Validating the demand for your product is more important than ANYTHING. More important than features, your team, design, pricing, etc.
The theory of lean startup works around this very principle of validating your idea for as little as possible. Without market validation, you will have a product or service that no one is willing to pay for. You’ll burn a lot of time, energy and cash and you’ll end up stressed, probably depressed and burned out. And that hurts — a lot.
OK so let’s get to how exactly we can do this. Before you invest thousands of dollars of your own money or raise $1 or even before you hire anyone.
Step 1— Build a list of prospects
So how do you validate that your problem is actually a top 3 problem? You need to start by picturing your ideal customer sets.
For example, if you are a building a sales platform for lead generation then your ideal customer should look something like this:
Company size: 100–500 people
Role: Sales Manager or Marketing Director
Industry: Retail, Technology & Hospitality
You then want to come up with a list of prospects who might be interested in speaking to you. We strongly recommend you stay away from biased family and friends or even people from the same field as you. There was a very interesting lesson to learn from the TV show “Silicon Valley” where the CEO of Pied Piper built the greatest middle out compression system of all time. The only mistake he made was to send the best testing to only all the engineering colleagues. They gave overwhelmingly positive feedback but upon launch, the public never adapted the platform.
What he did not realize is that the beta feedback he received was from engineers and the complexity of the platform was easy for them to comprehend but the public could not understand it. Keep your prospects list very relevant and wide as possible so you get an honest feedback.
Some of the way to find prospects:
• Research on LinkedIn and find your target customers there
• Attend meetup groups
• Google a list of such companies and find leads to connect with the right person in the company
• Find the leads through your Facebook connections
• Ask family and friends if they know someone in this space and might be able to arrange for a meeting
Make sure to find as many leads as you possibly can. It is more important to work on the right thing than working hard. Here is an email template you can use:
We are hoping to speak to Sales Managers and Marketing Directors who are experiencing [problem]. We would just like to understand the problem for our research and we do not have anything to sell. Would they/you be available for a quick call tomorrow or the day after?
A few pointers here:
Be direct and relevant — don’t waste their time
Include a specific day and time for the call — avoids back and forth emails
Know what you have to ask and think of alternate questions depending on how the call goes. The entire outcome of the call is to validate:
They experience the problem
How painful it is for them (i.e. is it a top 3 problem?)
How are they dealing with it? If they are
Would they pay if a solution existed?
List feedback from all your calls in a Google spreadsheet, Evernote, Trello or any other software. After 20 or so calls you’ll start to get a sense of whether this is a big problem or just a “nice to have it fixed”.
Step 2— Properly determine existing solutions
One thing you’ll have after your 20+ calls is an idea of how they currently solve the problem. They might get into details of specific products or service or even describe the process (outsourcing).
It’s important to dig deep on the call. Don’t ask “what do you use to solve that problem today?” because they might not use a specific product.
Instead, ask “so how do you deal with the problem now?”. They might use a product, or they might hack together a bunch of tools or processes to solve the problem.
You want to solve a problem with competitors trying to solve the same problem. Most times that verifies you have a market large enough and the problem is a top 3 problem — assuming at least one of the existing competitors is doing well (has traction, has raised money, has been around for a few years and is growing, etc.).
Please note that there could be various ways to determine the existing solutions as there could be various marketplaces where products/services similar to yours are sold. For example, if you are building a mobile app then you should do thorough research of the app stores (Google Play and Apple iTunes Stores). If you are building a product for manufacturing then you should be looking at hardware stores like Bunnings, Home Centre, etc.
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.
Step 3— Look for pain in existing solutions
You want to find the issue in the current solution. It may be the customer service or the user friendliness or the procedure itself. There are a variety of way for you to differentiate from the competitors.
If they use a product, what is there to not like? Are there missing features? Are there any features that could make the existing solution better? You never want to launch a “we too” product.
It’s OK for features to be similar to competition, but you cannot have the same product. There should be at least 20% of your product or service that’s better — not different for the sake of it, but strikingly better.
This is what will make potential customers choose your product or service over that of your competitor. And this is what you can use to promote your product after launch.
If they don’t use a product or service to solve the problem, look for their existing solution. Is it a combination of procedures? Emails, outsourcing, spreadsheets, for example? Is it a manual process where they employ a person full time to take care of this? Search for the pain (time/complexity/cost/frustration) in the process.
OK, so by now you have:
A clearly explainable problem
That is a problem to at least 20 people you’ve spoken to
There is an opportunity to solve that problem in a better way (the 20% better over competitors)
And you can clearly explain the difference
Step 4— Verify there’s a budget for a solution
If you have competition solving the problem, you can look at their statistics. Are they growing quick? Do they have enough customers? Are they paid customers? Have they raised money? Look for the size of the team. Look for clues of growth.
In most cases, it’s a good size where they are growing fast and having paying customers. This means that there is a class of people who are willing to pay for your product or services.
Once this is done, you want to set a follow up with all of your previous leads to discuss the pricing. Remember, you are just trying to understand the pricing vulnerability at this stage so go all out and try different pricing solutions for different leads. Say “$15/user/month” for basic plan or $150 flat fee per year. You should be able to judge the need for your product and the effectiveness of your pricing strategy based on their initial reaction.
You would start by recapping the problem and then going through your solution to the problem (spend extra time about why your product will make their lives better compared to the rest).
Now you get straight to the point:
“If we were to build a product that will solve this problem in a way we discussed, what would be your views on pricing?”
You’ll get one of 3 responses:
We are not willing to pay for it. We thought this is free of cost.
We like it but we are not sure at this stage — non-committal, if you like.
We can pay x amount.
If they say they are not willing to pay or are unsure, find out why.
Why won’t they pay? Are they not allowed to make purchasing decision without budget approvals? Are they on a long term contract with a company for their existing solution? Are they hesitant about quality? Do they not like giving business to startups? Is the problem not big enough for them? Are they just moody on the day?
After talking to at least 20 prospects on the phone about pricing, you want 10 people or more to agree to paying for your product. Not to a specific price, but yes to paying for your solution when it’s ready.
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.
Step 5 — Use those prospects to define your roadmap
Now if you are solving a top 3 problem that enough people will pay for, you have a prospective lead of 10/20/30/50 people.
If you decide to proceed with your startup (congratulations!) you now have a built-in audience you can talk to about features, wireframes, design, etc as you build out your product.
Eventually some of them might even become your first paying customers.
You have what we call a feedback loop. You have literally spent no money to do this.
Check out the really cool video by Jason Nazar on 10 strategies for startup success.