Last updated on February 21, 2021 by Hong Zhuang Reading Time:10 min
Table of Contents
Why do you want to validate your startup idea?
Just want to know if you have the right startup idea to launch a fundable product? Yes? Keep reading.
If you haven’t clearly defined the problem that your idea intends to solve, I highly recommend you read this blog first “How To Validate A Tech Startup Idea without Coding, Part 1” As Aaron Patzer, the founder of mint.com, once said,
You don’t start a company because you want to be an entrepreneur or the fame and glory that come along with it. You become an entrepreneur and you create a company to solve a real problem”
Aaron Patzer
What is idea validation?
It verifies your idea assumptions and helps you decide if your idea will create a fundable business.
Why do you need to conduct an idea validation?
- 95% of start-ups fail. The number one founders’ recommendation for preventing start-up failure is more research prior to launch.
- Your market is like a jungle. You need to know everything that can cripple or kill your business.
- You must understand your buyers’ problems. Research their pain points so you can aptly craft your product or service to appeal to them.
Convinced, yet?
According to Steve Blank, author of The Four Steps to the Epiphany, there are three types of markets:
- New market
- Niche market
- Existing market
Startup ideas creating new markets either create a new way of doing business (e.g., Uber) or disruptive technologies like Bitcoin.
Startup ideas with niche markets tweak existing products or business models to different customer segments (e.g., Etsy selling handmade goods, art, collectibles and antiques).
Startup ideas for existing markets reconfigure the existing products/services to make them better (e.g., Google search engine).
Given the differences in start-up types, you must know what your idea validation should cover. The table below provides a general guide.
| Market Validation | Customer Validation | Solution Validation | |
| Startup ideas creating new markets | Yes | Yes | No |
| Startup ideas focusing on niche markets | Yes | Yes | No |
| Start-up ideas for existing markets | Yes | Yes | Yes |
Why don’t start-up ideas creating new or niche markets do solution validation?
Their solutions cannot be validated before they educate their potential customers. Henry Ford, the Ford company’s founder, said,
If I had asked people what they wanted, they would have said faster horses.”
Henry Ford
How should you effectively validate your startup idea?
An effective validation should conduct a thorough study for above three validations. It helps you confidently decide if you will have a fundable product.
If that sounds foreign to you, don’t worry; That confusion is common to first-timers, and we’ll guide you through the validation process.
In this blog, we focus on market and customer validation because they are needed by all types of start-ups ideas.
This five-step process will help you conduct a thorough study of your market and potential customers.
How to Conduct Market and Customer Validation
- Minimize confirmation bias
- Market Validation
- Customer Validation
- Interpret the Validation data and Make a right decision
Step #1 Minimize Confirmation Bias
According to the psychological definition, confirmation bias is “the tendency to process information by looking for, or interpreting, information that is consistent with one’s existing beliefs.” It is oftentimes an unconscious act
Why do you need to minimize confirmation bias?
For customer validation, confirmation bias will prevent you from getting your potential customers’ feedback objectively. For example, you believe that manufactures should replace Microsoft Excel because it can’t provide live insights. When you talk to them, you will focus on the importance of live insights and ignore whether your potential customers want to resolve it.
This bias can make the solution validation fruitless. When gathering feedback, many tech founders focus on their technology supreme and neglect buyer’s concerns. For instance, you have a cloud migration product that can migrate data to any cloud computing platform. But your product will not be sold if it cannot address the common migration fear of losing control, security, privacy and data protection.
How do you overcome this bias?
Psychologists have suggested:
- Be aware that all your beliefs on your startup idea are assumptions.
- Look for instances to prove you are wrong.
- Listen objectively to understand what customers’ biggest challenge is.
- Ask general questions before asking questions related to the problem or solution.
Although you can never 100% eliminate the confirmation bias, bias awareness will help you listen to your customers more objectively and collect more accurate feedback.
Step #2 Market Validation
What is the purpose of your market validation?
- check if your market is good or bad?
- confirm if you have any competitors?
Why does market matters?
American entrepreneur and investor Marc Andreessen summarized that the key to startup success is market, saying,
When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.”
Marc Andreessen
Market in the startup world is like location in real estate. A good market is like a rising tide that lifts all boats, greatly increasing your chance of success.
what are characteristics of a good market?
- demand is much greater than supply.
- customers want your products urgently, and will not care about whether you have a perfect product (e.g., Zoom).
To save your time, we list pre-seed and seed investors’ favorite hot technologies and industries.
Technologies:
- Artificial intelligence
- Blockchain technology
- Energy storage
- DNA sequencing
- Robotics
- Cloud technology
Industries:
- Cyber security
- Wellness
- Healthcare
- CleanTech
- Finance
- Agriculture
- Insurance
- Education
- Productivity and collaboration for remote work
- pet industry
Why should you confirm if you have any competitors?
For startup ideas creating new or niche markets, you need to confirm your assumption that no competition is true.
For startup ideas for existing markets, you need to confirm your assumption that no other companies have solved your problem.
Where do you find your competitors?
- Google: competitor names, websites
- Owler.com: competitor revenues
- Crunchbase.com: possible startup competitors that recently got funded by pre-seed and seed investors
What info will you gather?
- Company info: name and revenue. A big company might solve your problem faster because of their abundant resources.
- Product info: features. To ensure that nobody else solved your problem.
- Targeted customers, location and demographics: to confirm that you are the only one serving your targeted markets.
How to store your competitor info?
Create a table with the following column names:
- company name
- company size
- product features
- targeted customer segments
- targeted customer locations.
How can you gather information?
- Go to www.google.com.
- Type your product keyword and be specific, such as: “ insurance claims fraud AI detection software.”
- Type all company names into your table.
- Go to https://www.owler.com/company to find company revenue one by one. Here is SAS company detail:
- Type revenue into your table.
- Go to each website of the companies in your table, find features, targeted customers and locations. You also search the FAQs or knowledge bases to see if your problem is listed and how it has been addressed. you may place a hold on your customer research in case that the company plans to fix your problem,.
- Goto https://www.crunchbase.com/discover/funding_rounds, and check pre-seed box, you will see a list companies, then click each company.
Step #3 Customer Validation
What is the purpose of customer validation?
- To understand your problem from your potential customers’ point of view.
- Confirm your assumption that customers suffer your problem. If not true, no one will buy your product or service.
- Check your assumption that your problem is urgent. If not true, no one will be willing to buy your product.
How to conduct your customer validation?
- create detailed customer persona and decide where to find them. The table below suggests places where you can find your potential customers. You can add other sources as needed.
| Customer Type | Where to find customers |
| Business-to-Consumer | Startup ideas creating new or niche markets: Facebook. Startup ideas for exiting markets: the competitors’ product community, Quora, Facebook. |
| Business-to-Business | Startup ideas creating new or niche markets: LinkedIn. Startup ideas for exiting markets: the competitors’ product community, LinkedIn. |
2. develop customer interview questions that will minimize confirmation bias. We have suggested some general and specific questions for your reference.
| General | All startup ideas | Validating your assumption that your product will address the biggest challenge for your potential customers. Yes, your assumption is true. | What are big challenges you face? OR What is your top priority for next 12 months? |
| Specific | Startup ideas for existing markets | Validating your assumption of product problems. | What are good and bad things about this existing product? |
Behavioral psychology studies have showed that when a product has been regularly used it becomes part of a user’s habit. As a result, it will be difficult for them to switch to a new product. For example, you might wish you had a better phone. But will you want to replace it with one from a different brand? Most likely not because of the hassle of switching a phone. Thus, you need to add some specific questions of the hassles and concerns of switching.
3. Conducting Your Customer Validation.
Two common mistakes you should avoid:
a. talking to family or friends. But it is wrong.
Why?
- Family or friends might not be your ideal customers.
- they don’t have business experience to judge the viability of your business.
- they are biased because they love you and don’t want to curb your enthusiasm.
My client came up with an idea when he saw his mother-in law use a daily diabetic test kit. He believed that it was expensive for people without health insurance to buy the kits. So, he decided to build an online business to sell cheap diabetic test kits. Her mother-in-law and wife agreed that it would be a lucrative business idea. But I found that uninsured patients have been buying the unused kits from Medicare recipients who received too many diabetic test kit.
b. You might have heard of other validation techniques such as conducting a survey or talking to potential customers.
Will they be reliable?
When we answer a question, we use a conscious mind and think about what we ought to say and do. But a Harvard study showed that 95% of buying decisions we make are from the unconscious mind. From a survey, a famous food company was convinced that old people liked food similar to baby food because of rich nutrition and goodness for their aging mouths. But it had to stop the product line a year later because old people didn’t want to feel old.
How to get your potential customers’ feedback using LinkedIn?
- How do you get a list of your potential customers?
- For the existing market, you can find the salespeople profiles for the existing product. Then identify their customer connections to the people who are likely the decision makers in those companies. Now you have a list.
- For a new or niche market, you can use LinkedIn Sales Navigator to identify potential companies, and then loop through one by one to find decision makers. Now you have a list.
- How do get feedback?
- To confirm your assumption of urgent problem. You can send cold emails to decision makers and ask them for the insights for your market research report. Your assumption is confirmed only if your problem is on their top big challenge list.
For Business-to-Customer companies:
- If you haven’t joined a related Facebook group, joining one will help you understand your potential customers’ needs.
- Startup ideas for existing markets can post product specific questions on Quora to check if the answers agree with your assumptions of the product problems and urgency.
Step #4 Interpret the Insightful Data and Make a Right Decision
Now you know your market and customer feedback. What data tells you
Market condition | Competitors | Customer problem review | worth doing an MVP | |
| Start-up ideas creating markets or niche markets | Good | No | Yes | Yes |
| Start-up ideas creating markets or niche markets | Bad | No | No | Your company will have a tough time attracting investors |
| Startup ideas for existing markets | Good | A few | Yes | Wait until you finish your solution validation |
| Startup ideas for existing markets | Bad | A few or Many | Yes or No | Your company will have a tough time engaging customers and attracting investors |
Conclusion
We hope this blog helps you validate your idea easier, and most importantly, save you time and effort to continue your solution validation if the validation result is not what you expected.
We love to hear your comments and other validation methods so that we can help more new entrepreneurs succeed as the 5%.
In the next blog, we will discuss new ways to conduct a solution validation. Stay tuned!