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How to Validate a Startup Idea15 Minute Read

In this post we show you how to validate a startup idea.

A startup idea worth pursuing solves a problem for a specific audience of people.

It’s vital that you fulfill a need of some sort, and fulfill a need for an audience large enough from which you can create a profitable business. 

This can’t be determined on-the-fly either.

You’ll have to put some real work and research into invalidating or validating your startup idea.

With this guide, you’ll be better equipped to validate or invalidate your idea or product and either prove or disprove its worthiness in the market. 

 

Vision for Your Startup

If you don’t already have a company vision, your vision should include hypotheses of your value proposition and unique selling proposition.

Having multiple hypotheses is important so you can test how your startup idea and assumptions for your startup hold against what your target customers think.

Ideally, founders are supposed to be experts in the field they want to launch a startup in.

It’s usually only when someone is an expert in a niche, should they be able to identify the gaps in that market which allow for the vision for a worthy startup idea to develop.

There’s a guy named Paul Graham who talks about the best startup ideas. You may or may not have heard of him.

Either way, Paul Graham is a co-founder of the first and arguably most successful startup accelerator, Y-Combinator.

In this famous quote below, Graham shares what he believes makes the best startup ideas.

Paul Graham Quote for MVP - the very best startup ideas have three things in common

The above quote is generally true.

Microsoft, Apple, Google, and Facebook disrupted the status quo and created something beyond what was available at the time.

These companies continued to innovate so they could stay ahead of the curve and compete with new and rising competitors.

They didn’t stay the same and your product will most likely not be the same in five years either.

However, in order for you to verify whether or not your startup idea has been already implemented, you need to do market research and a competitive analysis.

And, you need to find out who your target market is.

 

Who is Your Target Market?

You are going to want to know who your customers are, why they need your product/service, and if they are going to buy it.

However, there’s a lot more that goes into learning about your target market.

That’s why you should read and follow the guide: How to Build a Customer Profile and follow the guidelines on market research in the section below.

The above link on building a customer profile is a quick read and imperative for you to be able to validate your startup idea.

 

Market Research and Competitive Analysis

To win a war, you must know your enemy.  

In the business world, you must know your competitors to be successful.

How are you going to successfully build a multi-million or billion dollar company if you don’t?

Do an extensive analysis of your competition and the market.

Below, you’ll find out how.

Step 1) Start off by researching on the web to see whether your product or service has been implemented by someone else already.

This is one of the basic preliminary actions to perform before you build a startup.

You can go about this by researching keywords and phrases on Google that describe your idea.

Step 2) Keep a record of every website you visit that is similar or equal to your idea via Google sheets and the search terms you used to find them.

If you’ve signed up for our Startup Incubator Kit, then use the market research and competitive analysis template made available to you.

Step 3) Analyze the offerings and differences between them and your idea from within your spreadsheet.

Step 4) Set up Google news alerts to notify you when your competitors are mentioned in the press so you can “keep an eye on them.”

Step 5) If your idea turns out to be good, then you’ll want to check out your competitors monthly and keep track of any changes you see occur.

This will be regardless of whether or not you see a Google news alert.

Set up a monthly repeating calendar notification to help you stay on top of this task.

Step 6) Look up market statistics for your target market.

Find as much data as you can on:

  • The size of your target market (worldwide and in other countries/continents)
  • Information about your target customers such as demographics, interests, behaviors, and devices used. 

 

After Market Research

When you’re developing your concept, you have to ask yourself and answer a handful of important questions.

Answering the following questions will help solidify your idea and the framework of your startup, which are crucial.

The purpose of these questions are to identify if your hypothesis still has merit based on the market’s saturation or lack thereof.

However, after you figure that out, there’s still work to be done to validate or invalidate your startup idea.

 

Initial Questions to Answer:  

How is your product or service solving the needs of your target customers?

Has this been done before?

Are there competitors and have they dominated the market?

If yes, is there an opportunity for you to enter the market and offer something different that adds value for your target customers?

If no, then do not pursue your idea any further.

Once you’ve done that, seek out some of these target customers.

Get feedback on whether or not they’ll actually buy it if it’s made available to them, and how much they’d buy it for.  

These individuals could also become chief evangelists of yours if your product fits with their needs enough.

 

To Further Validate Your Startup Idea, You’ll Need to Find Out:

  • Who your target audience is and what their buyer persona/customer profile looks like
  • How large your target audience/market is (look up industry statistics)
  • If your proposed startup idea/solution is needed by your target audience, if they will buy it, and how much they’re willing to pay by interviewing target customers.
  • Where you can sell it
  • How you will get your solution built including costs to create it (see guide on how to build a minimum viable product)
  • How much you’ll sell the product(s) or services for
  • If the costs of the product and customer acquisition costs (CAC) outweigh the amount you can make from it. Make the best educated estimates you can.
  • If the idea is easily scalable so you can grow quickly (not restricted much by in-house personnel or by production time)

These bullets identify many of the topics you’ll need to address in your executive summary.

And, the executive summary is incredibly important to create so you can further validate whether or not your idea is good.

See this executive summary guide for more details.

 

Product-Market Fit and Why You Need It

The most successful startups achieve what’s called product-market fit.

This is when your product or service solves a problem that directly affects your target customers/audience in a way that transforms their old habit into a new one, using your product or service.

Yet a lot of startups end up in peril because they don’t do that.

According to a study of post-mortem startups by CB Insights, the top reason for startup failure is that there’s no market need for their product.

42% of respondents in the post-mortem study listed “no market need” as the top reason for their startup’s failure.

So it would make sense that if you want to build a successful startup, then you want to prevent yourself from making a product that the market doesn’t want.

What’s more, there are times when there’s a gap in the market, but the target audience doesn’t generally know about this gap until you show them and also show how you’re filling the gap.

You either create the need for the market or you directly solve a problem in their niche or market.

 

Case Study of Uber

Before Uber came out, there weren’t people marching on the streets asking for a taxi company like they created.

There was no movement on the internet of people demanding the service Uber provides.

Uber solved a problem and created the need at the same time.

As it spread, demand increased because of the convenience the service created for customers and because of the simplicity for almost anyone to become a driver.

It took three years (2010 – 2013) for Uber to start becoming a household name in cities and it wasn’t until its fourth year (2014) that it started to exponentially take off.

Uber achieved product-market fit when its popularity surged and a large portion of their customer-base became heavily reliant on their service for use in their daily lives.

Their product didn’t change, but its demand and supply did.

Uber Growth Over Time - Startup Idea Validation Case Study

 

How to Get Product-Market Fit

A startup attains product-market fit when approximately 40% of your customers will say that say that since they found your product/service, they can’t imagine living or working without it.

There are times when founders proverbially hit the nail on the head and get the idea right the first time without making any changes.

It’s amazing when that happens, but it doesn’t always happen immediately.

Don’t expect that to happen for you.

What’s more, to help you achieve product-market fit, you should read through our guide: How to Growth Hack a Startup.

It teaches you a scientific process used to help you find and eliminate bad strategies and keep the good ones.

Part of this process includes creating a minimum viable product to further test the waters of the market and validate your product or service.

See this guide on how to build a minimum viable product.

Moreover, in two sections, you’ll learn more about minimum viable products and their role in how to validating a startup idea.

How to validate a startup idea, achieving product-market fit

Product-Market Fit is Supported by Feedback Collection  

There are a number of ways to determine if you have product-market fit.

1) You can individually contact several dozen target users asking them for feedback on your idea. 

2) You can find target customers through social media channels, message boards, and forums.

3) You can find out if you have product-market fit by collecting user feedback from a survey on your landing page to identify if your product/service solves their need. The survey could look like:

  • Was this site what you expected when you visited?
  • On a scale of 1 – 10 where 10 is the best, how would you rate our startup idea
  • How likely are you to recommend our service/product to a friend if it matches their interests? 1 – 5 where 5 is the best.
  • Is this something you would buy if in the market?

4) You can create a landing page with the description of your idea and claim a minimum viable product or beta version is coming soon. Then you have a call to action to get people to sign up to your email list for updates.

If you had an overwhelmingly good response to this from your target market from your marketing efforts (hundreds of subscribers after marketing it for a few weeks), then it’s probable that you’ve found a worthy idea.

5) You can also invite target users to closed beta tests with promise of special 30% off discount or something similar in return for product feedback and ideas to strengthen your product or service.

It will give your site its first users and constant feedback on your product/service.

6) Use beta testing services to collect feedback. If you have the Startup Incubator Kit, you should refer to the list of beta testing websites provided for both computers and mobile apps.

 

Minimum Viable Product

Not much can take place of a minimum viable product (MVP).

A minimum viable product is basically a barebones version of your startup.  

It’s the cheapest workaround for your idea without building it out to its entirety.

An MVP is used so you can test the hypothesis of your business objective, unique selling proposition, and value proposition.

As mentioned earlier, sometimes you get lucky with your idea and your messaging and your startup is immediately aligned with your target customers and what they need.

That would mean your MVP launch was highly successful.

Most of the time, a minimum viable product has to be tweaked so it aligns as perfectly as possible with the needs of your target customers.

Your customers are the ultimate gauge on whether or not your product will be successful in the market.

You’ll be able to gauge your success qualitatively by talking with your users and quantitatively with analytics.

Analytically, you’ll be measuring things like signups, purchases, daily or monthly active users, virality,and  month over month (MoM) growth.

Based on this data, you will be able to truly validate or invalidate your startup idea.

For a more complete description of seven ways how to build an MVP, make sure you read the guide in the Startup Incubator Kit or at the following link: How to Build a Minimum Viable Product.

 

When You Get Undesirable Results

Sometimes your product or service just needs tweaking to achieve product-market fit and then it will match what your target customers want.

But these tweaks need to be based on feedback from potential users who are from your target market or from beta testers.

However, products or services which are not gaining traction (traffic to your site & signups) by target customers are not always bad products.

The approach by your marketer(s) may not be working or your website needs tweaking to position your product or service better.

A lot of the time, founders position the product on their websites by talking all about the product’s features.

The language is not customer-centric and can prevent you from reaching product-market fit.

Meaning, the text on the website isn’t worded in a way that tells the visitor how the product or service will help them and fulfill their need.

A product or service needs to be shown in a way that highlights the benefits that users will get from it.

It needs to compel desire for it.

And it needs to drive visitors and users to signup to your email list and/or make a purchase.

 

The Nature of Getting Investment in Your Startup Idea

A startup idea can be good, and at the same time, a bad fit for venture capitalists.

Your idea can fulfill a need within a micro-niche and you can create a profitable business from it.

However, it’s just not what venture capitalists are looking to invest in.

Why?

Because VC’s are generally looking to invest in a company that can be worth a minimum of $300 million down the line.

They want a 10x return on their investment.

However, if you still want/need investment and are under that threshold, angel investors can be a good route for you, assuming your idea works well in a smaller market.

Angel investors are also accessible via equity crowdfunding platforms.

Countless startup founders think that they need venture capital to succeed, and this is just untrue.

Startups can most certainly become successful without outside investment.

To be successful without outside investment takes patience and hard work among many other qualities and skills.

In the video below by David Rose, a serial venture capitalist and angel investor, it gives you much more insight into what pitches to VC’s should convey. 

What’s more, Rose goes through the vital qualities an entrepreneur should have to build a highly successful startup. 

Watch it at .75x speed because he talks really fast.

Before you go hunting down investors, validate your startup idea, get your MVP built, and build a user-base to show proof of concept.

Very rarely do investors ever invest in startup ideas that haven’t been validated.

 

Next Steps

If your idea holds up after all of the above, then get started on building it, immediately!

However, many people that want to launch startups can’t code.

Whether you can or can’t code, you’re going to need to write down how your product/service will work including the features and functions of your website.

If you can’t build it, then look for a programmer/developer who might co-found the startup with you.

Check out this article: How to Find, Vet, and Get Startup Co-Founders to help you find a developer or other co-founders.

Alternatively, you can hire a developer.

If you’re having someone else build it for you, then you should be serving the vendor or manufacturer non-disclosure agreements to protect your idea.

Which in that circumstance, you should check out the post we have in the Startup Incubator Kit regarding where to hire contractors and freelancers.

 

Conclusion

The prospect of a startup is so exciting, but failing with your startup is very depressing and damaging.

Before you even start building your product, always make sure you do your competitive analysis, market research, and target-user validation.

Don’t blindly build your startup without determining if it’s something your target market actually wants.

Save yourself from the heartache, headache, and empty bank account. 

You’re better off spending a month on idea validation than spending a year building it to find out that nobody cares about what you made.

It will save you time, money, stress, and relationships.

Moreover, the actions you take to validate your startup idea will be of great benefit to you if your idea holds up.

This is because you’ll also need all of the information you compile countless times in the future.

Be smart about your startup idea.

Make a product people will want. 

Better yet, make a product people need.

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