Ask Now (Else You’ll Be Sorry Later): How to Approach Market Validation
Validation is critical and perfecting it is an absolute art: your questions should be focused (but not too focused), the people you interview should be ones you can comfortably approach (but not too close to you) and the interview should be comprehensive but not overwhelming. If done right, your research will give you an understanding of what will drive your customers and their decisions, what will make them pay, who are the competitors to keep an eye on, and what will be the right vertical to start with.
As with Investor Deck Guide and Prep for a VC Investment Pitch, this too is just one of many available guides, based on numerous online articles and on our experience at Grove Ventures with the most pressing questions you want to answer from the get go. The process of market validation is long, at times tedious, and by no means easy, but it’s a critical first step that will help win over your audience when pitching your idea.
How Important Could It Be?
In short – it’s very important. Market validation is probably the most critical step to address when starting your new venture. A 2019 CBInsights research found that over 96% of ventures fail in their first year. There are of course many reasons for failures, but leading the list of the top 5 reasons for startups failing with a stunning 42% is that there was no market need.
So, you want to make sure you are solving an actual problem, but that’s not enough; you also want to make sure you understand what is the actual need you are trying to solve. What happens when you define requirements and not the need? Well, when the US defined its requirement as the ability to use a pen in space, NASA spent close to $1M and 2 years of development on the AG-7 Astronaut Space Pen (which is priced today at $58.00). Russia looked at the same need but defined the requirement as the ability to write in zero gravity. So, the Russian astronauts used a simple pencil worth 40 cents. 1:0 Russia.
Who Should I Talk To?
Since you are looking for the right answer and not the answer you want to get, choosing your interviewers is key. The idea is not to talk to friends who will go easy on you. The people you know probably like you and think you are smart and capable. It is very easy and (much more appealing for them) to tell you exactly what you want to hear. Unfortunately, this isn’t very helpful.
You want reliable feedback, from as many relevant people as possible. Who is relevant? People who use the product and the people who pay for it. Don’t forget — it’s not always the same person! you’ll want to talk to both. How many is enough? You’ll want to conduct dozens of interviews. You want to get the hard, cold truth and analyze the responses, even when the data indicates your problem may not be worth solving.
The more quantifiable the feedback, the better. One of my all-time favorite quotes is by Jim Barksdale, the former CEO of Netscape: “If we have data, let’s look at the data. If all we have are opinions, let’s go with mine.” You want to bring data to the table so you are not dependent on the opinions of the Jims’ of the world.
How Should I Ask?
The way your questions are framed is as critical as their content. The “yes bias” plays a significant role here and questions like, “If you had this product, would you use it?” won’t get you far. The “yes bias” means that people are, well, biased to say yes. It’s simply easier (and faster) to say yes when there’s no real commitment. You didn’t ask the guy to give you $5, you simply asked a theoretical question. We’ll talk a bit more about specific phrasing but keep this point in mind — you want actionable feedback that could be translated into your product MVP threshold, sales cycle, adoption cycle etc. A good way to look at it is through MEDDPICC qualification framework (the link is worth checking out).
What Do I Ask?
This may sound trivial, but the best way to start is by asking the basics: Is this a problem, how are you solving it, and if solved right — how much is it worth?
If done correctly, by the end of your market validation exercise you’ll be able to answer the following questions:
1. What problem are you solving?
You want to be able to clearly define the problem your product is solving. Different customers will put an emphasis on different aspects of the problem and describe it differently. You want to have a comprehensive statement that many can relate to.
2. Is this a problem?
Many entrepreneurs (probably the best ones) are trying to solve a pain they’ve experienced themselves — which is a great starting point, but often makes them very biased. You want to validate that the pain you were suffering is experienced by others, and in the most quantifiable way possible — how often does this happen, how much (time/money/how many users are affected). Asking who exactly is experiencing the problem and when does the problem occur will complete the picture. If 1% of the users suffer from this problem very rarely, and the business impact is negligible — you should be hearing some sirens.
This is an important test. You might be hearing answers you don’t like and you’ll be tempted to ignore them. DON’T. remember we said 42% of startups fail because there was no market need?
Another way to validate this part is to ask what are the 3 biggest problems the company plans to solve in the short-mid term. If your product is able to solve one of them, you can check “is this a problem” with a big fat checkmark.
3. Who are you solving it for?
Who is it exactly that would use your idea? A general demographic isn’t enough, you want to be able to pin point your target buyer/user personas. Who is the buying persona in the organization? How does procurement work? Another unfortunate reality is that often times, your end user and your buyer aren’t the same person. Both should be well identified and your offering must be appealing to both.
4. How is the problem being solved today?
If you have validated that you are looking at a real problem worth solving, now you must understand how it is being addressed today. The solutions easiest to replace will most likely be complex, time and resource consuming. Be prepared with follow-up questions here on how much, how long and what’s missing. “How is this being solved today” is the sister in law of “How have others attempted to solve this problem before?”, and “Why did their solutions succeed or fail?”. Asking your potential customers if they’ve met with companies trying to solve the same specific gaps is the best competitive research you can get. What worked? What didn’t? Can they provide any feedback on their cost, pros, cons, robustness/ effectiveness/ reputation/ length of process? Keep in mind, competition is a good thing — it means you’re after an interesting problem. But how is your solution different than existing ones should be very clear. An overcrowded marketplace or one where consumers have a strong affinity for a specific brand will be more challenging to break into. Before you go into business, you need to be very clear about what sets you apart from competitors.
5. What is it worth to solve this problem?
At the end of the day, translating the value of solving the problem into dollars is key to understanding if you can create a viable business out of your idea. How much are your potential customers paying today and from which budget? How much money are they losing by not having a good enough solution to this problem?
Here, again, you should pay attention to how you phrase your question. The response to “How much are you paying today” will probably be a shrug. Try using a benchmark which your interviewers can respond to. “I’ve spoken to several customers in your scale and understood they spend anything between $x-$y per user per month, does that sound reasonable?” is easier to answer in a way that doesn’t make you feel like you are giving away information you shouldn’t.
6. What is the size of your market?
Understanding how many people need your idea (and, as we discussed, what they’re willing to pay for it) will help you determine whether your concept is viable. Now is a good time to familiarize yourself with the difference between TAM, SAM and SOM.
7. What would it take to build a minimum viable product to test the market?
A mistake many entrepreneurs make is thinking that they have to launch a complete concept right away. Perhaps you can start small, build interest and iterate as you go. What is the minimum feature set required to start providing value? What is the minimum feature set required to start being paid? Someone saying they’re interested is one thing, but someone actually providing their credit card information is a much stronger sign of potential success.
Bring them on your side
Having the advice of key opinion leaders in a similar business space can go a long way both in terms of actual help to building your company and in terms of your own company’s reputation. Your interviews are a good opportunity to attract such potential advisors. Simply ask if they’ll be willing to join the ride.
The feedback may strengthen your initial conviction, it may lead you to pivot to another market or to re-prioritize some of the product/services’ features. Getting an understanding of your product-market-fit at an early stage, then making changes in development, engineering or marketing will turn out exponentially cheaper, both in time and money than realizing these things later on.
Now, let’s go do some homework!