“Hey I have a great startup idea that can grow into a unicorn!” Chances are, you’ve said something like this many times in your lifetime. But chances are equally good that you’re afraid of investing lots of time and money into something that might not succeed. In order to be sure that your idea is worth the time and effort, you need to know how to validate a startup idea.
Fortunately, I happen to be a person with experience in early-stage startups, and my mission is to help you navigate through this process and make sure you get the most out of your validation efforts while avoiding its common pitfalls.
What is Market Validation?
Before you invest a significant amount of time and resources into any product or startup idea, you want to make sure that people actually want it.
Why? Because 35% of all startup failures crashed and burned because they built something that the market does not need. To avoid this, you will need to test your idea against the market first with a process that entrepreneurs love to call “Market Validation.”
There are many ways out there to validate your idea, but I want to focus on the market validation process that worked best for my products.
Our idea validation process started by writing down everything we knew about our product idea and grouping that information into four key areas that we needed to validate:
- Problem: If our target audience actually had the pain we wanted to solve.
- Solution: If the product we offer solved the customer’s problem.
- Market: If there were enough people in our target market or demographic with that problem.
- Willingness to pay: If they would pay us to solve it for them.
Let me illustrate this on a hypothetical example of a Los Angeles area tour guide website.
As soon as we had this written down, we would then proceed with testing each of these areas by using some of the common lean tactics for validating ideas.
Let me list four of the tactics that my team and I have used in the past (and I would recommend that you use, too!).
4 Paths to Validate Startup Ideas
The validation phase is when the majority of ideas either fail or pivot. You might end up validating multiple ideas before finding the one worth pursuing and has the potential to become a great new business.
Testing multiple ideas might seem to be expensive and time-consuming. But, luckily, the paths that we have for you below are quite quick and cheap to implement.
Path #1: Customer Development (a.k.a. User Interviews)
Do you want to know the fastest way to learn what your users want? Get out of the building and talk to them!
Doing user interviews is a must for any entrepreneur or product manager, as they require the least amount of effort among all the processes listed here while getting you loads of valuable insights about the needs, interests, and pain points of your users.
To get your user interview process going, here’s what you can do:
1. Make a list of questions.
Their answers to these questions should help you validate or dismiss your ideas. Therefore, you need to base your questions on the list of hypotheses you made before.
In the hypothetical example above, in order to validate that the price you ask is at the right level, you can ask businesses how much they spend on ads (e.g. search engine, forum, Facebook ads, etc.) to attract tourists and what is the conversion rate and other metrics for them. You will then compare their answers with what you offer.
2. Schedule meetings with prospective users.
There are lots of ways to do this.
You can try finding them on social media and sending a request for a Zoom call. If there are trade shows where many of your users gather (e.g. a tourism conference, in our hypothetical case), consider going there and talking to them face-to-face. Finally, if you have the budget, you can use specialized tools such as Respondent.io to recruit interviewees.
3. Talk to them and analyze your findings.
Essentially, you will be asking the questions you have prepared and writing down the answers of your interviewees. Doing your interviews right is a topic for another day. For starters, I can recommend you to read “Talking to Humans” by Giff Constable.
Regarding the analysis of findings, I would recommend grouping the answers of your interviewees by the hypotheses they are trying to test and marking each hypothesis as “validated” or “invalidated” based on these answers.
Here’s what it would look like in our LA tour guide website example.
Be careful with jumping to conclusions at this phase. Validating your hypotheses with user interviews is not enough. Sometimes people say that they will like or buy something but don’t do it in real life.
Therefore, you should use other validation paths along with interviews too.
Path #2: Pre-Sales
There is no better validation of your product than people paying for it!
The strategy of pre-sales is about trying to sell your products before you have built them. I think the benefits of this process are clear (you get validation plus early cash to start new product development), so let us talk about the implementation side of it.
Some of the ways of organizing pre-sales include:
- Setting up a landing page that lists all the benefits of your product and connecting the payment system to it so your visitors can pre-order your product. There are several website builders out there with good-looking templates that can handle this task for you with ease.
- Doing old-school cold emails or cold calls (e.g. via LinkedIn) and selling your products that way.
- Ifyou have the budget, you can also take part in trade shows and try winning some paying customers there.
There is also the option of running a crowdfunding campaign on Kickstarter or Indiegogo. Below is an example of such an idea (an “invalidated” one, according to the campaign results).
Path #3: Waitlists
This approach is similar to pre-sales in terms of trying to promote something you have not built yet. The only difference is that, with waitlists, you gather the contact details of potential customers instead of selling them your product.
To build waitlists, you can use the same methods that we listed for organizing pre-sales—making a landing page, doing cold calls, etc.
Here is what a typical waitlist landing page looks like.
This particular SaaS product is an AI tool for recording your workday and letting you search through it. As we can see, their main CTA is to sign up for early access and get on their waitlist.
Although gathering a waitlist is a weaker indicator for a valid startup idea compared to pre-sales, its main benefit is that you do not have any obligations toward your users and you can stop development at any point.
Path #4: Wizard of Oz
This approach is about imitating the functionality of your products using visual prototypes.
During a Wizard of Oz test, your users will think that they are using a finished product, while, in reality, it will be humans doing the work manually.
To illustrate this method with an example, imagine that you’re building an AI chatbot that can predict your mental health by asking you questions. As building such an AI model would be expensive and risky for an unvalidated startup idea, you can instead ask real doctors to chat with the target customers while telling them that it is your AI talking to them.
To sum up, these four paths will help you get a cheap and early idea validation and avoid the risk of building something that the market might not want to buy. But they are not perfect and some of them have shortcomings, such as the so-called “Niceness Gap.”
What Is the “Niceness Gap”?
Have you ever faced a situation when people told you they love your product or feature idea, but when you launched it, these same people never used it?
If yes, no worries, all of us have had this moment at least once during our careers.
The product world calls this phenomenon the “Niceness Gap,” and it is something that can hurt your market validation efforts if you do not mitigate it. (And trust me, you will not experience this niceness gap once you've started pitching investors.)
The niceness gap can be large or small depending on the validation path you use. If we order our four validation paths by their ability to create a niceness gap, here is what we will get:
- User Interviews get you the biggest niceness gap, as many polite people will express their desires to buy your product without committing to it.
- Waitlists have a slightly elevated niceness gap, as users make a slight commitment by giving you their contact information.
- Wizard of Oz is able to mitigate part of the niceness gap by showing your users what the product looks and feels like.
- Pre-sales is the safest option in this regard. There is nearly no niceness gap as your users have already bought your product.
Although Wizard of Oz and pre-sales are the better options for avoiding the niceness gap, they are also the more resource-demanding options.
Therefore, the best practice is to do a sequence of two or more validation paths, like starting with customer development and moving on to pre-sales when you get positive signals from your interviews.
Now that we have the paths covered for you, let us put the icing on the cake and share a couple of tips that you will find handy when validating your next startup idea.
9 Tips for Testing Your Startup Idea
Validating your startup idea might come with pitfalls. But, luckily, many of us have already crossed that path and can share some tips from our experiences to help you avoid some of the most common issues you’re likely to encounter.
What You Have is Mostly Assumptions.
Your ideas might make a lot of sense and you might be confident in their success, but it does not necessarily mean that they will work out. Success in the startup world depends on a lot of factors. Therefore, always make sure that you validate all elements of your idea.
Focus On Testing Your Assumptions.
Aiming at growth or revenue is risky in the beginning as accomplishing them will be resource-intensive and you are not sure yet if the market will buy your product. Instead, keep your focus on validating your idea first.
Take Advantage of Publicly-Available or Paid Data
User interviews are not the only way to gather valuable information that will help with your validations. You can also do market research by taking advantage of public data sources such as Data.org and Statista to get validations on some of your early assumptions (e.g. if there are enough iOS users in the country that you want to target with your iPhone app).
When Interviewees Use an Alternative Solution, Ask for Feedback.
Sometimes the users you interview will tell you that they are using your competitor’s product to solve their pain. These users can become a treasure trove of valuable information for you, as they can tell both what they hate and what they love about your competitor.
Always Ask “Why?”
When doing user interviews, always make sure you get to the core reason your users behave in a specific way. For instance, if they tell you that they did not like the product of your competitor, ask them what the reason was. Their answer will give you a clue on what to manage in your product better than your competitor and get an advantage over them.
Bring a Wingman to the Interview
Having a colleague join you during the interview will help you get better insights from it. They will be able to take notes, letting you focus on the talk itself, as well as ask questions that you might have missed.
Become a User of Your Competitor.
One of the common ways of researching your competitors is to sign up for their products. This way, you are able to use what they have built on a daily basis and personally experience their advantages and downsides.
Be Happy When You Get Bad News.
Did your validation efforts disprove your assumptions? That is wonderful news for you as you have just dodged a bullet and avoided the main reason most startups fail. You can use these new learnings to formulate new assumptions and modify or pivot your business idea.
Don’t Be Afraid of Sharing Your Ideas With Others.
No, others won’t steal and make it quicker than you. The success of a startup is in its proper execution and if you have the right people and know-how, nobody can copy your idea and build it faster than your team.
Sharing your ideas with others, especially successful entrepreneurs, will instead help you and your co-founders get lots of valuable feedback and advice.
Now That I Have Passed Validation With Flying Colors, What’s Next?
After getting validation on your idea, your next steps would be to build your product’s MVP, iterate constantly, and start growing your user base.
Of course, this is easier said than done. So here are a couple of great educational materials on post-validation activities by some of the most prominent folks in product management and entrepreneurship:
- For managing the lifecycle of your product during the phases of building a minimum viable product and iterating it, check out Lean Startup.
- For helping your development teams get the most out of their time and efforts, read about Agile Product Management.
- To reach your PMF, consult the Product-Market Fit guide.
- To make sure that your product is your primary growth engine, learn about Product-Led Growth.
There is much more to successfully building and growing a startup than covering these four areas, but these are the ones that you will find the most useful at the beginning of your startup journey.
Now Back To You
Your idea might be awesome, but you might not have the necessary traction out there in the wild to start building it. Thus, getting market validation is the single most important activity for you and your team in the very beginning (especially for first-time startup founders).
The result of your validation would be either a “green light” to go forward, a “yellow light” to make changes in your idea, or a “red light” to drop it and think of something else.
Regarding the ideas that we have dropped, I wonder if there were any that sound dumb or funny now? I had an idea of replicating and improving the Google Ads algorithm to outbid their ads when I was a product manager intern.
What was your extravagant idea? You can comment below.
Finally, If you liked this guide and want to explore more product management resources, we are currently revamping our newsletter to deliver even more insights and tool recommendations—so don’t forget to subscribe!