How to validate a Startup Idea

So you’ve come up with a business idea? Now, how do you validate your startup idea? Is it just a checklist you need to mark off with a live product demonstration? Well, the answer is no.

It consists of internalizing all the key factors to help you rapidly evaluate each and every idea you have. You don’t want to waste precious time on an idea that won’t bear any fruit or bring you money for that matter.

Validating the demand for your product is everything.

More than your team, the features, the design or pricing, market validation is what will validate your startup idea. Without market validation, you’ll have a product that no one is ready to pay for. You’ll end up wasting a lot of resources, time and money on a lost cause.

To help you create building blocks, we have compiled a few steps to invalidate or validate your startup idea and prove its worth in the market. And if it’s a good idea, you’re already making progress!

What makes a good startup idea?

Business Plan (a flow chart)

Your startup needs to fulfill a requirement or solve a problem for a group of specific people. You startup idea needs to fulfill a market demand, and you need to know how to fill it. To validate a startup idea, it needs to be cost-effective so the startup can grow without much constraints.

Usually, if you’re an expert in the niche, you should be able to identify and fill all the gaps within your startup idea. However, if you’re unable to find a fix to your problem, you’ll have a lot of trouble validating your startup idea.

Here are a few steps to validate your startup idea before you launch:

1. Jot down your problem, not a specific solution

Focus on the problem first. You need to properly articulate the problem without any specific solution. The solution comes later on. You need to be able to write your problem in a single statement.

Problem and Solution

For example,

  • It is difficult to follow up with customers once they leave the hotel.
  • It’s hard to create professional-style designs for social media.

Once you learn how to keep the first step basic, and are able to articulate it in one sentence – you’ll have completed the first step to validate your startup idea.

2. Is it a Tier 1 problem?

It isn’t that difficult to find and identify problems. What’s worthy to look for is a ‘Tier 1 problem’. This simply means if it is one of the top 3 problems your potential customers are experiencing.

Sign board.

For instance, if your potential customer is a CEO of a small or medium-sized business, their top 5 problems would be:

  1. Generating more sales
  2. Running marketing processes efficiently
  3. Outsource payroll and benefits
  4. Increase their product selection
  5. Improve social media marketing and invest in Facebook ads

If you’re planning to launch a social media marketing tool, you’ll see that it’s not a ‘Tier 1 problem,’ i.e. it is not in the top 3 problems.

flow tree

They’ll be more focused in solving the top 3 problems for you to get a word in. This shall be the case even if you have BEST PRODUCT or BEST SUPPORT. They’ll simply lack the time and budget for any other problems than the Tier 1 problems.

This is one of the hardest lessons to learn as a startup founder. A huge number of startups ignore this lesson because they think, “But my product is so amazing,” or “They’ll sign up if they use it once.” You’re miles away from a purchase if you’re not on top of mind. Solving Tier 1 problems is the foundation to validate your startup idea.

3. Determine existing solutions to validate your startup idea

After your 20+ calls with prospects, you’ll have an idea how your potential customers currently solve their problem. They may discuss specific company processes, or outsourcing services.

green board with arrows denoting old way and new way

Try asking, ‘What solutions do you use to solve the problem?’ rather than ‘Which product do you use to solve the problem?’ They may be using a product or hacking together a bunch of processes to solve the problem. Generally speaking, you want to enter a niche where there are already a few competitors, with at least one competitor doing well. At least one competitor must be gaining traction, i.e. getting sales and has been around for a few years and is growing.

Be vigilant if there are no competitors solving the same problem. Most of the time, this means you’ve got no market or your problem is too specific for a handful of people. This can hinder your process to validate your startup idea. Specificity is great, but you need a large enough target market as a counter-part.

Learn buyer personas or customer personas to match your target audience.

4. Look for limitations in existing solutions

Whether they’re using a specific product or not, your goal is to find a problem in the current process. If they’re using a product, what is missing? What are they looking for? What will make their process even faster? It’s okay to have similar features as a baseline, but that should make up only 80% of your product. The other 20% should be better, not just different for the sake of it – but distinctively, better.

Usually, it should be a clear benefit that your customers see when comparing the products. And one that you can position around once launched.

If they don’t use a product, ask them about their process. For example, do they use a combination of email, outsourcing a Dropbox? Are they employing two people just to complete these processes? Search for the pain, i.e. time, constraints, efforts, costs in that process.

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

5. Allocate a budget for a Solution

Take a look at your existing competitors. What is their process for growth? Are they raising funds? Do they have a sufficient customer-base? Are they currently hiring?

graph covid 19

In most cases, this means they have a good product, are generating revenue and have a good customer-base. Which in turn means, they have a budget allocated for a product like theirs, and yours.

Gain a second view on pricing by talking to at least 10 of your prospects. Not just $/month pricing but their initial reaction to paying for the product or solution. Start by recapping their problem, then explain your solution to them. Also spend extra time talking about the 20% unique offering in your product to make yourself stand apart.

Ask them their thoughts on pricing if you built something that solved their problem in a specific way.

Chances are, you’ll get one of the following responses.

  1. They’ll immediately decline.
  2. They’d be non-committal, or somewhere in between.
  3. They’ll say they would pay for it.

If they decline paying or are somewhere in the middle for it, dig more into their thoughts. Is it a budgetary issue? Are they on contract with someone? Is the problem really not Tier 1 for them? Could be a Monday and they’re having mood swings.

After talking to at least 10 prospects, you need 5 or more potential customers to say yes to paying. Not the exact amount of the product but just their initial reaction to the product. And whether they’d pay or not.

Photo of Two People Shakehands

This will help you stop in your tracks with 50% of your ideas that will bear no fruit.

6. Define your roadmap through your prospects

Aerial View of Road in the Middle of Trees

If you are able to solve a Tier 1 problem, that enough people are willing to pay for, you now have a somewhat captive audience of at least 10 people.

If you have decided to proceed with your startup idea, congrats! You now have a dedicated audience and you can share features, design, wireframes, and more as you go on building it.

7. Validate your startup idea

The final step to validate your startup idea is complete.

Eventually, some of them might become your first-paying customers. And you’ll go on to create a better customer-base.

If you feel stuck on any of the above steps, it is advisable to get support.

Visit Social Grow to connect with digital brand experts today.

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