Why startup idea validation is a must for budding entrepreneurs

At present, the ‘start-up’ sentiment in India is so high that everyone wants to venture into it and become a millionaire overnight. They think their idea is best and unique. However, very few validate their ideas before starting a company. Let us touch base on this basic attribute of any startup company. Many experts have written about this, and recently when I read a book called Entrepreneurship Simplified by serial entrepreneur Ashok Soota, he explicitly mentioned the importance of idea validation.

Another aspect, which comes through from the book, is the importance of the idea – is it important for the environment, is it suitable for yourself, and more importantly, are you convinced about this idea? Always think, “If I was on the other side, would I invest in this idea?” For the entire gestation period, you must live, breathe, and dream the idea. You should visualize how it will grow from a seed to a tree.

An important validation question for your venture is whether the timing is right. If yours is a new product or service, is the market ready for it? Does the required ecosystem/infrastructure exist to support its success?

Let us dive deep into this “idea validation”. First, we will socialize the idea with a wide variety of persons from both social and professional networks. Debra Amidon very colourfully describes this in her visual storybook In Search of Innovation. The booklet is a story of how an idea is transformed into an economically viable innovation. Share the idea with every friend you know, as well as a few others who are strangers. Some people will revert saying the idea is very good, some will laugh at it and say it’s crazy, some will say they wished they had thought up the idea themselves, some will say they can’t understand it at all, while there are others who will even try to steal it.

All through this journey of ups and downs, the idea is modified, adapted, and enriched till it’s ready for taking to the world.

Another aspect of idea validation is understanding how you can take it to VCs and individual investors. A positive response from them for sums greater than your needs is a reassuring validation as external investors have “been there, done that” many times over.

One other approach to idea validation is a more structured and formal one – testing the same. Determining feasibility may be through market research, focus groups, and/or a pilot launch. There can be occasions when the founders know the industry/market well and time to market is crucial. In such cases, upfront, big-bang commitments to the venture are merited and the pilot phase can be omitted.

Here are several other questions which you, the entrepreneur, have to ask yourself regarding validation. First – is the idea scalable? To determine scalability, it’s important to get a good understanding of the market size. Quite often, total market data is available through secondary sources. However, this can be very misleading. What is needed is an accurate assessment of the addressable market for your venture. This may require market segmentation in multiple ways, by classifying customers and seeing which proportion has a need for your offering.

For idea validation, it’s also important to look at existing and future competition, which has a nasty way of emerging from unexpected sources and directions. Also, be prepared that if you are successful, larger companies with much deeper pockets will want to invade your space. Will your venture be defensible against such attacks? A corollary to this is – do you see yourself as having the ability to introduce a stream of differentiation? Remember that all differentiators have shelf life and therefore, you need to continuously differentiate to ensure the defensibility of your idea.

Plan ahead. Visualize the ways in which your business can fail, be clear about your plans to overcome the hurdles, and have the wherewithal, both mental and financial, to see through the challenges. This exercise should include noting a few well-articulated risks, not the laundry list of possible risks in an IPO filing statement or the warnings which accompany most prescription medicines! The capital intensity of the business becomes important here, particularly the danger of your industry moving out of the preferred investment category for investors, because most industries witness such boom cycles followed by cycles when fundraising becomes difficult.

Validation of ideas is a must for budding entrepreneurs, to plan and execute their ideas with their arsenal ready to combat setbacks!

Jaimin Shah is Chairman, NASSCOM Domestic Council, and MD and CEO, DEV IT Pvt Ltd.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)