative), which better solve the real problems of a sufficiently large group of clients.
Forget about the product features, (forget your product). Think of solutions to customer problems. There you will find the value proposition. This is the second validation.
If you have access to the product and a unique value proposition, it is time to continue with the three remaining validations: Competition, Keywords, and viability. But that will be another day.
3. Competition Analysis
You have an internet business idea and you have validated the first two steps:
- You have unlimited access to the so-called PSI product (Product/Service/Idea) and passion for it.
- You have a unique value proposition for a customer problem.
A brief introduction to a famous book that talks about value innovation, the blue ocean strategy.
Its authors tell us about creating companies through fundamental differentiation, that is, modifying competitive parameters or competing on different or new characteristics.
Instead of trying to outperform competitors, they propose creating new spaces in the market that are not well served.
This fits with our step 2 of the validation process, locating unsolved customer problems and offering them unique and differentiated value propositions.
It owes its name to the metaphor of many competitors (sharks) in a mass market of customers (fish) that form an ocean dyed red. Faced with a differentiated Product/Service/Idea like a shark swimming in a blue sea with fish but no competition in sight.
Access this article to learn more about the blue ocean strategy through a practical example mentioned in the book: Cirque du Soleil.
To find blue oceans, you will first need to find and analyze your competitors.
But I advise you to turn off the computer, do you wonder?
You will agree with me that the internet is not reality, not today. The Internet is only part of the reality, the reality is that many competitors and customers are not on the Internet.
Internet is only part of reality
If we stop researching offline competitors (who are not on the internet), we stop learning from them. And also keep in mind that offline competitors have been in the market for a long time, you can learn a lot from them, starting by analyzing the competition. Yellow Pages?
It’s time to think if this same idea has occurred to more people, I hope so! If you don’t find any possible offline competitors, be careful! Maybe you have a problem and you are a shark who wants to fish in a tank with no fish.
I’m not proposing anything new, the competition’s studies are invented. It involves you investigating from the point of view of a client, you must pretend to be a client or find someone to do it on your behalf.
Write down a list of the supposed competitors that you know or find in a guide. We are going to make a kind of grid, if you use spreadsheets, perfect! Otherwise I will tell you about a competitor in each row and columns on the right with additional information.
- In the first column write down the name of each competitor (and how to find them)
- In the second column to the right of each competitor, write down the (one or more) Product/Service/Idea that they offer to their customers.
- In the third column write down what your latest clients are, what type of clients do you target? Are they the same types of clients you target? ¿
- In the fourth column, write how you offer it, what your value proposition is or, in other words, why customers buy from you, what makes you different.
You can ask as many questions and answers as possible, but the above are the main ones you should know.
Once this offline analysis has been completed, turn on the computer again, and try to see which of them have a presence on the internet. Do they have the same proposals as offline?
Next, look for new competitors on the Internet. Think like a potential client would and put those words (keywords) in the Google search box.
Write down the new competitors in the same table, below the previous ones: Competitor, what they offer, to which clients and how they offer it. In these online competitors you can expand columns with other information.
With everything you have learned, I imagine that you will have improved your Product/Service/Idea to better adapt it to your ideal client and the problem you solve with your Unique value proposition.
If you have a unique value proposition that is different from that of your competitors, perfect! This is the third validation.
4. Keywords Based on your Ideas
Three paragraphs above in this same article you have placed a series of keywords in the Google search box to find competitors. I asked you to do it from the point of view of your ideal client.
I want you to write down another list, this time with these keywords and all the related ones you can think of. Try to make them relevant words, I insist that they have a lot of relationship or imply a fairly clear intention to acquire your Product/Service/Idea.
I’ll give you a couple of examples:
- If you offer a novel acupuncture technique, your ideal client would offer acupuncture (basic), safe acupuncture (I am very cautious), innovative acupuncture, but would not offer acupuncture needles (that is what those who offer acupuncture offer).
- You offer tombstones for cemetery niches (they are wall tombstones, a real case), as a customer who has lost a loved one you would search for tombstones online, cheap tombstones, and original tombstones, but we are not interested in searches for phrases or epitaphs for tombstones (because only seek inspiration) or graves (because they are tombstones placed in the ground)
This list of words are your relevant keywords, it is a first step:
Internet search engines like Google classify the millions of pages by keywords, this is indexing pages by the most important keywords on each page.
Then, with a series of algorithms, they order them from most to least important or relevant based on what they say and who comments or mentions those pages, this is positioning.
In this fourth validation we are going to try to search and find two things:
- Groups of homogeneous keywords, for each group of 3/4 homogeneous keywords we must create a page of our online project.
- Number of monthly local searches (local = USA, if that is our market) for each of the keywords on our list.
To help us in the search for keywords, I recommend this article in which I talk to you about how to use the Google Adwords keyword planner.
Ultimately, you must enter the keywords from your initial list in this tool or others that exist on the market and it will suggest other related keywords indicating the approximate monthly local searches for each of the search terms or keywords.
You can easily go to 500 or 1,000 keywords, don’t worry about that now. The tool gives you the possibility of downloading them in an Excel file, it is the best option.
Are they terms or words searched on Google? Are you finding enough local searches monthly? Do you find other relevant words that you hadn’t initially thought of? This is the fourth validation.
With the third and fourth validation we try to verify that there is a sufficient market for our Product/Service/Idea, we say’ There are enough fish for our shark’
Yes, in the previous article we addressed the problem-solution of our clients.
And in this, we fit the product market with sufficient and growing potential. We only have the fifth validation left…
5. Viability of your Ideas
We only have to do four numbers to estimate the economic viability of your internet business idea.
Keep in mind that up to this point and also in this last validation we have done nothing more than generate working hypotheses.
An analysis of a business idea on the Internet seeks to generate the necessary credible working hypotheses and then, I recommend using lean startup methodologies , beginning a process of building a minimum viable product and validating the generated hypotheses. But that is the topic of another article.
There is a lot of talk on the internet about conversion funnels, we refer to a series of phases that potential customers go through until they finally become customers.
These phases according to various authors are Acquisition, Activation, Retention, Monetization and Reference. I insist there is a lot of theory and practice in this regard, but I am going to summarize it for you.
I want you to be very practical and in this article I will summarize the phases of the funnel to just three : Searches, Visits and Sales. Let’s go with the feasibility hypotheses and I will do it with a totally imaginary example but you will have a model as an example to guide you:
Searches, I mean the traffic that exists for your list of keywords, you just have to add 500 or 1,000 relevant keywords classified into groups in Excel.
Let’s say there are 100,000 local searches per month .
The next phase of the funnel is visits, how many of the searches could end up in your online project (website, store or whatever). For this we would have to talk about the marketing strategies you are going to use (exceeds this article)
Suppose you do things very, very well and in one year you are able to capture 10% of the traffic. This would give us about 10,000 visits per month.
The next phase is sales. In my experience I tell you that you should not think about converting more than 1%, it would be more realistic to think about 0.1%, that is, 1 per thousand.
Hypothesis of conversion of visits to sales 0.3%. This gives us 30 sales per month .
Remember that in the first validation I asked you for a couple of data about the Product/Service/Idea, these data that you should know or intuit, I am giving you now as an example.
We assume an average order of $200 per sale and a gross margin (sales price-cost) of 50%
Calculate: 30 sales per month x $200 = $6,000 of sales with a 50% gross margin = $3,000 of margin per month to pay fixed expenses and the rest profit. This is the fifth validation
We have reached the end of the analysis of your internet business idea in 5 steps.
I want you to be aware that successfully passing through the five validations is not synonymous with success with your business, simply that your idea, with all its hypotheses and assumptions, can be viable.
- because it seems to solve a problem
- because it seems that there is enough market
- because it seems like it can be profitable
All you have to do is go out there and try it.
