Why market validation is important and how you should go about it
In 2017, a study by Oxford Economics and the IBM Institute for Business Value found that 90 percent of Indian startups fail within the first five years. The reasons stated in the report were many – from me-too business models to lack of funding, ethics, or mentoring, and more. While one could say they cover the entire gamut of possible challenges or pitfalls, the list should not be looked upon as discouragement. All it means is that there is more to starting up than waking up one morning with a seemingly brilliant idea.
The approach you take can make or break you on the said entrepreneurial path. One of the best ways to then proceed after you have your idea is to find validation in the market. It’s the customers and the market who are the judge eventually, aren’t they?
Why market validation?
At its heart, market validation is the process of finding out – before you spend money and time on the business – whether the market has any space for your idea. If there is space, if your idea is solving a real problem, and is neither ahead of its time nor behind, then is it worth the time, effort, and heartburn that are all natural parts of the entrepreneurial journey.
On the surface, market validation may seem like a complex, expensive affair. But in truth, it is simply breaking down an idea into comprehensible components and distilling the work that will go behind it and the potential impact it will have. That is why experts count market validation as an important first step of any entrepreneurial journey. Here is how to go about it:
Find out if you are solving an important problem
Every customer demographic is different. What might be a problem for one demographic is hardly an issue for another. For example, people of Tier-II towns and cities don’t order as many meals at home as metropolitan residents might. So a food delivery tracking tool for Tier-II towns may not be the kind of idea that will scale quickly or grab VC mindshare. The only way to go about this step is to define your customer demographic and deep-dive into their most important problems.
“Obsess about the problem, not the solution. You need to be able to understand the customer’s problem so well that the solution becomes blindingly obvious!” – Richard Banfield, CEO/Co-Founder, Fresh Tilled Soil
Find market equivalents
Chances are that your idea is not entirely unique and someone, somewhere has attempted to solve a similar problem. Find out why those businesses don’t exist anymore and articulate how you intend to fill those gaps. If those businesses do exist, figure out what value you idea can add to an already cluttered space.
Take the market for messaging apps, for instance. The sector is already full of contenders vying for the top spot, including behemoths like WhatsApp, WeChat, Line, Facebook Messenger, etc., to name a few. If you were to enter this market with a new offering, it’d be imperative to find a way to differentiate yourself from the mass of similar apps out there offering messaging services.
In fact, WeChat itself is a great example of how to go about this process of differentiation; the app is massive in a market (China) which was ignored for a long time by the likes of WhatsApp. By the time global competitors realised the potential of the Chinese market, WeChat had already established a dominant presence through a range of offerings beyond just messaging, giving it a dedicated and loyal customer base.
Ensure that it is a service people would pay for
The revenue model is perhaps the one aspect of your business that is going to be more important than the idea itself. So before you get started, ask if people would be willing to pay for the kind of service you plan to offer. Assume nothing. Be sure to do your research on whether competitors in your space have been able to monetise their offerings – if they have, how have they done it? Also get advice from financial and strategy experts and mentors on the best revenue models for your sector, as there may be a bunch of options with varying levels of effectiveness.
Re-validate everything you think you know
Chances are that you reach a consensus on each of the above points using your understanding of people’s needs or asking a close group of colleagues, friends, and family. In the bigger picture, this is not enough, especially if you want to sell outside your own circle. The primary research comes in handy here. Use a large sample size and prepare an unbiased questionnaire that neither speaks of the solution till the very end nor has any leading questions.
Another form of validation would include interviewing a larger group of industry experts, analysts, and VCs for further inputs on the feasibility of your idea. Be cautious of the answers you hear. It is easy to fall for a “great idea” at face value but you need to dive in deep and question your respondent about the reasons they think your idea would work.
Test on your landing page
Several startups use landing page validation now. Between the last step and the official launch of your product, you should ideally have a buffer of about six months to one year which you will likely use for product development. Understand that things can change during this time. Use your landing page to keep track. This means that you need to drive traffic to your landing page and give options to users to either sign up to show interest in the product, leave feedback and contact details, or just say they are not interested. Not only will you have a captive audience well before launch using this tool, you will also be able to weed out weak interests and keep track of changes in the market and in customer needs.
With the number of startups and the amount of funding available soaring year on year, starting up has become the new Indian middle-class dream after government service and IT jobs. The difference is that there is a lot more at stake, including a regular, stable income as well as credibility. That makes market validation of your startup idea that much more crucial. It’s great to have a dream but it is also important to know – or at least have a vague idea – that there is a chance that the dream will work on-the-ground.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)