Steps to Validate your startup idea before you spend any $…even $1….


Author: Saloni Kapoor

“Don’t worry about failure; you only have to be right once.” — Drew Houston, co-founder and CEO of Dropbox

You’ve been working on a cool idea for the past few months. You have made significant progress in building your first prototype.

However, you are still not sure of whether people will buy your product.

The hard truth is, you can spend years building, but when you launch, your product still may not find any users. Many startups have slaved away for months, if not years, on their idea, only to gain very little traction.

Validating the demand for your product is more important than ANYTHING.

More important than features, your team, design, pricing, etc.

Without market validation you’ll have a product that no one will pay for…. You’ll burn a lot of time, energy and money and you’ll end up stressed, probably depressed and definitely burned out….

I know that hurts — a lot….?

OK so let’s get to it — here’s how to validate your startup idea before you launch. Before you invest or raise any money…..

Before you hire anyone…….

  1. Note down the problem, not a solution

You want to be able to clearly understand a problem that you or others experience regularly.

Notice that you’re only focused on the problem here, not any specific solution …

You want to be able to write down your problem in a simple single statement.
A few examples as below:

  • It’s impossible to follow up with customers once they leave a restaurant…
  • It is impossible to know whether a customer will buy a product or not
  • It is difficult to understand ..on How to Sell Insurance and How to Determine a Target market.
  • It’s hard to determine which customers will switch before they actually do
  • It’s too hard to track the growth..and converse with customer

You get the idea …Right? — keep it simple and improve the problem until you can come up with one sentence and a simple one….

2. Determine if it’s a First-tier problem or not.. First Tier Means IMPORTANT …

It’s easy to identify problems — they’re everywhere and there are many. What you’re really looking for is what I call a “First-tier problem” — which means the problem you’re looking to solve is one of the top 3 problems your potential customers are facing ….

Let’s say your target buyer is the owner of a Restaurant. Their top 3 problems might look something like this:

  1. Generate more & more sales
  2. Get your Customer Come back every time…
  3. Improve the overall experience as Per Customer Preference

If you’re planning to launch a marketing tool, you can see that’s NOT a tier 1 (top 3) problem for the typical Owner of a Restaurant — it may be one of the problem but not the top three…

They’ll be so focused on solving their first 3 problems that you’ll never get a look in — EVEN if you have the best product, EVEN if you have the best support,and even the best team etc….

They simply won’t have time/budget for you if you’re not solving a problem that’s top of mind for them — a First tier problem.

This is probably the hardest lesson to learn and the one most startup founders ignore — “But my product is so great, once they use it…eventually they’ll sign up for SURE…”.

So how do you validate that your problem is actually a First-tier problem?
First, you need to know who might typically buy your product. You want to build a basic profile, like this:

  • Company size: 10–50 people
  • Location: USA
  • Industry Type : Food & Beverage, Hospitality

You then want to come up with a list of 15–50 prospects who meet these criteria.
The easiest way to get that list is through LinkedIn and research. Then just connect with all of the prospects you find with a message like this:

Hello @Name ,

We’re hoping to spend 10 minutes on the phone with [designation] who are experiencing [problem]. We’re doing research and have nothing to sell.

Would you be available for a short call tomorrow at 4 pm?

Waiting to hear you back…

A few points here:

  • Be short and to the point — don’t waste their time..Time is Money…
  • Include a specific day and time when you want to talk — avoid frequent emails.
  • Be Flexible as per their Timing…
  • Reach out to 2x the number of prospects you actually want to talk to. So if you want to talk to 15, then message 30. Most won’t reply and some won’t be interested, etc.

Excellent. Now you’ve got at least 15 people ready to chat who are experiencing the problem you’ve identified.

(I realize I’ve dramatically simplified this step — but you’re an entrepreneur a hustler , so be creative and put in some creativity. If you don’t like talking to people on the phone then maybe this startup thing isn’t for you…)

Before your first call, you want to come up with about 10 questions to ask them. The entire outcome of the call is to validate:

  1. They experience the problem
  2. How painful it is for them (i.e. is it a First-tier problem?)
  3. How they solve the problem now..What Alternative are they using as of now…
  4. Will they Consider using it as a Beta version & provide a review for your team…
  5. Would they signup for a solution to the problem

Collect the answers from all of your calls in a document… After 5 or so calls you’ll start to get a sense of whether this is actually a big problem or just a “nice to have one”.

Never, ever build a startup that solves a “nice-to-have-fixed” problem. I bet People will use your product but never pay for it…

3) Properly determine existing solutions in the market

One thing you’ll have after your 15+ calls is an idea of how they currently solve the problem.

It’s really important to drill in here on the call. Don’t ask “which product do you use to solve that problem today?” because they might not use a specific product….

Instead, ask “so how do you handle that today?” and just listen….You Might get a catch here..

They might use a product or they might hack together a bunch of tools or processes to solve the problem or even some may leave the problem as it is….

Generally speaking, you want to solve a problem where there are already other companies trying to solve that problem too.

Most times that verifies you have a large enough market with a first tier problem — assuming at least one of the existing competitors is doing well …

Be careful if there are genuinely no companies trying to solve the same problem as you. Most times that means you’ve got no market or your problem is too specific to too few people.

Specificity is good, but you need to counter-balance that with a large enough market.

4) Look for pain in existing solutions

Whether they use an existing product or not, you really want to identify the pain in the current process of solving the problem.

If they use a product, what do they dislike about it? What is it missing? What do they need in that product to make their job easier/faster/prettier ?

It’s OK to have feature parity as a baseline, but that should only be 80% of your product. There should be at least 20% that’s better — not different just to be different, but distinctly better…because it counts…

A clear benefit potential customers can see and understand when comparing your product to others. And one that you can position around after you launch.

If they don’t use a product to solve the problem, look at what they do use. Is it a combination of email, outsourcing, and Google Drive, for example? Is it a manual process they employ 1–2 people full time to take care of?

Search for the pain (time/complexity/cost/frustration) in that process…because thats where the opportunity lies…

Keep digging in until you can recite it back to them on the call.

OK, so just to recap you now have:

  • A clearly defined problem
  • That is being experienced by at least 15 people you’ve spoken to
  • Where there is an opportunity to solve that problem in a better/easier/cheaper way …. keeping the 20% better version that we spoke about…
  • And you can clearly articulate that 20% — which is why your solution will be better for them than existing products or processes

5) Verify there’s a budget for a solution…

If you have existing competitors aiming to solve the same problem, you can look at their traction just to get an idea ….Are they growing fast? Do they have a sufficient volume of customers? Are they (or have they) raising money? Are they hiring? Look for clues of growth…..this Will Give a an idea…

In most (not all) cases, that’s a great sign they not only have a good product but are generating revenue and finding paying customers. Which means someone has a budget allocated for products like theirs (and yours).

You also want to set a second to follow up with at least 10 of the prospects you spoke with on the phone and get their views on pricing.

Not specific, “$6/user/month” pricing, but their initial reaction to paying for a solution to the product they told you they were experiencing.

You would start by recapping the problem and explaining your solution to them.

Next, you just come right out with it:

“So if we build something that solved the problem in a way that I just explained, what would your thoughts be on pricing?”

You’ll get one of three responses:

  1. They’ll come right out and say they won’t pay for it
  2. They’ll be somewhere in the middle — non-committal, if you like
  3. They’ll say they would pay for it

If they tell you they won’t pay for it or are somewhere in the middle, dig in a bit.

Why won’t they pay? Would someone else in the company? Is it budget? Are they on a 100-year contract with a biggie for their existing solution?

Do they just not like startups? Is the problem not really a first tier for them? Is it because it’s Friday and that’s their moody day??

After talking to at least 8-10 prospects on the phone about pricing, you want 5 or more to say yes to pricing. Not to a specific price, but yes to actually paying for your solution when it’s ready…. Price is secondary …but being Ready to pay is very very important …

The huge caveat here is that having someone tell you they will pay for your product in no way, shape or form means they will. But it’s a good start and I guarantee it will stop you in your tracks for at least 50% of your ideas — if you have more than one.

6) Use those prospects to define your roadmap

Assuming you solve a tier 1 problem that enough people will pay for, you now have a somewhat captive audience of 10/20/30 people.

If you decide to proceed with your startup (congratulations!) you now have a built-in audience you can talk to about features, design, etc as you build out your product…You got the Early Adopters…

Eventually, some of them might even become your first paying customers.

You have what I call a feedback loop….
And the best part? You’ve spent literally nothing to get to this point…

Excellent! ?

Where do you go from here…

From here you can proceed where most startup founders START — actually planning out the product and building your MVP…

That’s a whole post in itself, so I won’t talk about that now, but hopefully you can see that by taking a simple, step-by-step approach, you can quickly determine whether your idea has a chance to become a revenue-generating company — well before you write a line of code, hire a designer or raise money.

With the low barriers to entry with technology (and even lower cost), building a product in 2018 is easy.

But a product does not make a company.

A company is comprised of customers who experience a problem that they will pay you to solve.

Don’t be motivated by the 0.00000000000001% chance you can build the next Apple or Google. You probably can’t and you probably won’t — and that’s OK…..

My preference has always been to solve problems for the Needy..….

Best of Luck !!! ?