Validation is the point in time where you have confidence that your business can attract a tribe of paying customers in a matter of days or weeks. It’s the process of making assumptions about your customers and then quickly doing some tests and experiments to see if your assumptions are right.
Sometimes a business idea that has been validated can save months of time, thousands of dollars and the heartbreak of creating products that no one will want to buy. Other times, validation is a time to break into your business idea and see if it’s something that you’re willing to spend the next few months and years working on.
This week we’re focusing on validating our business idea. Validating our business fell into two categories:
- Validating that we can actually afford to run with this idea cheaply. This means creating a product that doesn’t blow our start up budget and push the prices past the point of reasonable for our customers.
- Validating that our products are something that our customers would actually buy.
Validation doesn’t mean that you’ll be successful, though. It’s not as simple as getting a bunch of people to promise that they’ll buy your stuff after you launch. It’s designed to give you a foundation for growth and a nod in the right direction.
Validation is different for everybody, but here’s a quick break down of the activities we did this week:
- First, we went to research our market and competitors to see what insights they have from actively running a shop that our customers buy from
- We talked to possible production partners to get a grip on our start up costs
- We made a product line that outlined how much each product would cost to make and a rough pricing estimate for our product line
- We talked to people that fall into our customer profiles to get direct feedback on our idea
- Then, we made changes to our business and the products based on customer and financial feedback
Whew! Now let’s dive into all the little details…
A decision we had to make
If you tuned in last week, you saw that we came up with the idea of designing digital patterns and turning these into handmade items perfect for babies and nurseries. The kind of items we’re thinking of are swaddles, print sets, cushions, blankets and matching tea towels. If you want to start right from the beginning, read about why we’re doing this and how we came up with our business idea.
When we thought about our skills, both Ash and I realized that we’re strongest in design and marketing. Even though we can pick up a needle and thread, it doesn’t mean that we’re any good at sewing.
We struggled between the idea of teaching ourselves to sew our own patterns or enlisting help from a local seamstress or a production company. We decided it was better to team up with experts because we genuinely believe that the end result would be of a much higher quality. Plus, we can spend our time doing the things we both love and kick-butt at.
We’ve been on the look out for some local production partners that can help us achieve our dreams but we also want to make sure we’re giving back to our community by sourcing local and ethical companies.
Getting to the the nitty gritty of how much everything will cost
We’ve got $10,000 in the bank. But I’m not a big fan of spending too much money without knowing if sales are guaranteed.
That’s why we’re setting ourselves a smaller goal:
Can we spend less than $500 to launch our business?
The reason we’re doing this is because money is one of those resources that’s the least flexible. Sure, you can loan a huge sum of money to kick start your business. But you’ll also be in debt.
Before we spend too much money we need to get feedback from our customers that they will actually spend money on our products. This means we need to see sales happening, instead of people just saying they will buy.
So really, our big question for ourselves is:
Can we afford to start up our business idea?
To answer this question, we’ll need to account for a bunch of elements that add up to less than $500:
- The cost of materials and supplies to make our items
- The cost of equipment needed to make the items
- The cost of working with seamstresses or production partners
- The cost to set up the business idea. Things like website hosting, product packaging and props for photography.
After adding up the costs, we also need to figure out our rough price points so that the products aren’t too expensive for our customers. This process looks like:
- Doing some research into what our competitors are selling their products for
- Setting a goal or optimal price that suits our product and audience
- Making sure our goal price point leaves us with at least 50% in profit after we take into account our cost of goods
Coming up with a product line
First, we had to come up with the exact product line that includes all the items we’ll be making and selling. Keep in mind, the hero of our business are the pattern designs – so we agreed that launching with 3 different patterns would be a good starting point. But this also meant that we now have 3 different versions of all our products. Now our product line is starting to look a bit intimidating, right?
Interested in seeing our full breakdown of products, costs and estimations? Take a look at our product line spreadsheet here.
Choosing our prices
Next, we did some research into competitors to come up with a rough price point for our products. Most of our prices are determined by our gut, so we didn’t spend too much time analyzing or testing them. We’re sure that our pricing will change closer to our shop launch, but for now, these prices are rough goals to aspire to when it comes to pricing our products. They’re similar to what other competitors are doing in our niche, but they’re not cheap enough to devalue the things we will be making.
Finding out how much it would cost to make our first product line
We quickly put together a list of, art printers, sticker printers, local fabric printers and production companies near us (Sydney). We start emailing a few people we found on Google and not too long after that we booked in a meeting to chat with Julian from The Textile Hub about the textiles side of our business.
We learnt an incredible amount of information that left us with a lot more clarity, and honestly, a lot more doubt after coming back to our idea.
We didn’t realize just how much goes into designing our own fabric and turning them into baby goods. Here’s some of our biggest takeaways that have helped us shape our costs.
There’s a lot of little moving parts involved that bump up the costs quickly
We’ll need to pay for the fabric itself, the printing of the fabric, fabric cutting (with a pattern supplied), accessories like zips and buttons as well as the labor that goes into making the items. When a sewing pattern requires more fabric cuts in complex shapes, the more our labor costs go up. It’s much cheaper to produce a square cushion versus a baby jumpsuit.
We need to consider how to use our materials as economically as possible.
Fabrics are about a yard and a half in width (130 to 150cm). If you make a cushion that’s 100 x 100cm, you’ve got 30% of the width of the fabric left, which is not very sustainable, and quite expensive. That meant that we had to reconsider what kind of products we could make and measure out our patterns so that they’d fit the entire width. We’ve added a boxy style floor cushion to our product line because it uses up more fabric cuts, as well as the option to make little coin purses out of our off-cut fabric.
We drew up our products and their sewing patterns in a sketchbook to see how much we can make per fabric roll.
Each metre of fabric is cheaper the more we produce.
We figured out quickly that getting a small batch isn’t cost effective and can cost as much as what we would sell each item for. On the other hand, if we meet minimum volume requirements when it comes to buying and printing on fabric in bulk, our initial start up costs go waaaaay up.
We wrote everything down how every single metre of fabric would be used in a bulk run so that we can pinpoint exactly how much it would cost once we go to print.
Here’s our final breakdown of products, RRP pricing, cost of goods and our estimated profits.
Let’s just say our estimated costs are already way above the goal of $500 already.
Talking to our customers
Once we had an idea I went away and starting chatting to our customers on the phone and using Typeform surveys.
Here’s why it’s so great to talk to your customers early on:
- You’re getting direct feedback to improve and refine your business idea
- You can start to rally early supporters so that you have a small group of people ready to buy once you launch your shop
- It’s a great way to keep yourself accountable and give you the extra kick up the butt to take your idea into motion. After all, you have these people waiting for you to deliver on your promise.
But there’s only so much information you can gather from a 5 minute poll. So I picked up the phone and reached out to some friends who are moms and asked them about their experience buying products for their children. I used Typeform as a way to write down notes during our conversations. We did 5 one-on-one phone calls that lasted between half an hour to two hours.
We chose to change around our questions a bit to make sure they were relevant to our audience of mothers. After the surveys, I threw together a customer persona board that we can keep coming back to it in the future. Our persona will help us when it comes to branding, marketing, product photography and even our choice of language for our product descriptions. You can download the template at the very end of this blog, too!
The customer survey results
Here’s what we found out from the customer validation sessions that challenged some of our original assumptions.
- Most mothers don’t buy handmade items because they are more expensive than mass produced products. If they choose to shop handmade it’s because they’re looking for a product that can’t be found anywhere else. Items like baby clothes are pretty easy to find chic and cheap, so it might be a better idea to not enter such a saturated market.
- A lot of mothers get gifted baby wear and nursery decor during their pregnancy and just after the child is born. Many of these items are things they personally wouldn’t buy but they treasured them because it’s so unique.
- There’s a general theme of spending before the baby is born. A lot of the moms we spoke to went through a nesting period of decorating a nursery or planning their baby shower. You know what that means? It resulted in a bunch of handmade purchases from online shops.
So I encourage you to talk to your customers, and actually talk to them. Listen to what they have to say and take everything into consideration. Your customers are telling you what they want so you just need to listen to them.
The best business validation is sales
We could spend months, even years, working on our business in sleuth-mode. We can perfect every little element and launch with the most beautiful business concept ever. But that also puts us at risk of creating something that people won’t buy.
In the beginning, the best kind of validation is not just about researching competitors, talking to your customers or running a poll on instagram.
The best kind of business validation is getting sales.
So even though we don’t know if people will love our designs or not, we can’t afford to spend months upon months perfecting our product. We also can’t afford to drop $5,000 in the beginning just to see if anyone will buy our products.
So we’re not going to do any of that.
Do one thing at a time
We’ll be starting with the heart of our business: the designs and digital patterns.
Initially, we’ll start with prints and wall decals as the core product of our business. Our plan is to test our designs on a medium that is easy and cheap to produce. With prints we can print them as our orders come through and pick them up from a local printer. For the wall decals, we can also get them printed quite cheaply and cut them out to shape before we pop them in the post.
We’ll actually be making money before we even spend a cent by selling prints and wall decals. Plus, our launch budget of $500 can be put into marketing efforts so we can generate sales quicker.
Because these are all paper goods, it also means shipping and packaging will be A LOT more cost effective.
Selling prints and decals means we can create more designs and see which ones are performing the best. Instead of relying on popularity polls, we’re letting our sales do the talking.
After that, we can take our most popular designs to the fabric printer. Our goal is to make sales, build up income from our sales and then use this money to work on our next products: textiles items. By selling just prints and decals, we’re validating that people want our designs in their homes.
Our next steps
- Ash will start coming up with a bunch of patterns that can be turned into prints and decals
- Get samples printed on high quality paper and damage-safe wall stickers
- Come up with a brand for our business
- Start selling our first few products
Comment below to let us know the tricks you used to validate your business in the comments below.
P.S If you want to get all the details of our week, check out our Instagram Highlights and watch Update #2: Validation at @handmadeto100k.