How to Validate your startup idea?
Your goal as a startup is to make something users love. If you do that, then you have to figure out how to get a lot more users.
But this first part is critical—think about the really successful companies of today. They all started with a product that their early users loved so much they told other people about it. If you fail to do this, you will fail. If you deceive yourself and think your users love your product when they don’t, you will still fail.
Why validate your idea?
Innovation is hard work. You’re literally trying to create something that doesn’t exist! There are no guidelines, no working templates, no business models to clone. There’s nothing. You’re on your own! It’s just you and your imagination. With those odds of course 90% of people and companies fail!
Questions to ask before starting a business
Pro tip: Solve old problems! Look at the keyboard your hands are likely hovering over right now. The shift button is called “Shift” because, since 1878, a typewriter would physically shift the register. Yet it’s still in our 2018 iPhone X’s virtual keyboard because people don’t like change.
1. Are there any competitors doing the exact same?
Are someone solving the problem right now? Do a quick google search before you spend to much on the idea and get to attached.
How have others attempted to solve this problem before, and why did their solutions succeed or fail? There’s a lot you can learn from those who have gone before you.
2. Product fit
- What problem are you solving? Solve a real problem for your users. If you can’t clearly state the problem your product or service solves, you probably don’t have a successful idea.
- What niches have not been served/what gaps exist in the market? Try to understand what problem in the market you are trying to address or if there are gaps or niches that are not being served by anyone else. If those areas intersect with what you like, then you have hit the sweet spot.
- What are customers “hiring” today?
From the jobs-to-be-done framework.
If you have found a problem worth solving, then people are already solving it somehow (seriously, if your customers are doing nothing to solve the problem, then maybe it is not a problem worth solving). Anyway, often they already pay something to someone at some stage of the current solution. To whom do they pay and how much?
How many specific benefits for your product or idea can you list? The more you can think of, the more likely it is that you’re meeting a real need and can be successful.
Can you state, in clear language, the key features of your product or service? Not being able to easily describe the key features of your idea is a warning sign that the idea isn’t well thought out yet.
What key features does my product or service have that others will have a hard time copying? Before you go into business, you need to be very clear about what sets you apart from competitors.
How will I test and validate the product idea? Test your idea. If it works with the target audience, you can go ahead else it’s still not too late to go back to the drawing board.
3. Market fit
- What is the target market for my business? Neither is every product meant for everyone nor do companies have the time and resources to reach everyone. Zeroing in on the target market not only helps you set your marketing and development strategies in place, it also can lead to higher returns on investment in the long run.
- What is the market size? What is the current size of the market? What is the potential size of the market? Will it grow or contract? Why? How much of the market share can we conservatively take? Understanding how many people need your idea – and what they’re willing to pay for it – will help you determine whether your concept is viable.
- What are the market price points? What kind of margins should we expect in this market?
- What is my market demographic?
- Who are my market competitors? Having competitors isn’t a bad thing – it means a market exists. However, knowing what you’ll face if you launch is important, as an overcrowded marketplace or one where consumers have a strong affinity for the dominant brand may be more difficult to break into.
- Is the business idea scalable? If not, how do I make it scalable? For a business to be scalable means you being ready to handle increasing number of customers and vendors. Businesses need to grow to become successful. If you can’t see growth for your business in the future, then you must ask yourself what changes to its business model shall make it scalable and help it grow.
- Revenue model Where do you get your money? And what is the model of getting that revenue: monthly subscription, one-time fee, pay-per-use…?
- What will it take to break even or make a profit? Some ideas take a lot of upfront investment, while others don’t. If yours does, it’s a good idea to plan for how you’ll handle your finances and daily needs while you’re waiting for your product or service to gain traction.
- How much cash will I have at risk?
- How much time will it consume?
- Can I test-run the business part-time before quitting my job?
- How many employees will I need?
- How will I exit my business few years down the line if I want to and how will the responsibilities be transferred in such a case?
Bonus: What investors are looking for
- Total addressable market
- Technology (Rocket science)
- Ten x (10x)
Bonus: Questions to ask when building a marketplace
Definition: A marketplace is a place where buyers and sellers meet to conduct commerce.
How will you safely process transactions? Payments are the crux of any marketplace platform.
How will you successfully onboard your sellers and/or providers? Sellers of an item may have a hard time understanding how to do things like write compelling product descriptions or take appealing pictures of their product.
What will attract the right people to your marketplace? The goal of a marketplace or on-demand service platform is to generate enough revenue to sustain and grow the platform.
What’s going to keep the right people coming back to your marketplace over another option? How will you get relevant audiences to recognize your brand as one of unique or “worthy” value?
Is it by creating a high-level of trust with your consumers or sellers? Is it by offering the proper channels to the highest quality products? Is it, as Uber started out with, a price point lower than the existing market competitor (taxis in that instance)?
Two-Sided Incentives: How will you keep both buyers and sellers in the marketplace? For a marketplace to function — and keep functioning — both sides need to desire to conduct commerce within the marketplace and not outside of it. If either side leaves and brings the other along with them, then the platform is cut out of the equation and a transactional revenue model breaks down. This is called market breakage.
It’s essential to keep both parties interested by providing unique value over time. Some of the most successful marketplaces have become obsolute over time, e.g. the cleaning professionals platform Homejoy.. Their platform created an easier, faster way to introduce professionals home cleaners to those seeking clearning services. Homejoy achieved their initial aim of solving the market pain point of sourcing reliable cleaning professionals. But there was a critical chink in their armor. Once customers seeking services were connected with service providers, they could both easily take their relationship offline. Homejoy, the original middleman and facilitator, was all too easily cut out.
If that seems all too avoidable for your marketplace, remember that this is not an isolated example. Dozens of marketplaces have fallen prey to the very same challenge. It’s essential to think about how you’ll invest in value to your platform.
Build trust by:
- Identity Verification: Who is this person and do I trust them?
- Reviews : Have others stayed here and do they like it? What do other hosts have to say about this guest?
- Assurance : If something happens, can I call on someone during my travels? If my home is a mess, will I be covered for my loss?
Facilitate convenience by
- Payments: As a host, will I get the money for the stay? If I send money, can I be sure the listing exists and isn’t a fraud?
- Messaging: Can I easily communicate and reach out to the other party?
- Transactions: Did I buy the good or service? Did it reduce the burden of going back and forth multiple times?
Network Effects: How will your marketplace grow? Global network effects, root density network effects
Type of supply
Size and frequency of interaction. The size and frequency of interaction in a marketplace are paramount to its health. Frequency of interaction determines how much liquidity there is on the platform. It is always better to have a higher frequency of interaction, which begins to change users’ behavior and make the product stickier.
Every marketplace should strive to drive higher-frequency usage, particularly in the early days. Sometimes the way to do that is to actually aid the supply side in lowering their transaction size so that the product becomes more compelling for the demand side. Liquidity is key. Making sure that transaction volume is thriving is more important to a new marketplace than getting the largest revenue per transaction.
Remember that at least a thousand people have every great idea. One of them actually becomes successful. The difference comes down to execution. It’s a grind, and everyone wishes there were some other way to transform “idea” into “success”, but no one has figured it out yet.
So all you need is a great idea, a great market, a great team, a great product, and great execution. So easy! ;)