Google “how to validate a startup idea” and you will inevitably stumble across websites and blog posts spouting the virtues of a landing page. It seems simple enough. Create a landing page, drive traffic to said page, monitor sign ups and then launch to an engaged audience. Seems simple enough? Right?
Well, while I believe landing pages have their place in both pre and post launch marketing for startups I’m here to spell out why they should be not relied upon for validating your startup idea. This is certainly more pronounced in the B2B market, but still holds true for consumer facing apps and ideas. Here’s why.
Validating Your B2B Startup Idea; Are Email Sign ups Via a Landing Page the Right Idea?
To start with we will take a look at the Business to Business market. Say you have come up with a great new tool that can revolutionise the management of social media accounts for businesses. You decide this is such a great idea that you want to press ahead. First however, you know you need to validate your idea. Having read the above mentioned websites and blog posts you know that step one is to create a landing page.
You can choose to code your own or use one of the many landing page creation sites that abound on the internet. (Leadpages, Unbounce, Kickoff Labs & Instapage are some of the more popular ones if you are wondering where to start). Within a day you have a landing page created. Chances are it has a stock image vaguely related to the industry you are targeting. The description of your product or service is probably too long and too wordy to really drive home what you do. And you are not sure if your call to action should be “Register Now For Pre-Launch Access” or “Get Notified When We Launch”. But let’s ignore that for now! You have a landing page up and are ready to “validate” your startup idea.
In order to validate your idea though you need traffic. Where do you get traffic? This is a tough one. Content marketing is great. But can take months to see results. Reddit seems like a good idea. Until your post is buried in an hour or so with only one up vote from your “other” account. There are plenty of other options. Facebook Groups, Twitter, Youtube, Social Influencers, etc. But some of those take a lot of time to nurture (groups), money (high quality videos, paying social influencers, etc) or require a decent following to see any real results (Facebook/Twitter followers). That’s not to say they are not worth trying, but we are here to validate this startup idea. Pronto!
You turn to google again and remember that you can pay for traffic. It’s relatively cheap and an easy place to start.You think your startup idea has legs and are happy to throw a few hundreds dollars in Facebook ads at it. Facebook ads can be very effective and this seems like a great idea. You wonder who the target market would be for your new social media management tool and assume its men and women aged between 20 and 35 who have an interest in marketing. Great, you can target them directly with your ads in Facebook.
Half an hour or later you have your Facebook ad up and running. You probably had to try 3 or 4 different variations of text on your images thanks to the 20% text rule, but that’s a post for another day. Anyway, back to “your” ads. While thinking about your Facebook campaign you saw some great blog posts of people getting clicks for cents on the dollar. This is great. With my $500 I can get thousands of people to my site and validate this idea with ease.
Unfortunately, this is a situation where perception and reality do not meet. If you had dug a little deeper you would have seen that many of those case studies getting clicks for 10 to 20 cents where either a) five years old b) targeting users in 2nd and 3rd tier countries or c) gaming the system by offering the chance to win a free ipad/iphone or other high end tech gadget in exchange for your email.
As it turns out clicks to your site average north of $1 (At least if you are in Australia anyway). If you had more experience and could get your head around the Facebook Ad Manager you could drive this down. But chances are if you are starting out, you will make some rookie errors and come out with a CPC that’s above average. That’s okay though. Everyone has been there. And look you still have 500 clicks to your website.
So we have solved the traffic issue. At least in the short term and for the purposes of validating your startup idea (albeit after spending a bit more money than we had hoped). How many though converted to sign ups?Hopefully you at least saw the part about offering a “hook” to those who sign up early. Perhaps a lifetime discount or the chance to win a free yearly subscription to your service. Even if you hit all these points an exceptional conversion rate is still going to be around 20% (the average is less than 10%). So those 500 clicks, if they were all targeted and relevant have now resulted in 100 sign ups.
You can’t rely on your landing page going viral. Why? Because you have an undefined product, at an undefined price point, with a small amount of pre launch sign ups who can’t vouch for what you can provide.
This is great! You can now use these sign ups to drive more sign ups. Just offer them a referral to get their friends to sign up too. While I’m sure you have heard of the success of DropBox and their referral program that drove an insane number of sign ups, let’s just pause here for a second. You have an undefined product, at an undefined price point with a small amount of pre-launch sign ups who can’t vouch for what you can provide. The chance that your landing page will be the 1 in 1,000 that goes viral is slim. By all means try, but for now we will continue our breakdown of why a landing page will not validate your idea of the basis of 100 sign ups (or even 1,000 or 10,000 for that matter).
So with your 100 sign ups, that you secured based on a conversion rate of 20% (reminder: that the average is less than 10%) you decide to press ahead. Perhaps now you decide to launch your content marketing strategy, find influencers to help promote your upcoming launch and maybe even stick with the $500 fortnightly Facebook ad spend. You obviously want to launch to the biggest network possible and think this is the best way of doing it. You are confident because you have validated your idea and know you have something people want to buy.
Only they don’t buy. You launch to crickets. Or at best see a 10% conversion from your pre-launch subscribers to actual customers (that’s 10 people out of your 100 pre-launch subscribers). While this might be okay if you have 50,000 or 100,000 pre-launch subscribers, chances are you don’t. Even with your best efforts you might only have a few thousand. But you finished development of your MVP and “it was time to launch”.
A few days go by and you are disappointed. You did everything right. You built a pre-launch signup page, acquired emails of potential customers and emailed them regularly so that they didn’t forget who you were. But despite all of these efforts sign ups are low. And if you work on a freemium model, you might not be generating any revenue. Let alone revenue that is actually meaningful.
Getting an email address is 10x easier than convincing someone to hand over their credit card details.
Looking back it seems like those 3, 6, 9 months of pre-launch effort were for nought. Where did you go wrong? Didn’t you validate your idea? And have thousand and thousands of people lining up to use your product? Yes and no. By being somewhat vague on your landing page you were able to get people to enter their email on the chance your tool might be useful to them. But being vague also diluted the quality of those people who signed up, as well as their willingness to pay.
That is to say the barrier to providing an email address is significantly lower compared to asking people to hand over their credit card details. Don’t believe me? Ask yourself this. How many landing pages have you dropped your email into? And of those how many did you actually sign up for? And better yet pay for after launch? Nowhere near what you are hoping to see from your own pre launch subscribers I suppose?
The increased friction of going from email address to credit card number, combined with the difference between the perceived value and features of your product/service versus what you actually delivered accounts for this gap. While this is to be expected from any pre launch campaign, no matter how well executed, it does go to show that you can’t rely on a landing page and email sign ups as a way to validate your idea. While this is better than leaving it to chance there are other ways to approach this. Before we move on and explore those I do just want to stress that having a landing page and collecting emails is still important. You want to launch to as wider market as you can. But don’t use email sign ups as proof of validation. Use them as a lead generation tool after you have proven there is a demand for the product or service you are offering. And more importantly, know who the real user of your product is likely to be, not who you perceive they may be.
Validating Your B2B Startup Idea The Right Way; Leave The Landing Page For Now & Get In Front of Your Customers
So if we are not going to use a landing page and the email leads they generate for validation, what do you do? This is normally where someone who has read a bit more content or used a landing page tactic in the past chimes in to say that you “talk to people”. While this is a great next step, I’m here to say that it is only half of the story. What you need to actually do is get people to open their wallets and pay! Before we get to that however, let’s look at the concept of talking to your potential customers.
It should be obvious, but in case it isn’t immediately clear, you want to talk to your potential customers because they are the ones who will be key influencers in your success or otherwise. In small businesses the end user of the product may be the person who can hand over the cheque or credit card. In larger enterprises the end user and their direct managers may be key in influencing the decision of those higher up the chain on what tools are or are not suitable for getting the job done. No matter what your target market is, you need to find ways of talking to these people and get their open and honest thoughts on how they currently perform the task you are trying to tackle with your product/service.
First up, finding the people to talk to. I’m going to recommend that you stay away from friends, family or colleagues. Even if they are in the industry/position you are targeting, their views are tainted. They already know you and despite your best efforts to ask for the brutally honest truth, they won’t want to upset you or shoot down your idea. That is they will give misinformation that despite their best intentions could do more harm than good. What you want to do is speak to the people you don’t know. To put it simply, they don’t care about your feelings as much your friends, know what they would and wouldn’t use and pay for, and therefore are much more likely to provide honest feedback.
Friends and family have a higher likelihood of giving biased feedback that won’t help you in the long run
A few strategies for reaching these people include:
- Walking into businesses directly and asking if you can have a few minutes of their time. This is great if your product or service caters to a business or industry that is consumer facing (I.e. hospitality or retail) as you literally have a front door to walk through.
- Using Linkedin to connect to and engage with potential customers in your target market. Much like cold calling not everyone is going to be interested. But this is simply a numbers game. Ask 100 people for their advice and chances are you will get at least 10 people who are interested. When you reach out on Linkedin just be honest with what you want to do. Don’t try and hide the fact that you are a company and want 10 to 30 minutes of their time to get their opinion on something. In fact, you may even be surprised with the number of responses you get. When you ask someone for their opinion, they usually want to let you know what it is.
- Cold calling potential customers and users. In our day and age I certainly prefer the Linkedin method, as you can reach a greater number of people in a shorter amount of time. Plus the barrier to responding to a Linkedin message is lower and despite your best efforts any cold call is going to come across as if you are trying to sell something. That said, there are times when you have no option but to use the phone. For example, say your potential users aren’t the type to use Linkedin regularly (i.e. they work in a trade or in a position that doesn’t require a computer, such as a Chef).
- Trade shows or industry events also represent a good opportunity to engage with potential users and customers. The only caveat here is that people at trade shows or industry events may be more interested in trying to sell you something than providing feedback to help validate your idea. Plus the environment is not going to be ideal to do an interview then and there, so you will have to schedule a different time to catch up with them again.
When you ask someone for their opinion, they usually want to let you know what it is.
No matter what approach you choose to go with you don’t want to be too narrow in your focus. As outlined in our original example, we set our target market for the social media tool to those aged between 25 and 40 who work in marketing. But for the purposes of getting feedback you are going to want to look outside this group, as it may uncover insights you previously didn’t consider. For example, an 18 year old could be in charge of social media at a smaller company. Or a fifty year old finance executive may be interested in the tool to promote his own content as a thought leader in the space. If you were restricted to your narrow band you may have missed these two use cases and potentially a large market opportunity for your product or service.
Finally there is no magic rule for the number of people you should speak too. That said I would say that it is better to speak with a smaller number of people (<20) in-depth than a larger number of people (>50) briefly. In addition to that you will probably naturally know when you have spoken to enough people as you will begin to see patterns in the data and people begin to repeat information you already know.
If someone says something interesting your sole job is to ask “why is that?”
Once your interviews or the feedback you receive starts to feel the same, you know you have probably spoken to enough people already. From there you should have a much clearer idea on the type of people who are interested in your product or service. This will save you a ton of money when you actually do set up your landing page, as you will be able to drive much more relevant traffic to it (and therefore secure a higher conversion rate).
With our key users in mind and a list of contacts, the final thing I want to cover is the type of questions you should be asking. The absolute last thing you should ask is “would you buy this product” or “do you think this product would be useful”. A, these are closed questions. They only require a yes or no answer. And B, most people are too polite to say no. If you ask these questions all you will get is junk data. Instead you want to get inside the daily life of your user. Understand what makes them tick and why they do things the way they do. And ask “why”. A lot! If someone says something interesting your sole job is to ask “why is that?”
Okay, so some examples to get you started using our social media tool as an example.
- Explain to me what your typical day looks like?
- How do you currently post to social media?
- What does that actually entail (i.e. how do you actually do the posting)?
- Do you use the same process on each social network or do you do things different across the various channels?
- Why is that?
- What do you love about the tool that you are currently using?
- Why do you love that it does that?
- What work or tasks do you do on social media that aren’t currently covered by your existing tool/service?
- Why do you do them that way?
These are just some ideas. The key to knowing you are asking the right questions is when the person is doing 90% of the talking. If you are asking questions every 30 seconds, you are asking the wrong questions. You want the person to go deep and talk about their experiences, not just “answer” your question!
Some final points on this. You obviously want to record the data. Most people will intuitively go for a pen and paper or their laptop or tablet. But have you ever spoken to someone when they were writing or typing away? It’s not very engaging is it? It breaks the flow of the conversation and you miss important cues from the person’s body language. Put the pen down and record the interview. Record it whether it is conducted in person (with a video camera) over Skype (screen capture) or on the phone (voice). Obviously ensure you have written permission to record the session before you do so and aim to meet in person or via Skype as opposed to just over the phone if possible.
Not only does recording the session free your hands and mind so that you can focus on the task of interviewing your potential user, but you also have the ability to replay the session at a later date. Just like when you watch a movie for the second or third time, you can often pick up new insights that you passed over the first time. Recording is a valuable tool. So make sure you do it.
Finally, we have all this great data that will help us shape our product. Now, we are not trying to provide a feature that matches every request of our potential users. What we are looking to do however, is identify trends around problems or key pain points. From there you can refine your messaging (and approach) to provide a tool that alleviates that pain and overcomes an issue that isn’t currently being addressed by the market.
Once this is done that landing page of yours, yes, the one with the wishy washy message and random image can become a lot more refined. But we haven’t finished yet. We have obviously taken a number of steps beyond what the typical startup does when trying to validate their idea. But there is one final thing to do. And that’s to ask for the money! Nothing matters more than getting someone to actually pay for the product or service you are offering. No matter how enthusiastic someone sounds in an interview it means nothing if they aren’t willing to pay to solve the pain point your product/service can overcome.
No matter how enthusiastic someone sounds in an interview it means nothing if they aren’t willing to pay to solve the pain point your product/service can overcome.
This could be because the cost of living with the pain point isn’t great enough to justify the cost of the buying the product/service to overcome it, or perhaps their current tool, that is the same price (or less), does just enough that they can’t be bothered making the switch. No matter what the objection is, they will be out there. And that is why you need to ask for the customer to pay. This is the true judge of their willingness and interest in your product or service. Plus, it’s another opportunity to get valuable feedback on your intended pricing structure.
Wait! I hear you! You think this is a great idea. But aren’t we just validating an idea. If you are just at the validation stage then we don’t even have a product/service to show right? Correct. But what you do have is an idea on how you are going to solve the pain points of your users and a much better understanding of the market than you did a couple of weeks ago. You can use this to articulate your vision and ask for a customer to pay up in advance for the ability to utilise your product or service at some point in the future. I recently tried to pre-sell a product for my latest startup Task Pigeon. You can learn what I learnt trying to sell the product before it was fully built here.
Yes, yes I do hear you. I am asking you to ask your potential customer to pay for something that doesn’t technically exist yet. But let me explain further and show how you can do this. It doesn’t really matter how much you get per user or if your price point changes in the future. The point of this exercise is to prove that someone will pay for what you are planning to build. By now you should have an idea of what everyone else is in the industry is charging or what comparable products in other industries charge. So use this as a starting point.
In our social media tool example we will just assume that our research suggests an appropriate price point is $20 per user, per month. That is what we are going to go to our customers with. Along with our vision of the product/service we are offering. There are a number of ways you can ask for money up front. In each instance be open and honest that they won’t actually be able to use the tool just yet.
Pitch One: Ask the customer to prepay for a set period of time (i.e. 6 or 12 months) in exchange for a preferential discount, i.e. for each user they sign up and pay for now, they get one free when you launch. Or perhaps they get a lifetime discount of 20%.
Don’t worry about the actual revenue figure from this customer. It doesn’t really matter at the end of the day if you have 10, 20, 50 or even 100 users at a heavily discounted price. If your startup takes off then you are aiming to have many, many more customers than this and these initial users will eventually make an insignificant contribution to your bottom line.
Pitch Two: If you face opposition to paying up front, which I am sure you will get from some customers, you can try an alternative approach of asking for a holding deposit. Even if you make it fully refundable (as Tesla has recently done with the Model 3) the fact that someone actually handed over money in the first place is much better than getting no deposit at all.
In this instance I would be offering a smaller discount compared to the person paying in advance. Perhaps it could be as simple as pay 10 or 20% of your first annual fee to get preferential access and a group discount on any future licence you buy from us. Or more simply, pay a deposit and save 10% off your first year fees.
Pitch Three: If the up front payment and the deposit fail, the fall back I would put to the client is to sign a letter of intent. This should stipulate the price of your product/offering and the client’s interest in licensing or buying said product/service if you are able to deliver on certain criteria.
Using our social media tool example this could be something along the lines of, Company ABC will acquire 10 individual licences at $20 per month/per licence for a minimum of 12 months if Startup ABC can provide a tool that meets X, Y and Z criteria. Now it’s important to note that these Letters of Intent are not actually binding. But once again, having someone put pen to paper saying they will buy in the future is 100x more valuable than an extra email in your database.
As you can see from the hierarchy above, upfront payments are going to hold the most weight. The other two options still do go a long way towards validating your idea and show a much stronger intent to purchase than merely hearing someone say that during your interview. So start with trying to get pre-payments and use the other methods as fallbacks if needed. Also don’t be afraid to get creative. This is not an exhaustive list and you may come up with other ideas that align with your industry that allow you to collect revenue in advance of launching your product.
After all of the above, the ball really is in your court. No one can say what percentage of pre-paying customers is ideal because we aren’t there for each and every interview you conduct. Even if you interview 100 people, you may find that only 10 of those are at the end of the day the people you should be targeting. If 5 of them sign up then your conversion rate across the whole group of 100, may look fairly low at only 5%. But out of the people who actually ended up being in your sweet spot you have converted at 50%. An excellent result!
Is there a problem that needs to be solved? Can you build a product or service that solves that problem? And did sufficient number of people express a serious intent to purchase by prepaying, providing a deposit or signing a letter of intent.
What it really comes down to is sitting down with the rest of the founding team and being open and honest with the feedback you have received. Is there a problem that needs to be solved? Can you build a product or service that solves that problem? And did sufficient number of people express a serious intent to purchase by prepaying, providing a deposit or signing a letter of intent.
I hope for you and your startup that the above process leads to some level of validation for your idea. If however, after multiple attempts at interviewing and getting people to pre-pay you can’t seem to break though, just remember that it is better to fail in 3 months and move onto a new product or idea, than struggle for years trying to get people to buy something they don’t want. Life is short so don’t waste it chasing an idea that no one else is interested in.
So far we have covered a lot of ground. I think you will all now agree that there are much better ways to go about validating your startup idea than merely relying on pre launch sign ups via a landing page. As I have said before, landing pages having their place but having someone hand over money is worth 100+ email addresses. Money matters and an email address brings no guarantee of return.
Validating Your Consumer Startup Idea; Don’t Worry About That Landing Page Just Yet
Having covered the B2B market and idea validation, I now want to turn my attention to consumer goods, services and apps. Clearly this is a different beast. Perhaps most noticeably is the potential for something to go “viral” and gain organic traction. This is more likely than a B2B tool as there aren’t too many people who will share a new business software solution with their friends via Facebook! Or Instagram!
But before you get too excited, times have changed since the launch of the app store. Where once people sought out new apps because they were desperate to get things onto their new smartphone, now you need to work like crazy just to get a chance at standing out.
In fact two high profile and recent examples are testament to this. The consumer app Beme just relaunched. In the article covering their second attempt their lead engineer Matt Hackett states that having millions of fans is “mere table stakes”. With Beme you have an app that was able to leverage the power of Casey Neistat and his millions of fans. Even with such a large and loyal fan base Casey wasn’t able to guarantee Beme had any traction beyond its first few weeks, let alone months.
The second high profile example we can point to is Peach. Here we had another consumer orientated app, backed by a successful entrepreneur in Dom Hoffman (he previously created Vine) You may recall that for a period of about 48 hours it was all anyone spoke about on Twitter. And the app quickly gained coverage in major tech sites such as Techcrunch and Product Hunt.
Much like Beme however its life was short lived. It’s millions of downloads counted for nothing when days, weeks and months later the number of people coming back was a mere fraction of those who came on day one and two. This in essence highlights that the metric of importance isn’t what it used to be. Where everyone used to care about “downloads”, monthly active users is the currency that social (and consumer apps in general) trade in. Have 1 million downloads but less than 10% of that as monthly active users and you will be dead in the water in no time. By contrast have 100,000 users and > of 50 or 60% monthly active users and you may have a shot at growing to something bigger. This simple principle reminds me of a quote from Sam Altman. “It’s better to have 100 people love you, as opposed to 1,000,000 people who like you.”
Have 1 million downloads but less than 10% of that as monthly active users and you will be dead in the water in no time.
Now onto the actual point of this article, as it relates to consumer orientated startups. First of all I want to say that landing pages do have their place with consumer oriented startups (as they do with B2B as well). But I am going to ask you once again to hold off firing up that site until we get a few other pieces of the puzzle in place. So where do we start? In much the same place as we did with the B2B example. That is we start with people. People are going to be the real factor to your success or failure. They will either love what you do and become advocates for your product or take one look and then walk away, only to be distracted by the next thing on social media.
Finding consumer orientated users can be easier than a B2B offering just by the sheer fact that everyone is a consumer in some capacity. Whereas not everyone buys B2B orientated products or solutions. That said, some tips to find people to speak to include:
- Going to specific locations where your target user base may frequent. For example if you are creating a new coffee lovers app going to Starbucks and other coffee shops may be a great start.
- Attending events that are run by or put on for consumers who fit your target market, i.e. If you are building a home and lifestyle app attending home and lifestyle expos could be a good way of getting in front of your target users.
- Identifying existing niche sites online. For example, if you are launching a new game, jumping on reddit and identifying the appropriate subreddit could yield a treasure trove of information. Similarly, finding an active forum or Facebook Group could be just as promising.
- Segmenting and targeting your customer base around fixed locations or institutions, i.e. if you are building an app to identify restaurants in the city, then going into the city centre as opposed to the suburbs is going to be much more valuable to you. Or using Facebook as an example, starting at one University campus, etc.
Of course these are just ideas. But I assume if you have read this far you are smart enough to work out ways of finding people who meet your target market. Again the preference is to meet these people face to face. If that isn’t possible video call, with your final fall back being a standard voice call.
If you are at the point of reaching out to potential users I’m going to assume you have an idea you think is worth pursuing. And perhaps you are thinking that in order to articulate this vision to the consumer you need some wire frames or mockups? This is a common approach, but put them aside for the minute. If you go in there and ask someone what they think of your design, or if they will download an app. Not only are you going to get a biased response but you are also going to get dirty data. No one will want to upset you so when you ask do you think the design is good? Or would you like to download this app? You are going to get people lie to your face! Even if you get them to download your app, they may stop using it after a few days because you didn’t uncover what their true pain point was. And if that’s the case that user is then worth zip!
So let’s start again with questions. Perhaps you have a great idea for a new marketplace that allows consumers to sell second hand goods in an app with a tinder like exploration feature. I.e. swipe left or right, depending on if you want to bid or pass on the item. In this instance you don’t want to ask if people would like to buy or sell goods this way because a) they might just say yes not to offend you, and b) by pre loading your questions you will bias their response. For example, what if you didn’t mention it was about buying/selling second hand goods and as a result of this found that people were more interested in buying new or unused goods. So don’t pre-empt the answers with your question. Instead let’s once again focus on the “why”.
Using this above marketplace as an example I would look to ask a potential user the following questions:
- When you need to buy something where do you typically go first?
- Why do you choose to go there/shop there?
- If you didn’t go there where would you go to next? Why?
- What type of goods do you buy offline?
- What type of goods do you buy online?
- Why do you choose to buy those goods online, as opposed to offline?
- If you had to sell something where would you sell it?
- Why would you choose to sell it that way?
- What do you like about selling things that way?
- After you sell something on that platform what typically happens next?
- What works on that platform? What doesn’t work on that platform?
In each example above can you see that we are trying to uncover behaviours, rather than requests for features. Understanding the why is much more powerful than understanding the how.
Hopefully from the above, and in keeping with our example, we uncovered a gap in the market. Hopefully our potential users said time and time again that finding interesting things to buy was hard and that they wished they could just browse as if it was a catalogue (i.e. in keeping with the marketplace for goods cross tinder example we put forward). However by the same token these interviews may shed some light that suggests a change to the core idea is needed. Or perhaps there just isn’t any demand for something like this. Either way the feedback you gather from your interviews is going to be immensely valuable to you. Now that we have this feedback we can go on to continue validating our consumer startup idea. And this is where the difference between what we described in the B2B example begins to emerge.
Unlike the B2B example you are not always trying to get people to “buy” your product. Perhaps it is a social network or a marketplace like ebay where you take a cut of the transactions. If this is the case then we can’t follow the previous model of asking for a payment or deposit in advance. Yet, relying on the feedback of a few users isn’t going to quite cut it. Especially in the world today where there are so many apps and so much noise to cut through.
In this instance you need to figure out the best way of taking the validation of your idea to the next level. If it is a consumer app or website, then because costs to launch a startup have come down so significantly over the past few years, investors are going to expect you to have some level of traction before they invest. So while we are not launching our full scale efforts, some development work may be required to get to this stage. In this instance though you want to get narrow. You don’t want to launch your MVP or initial concept to the world. Just like Facebook was initially only available at Harvard, you want to make your concept available to a select few.
Using our marketplace meets tinder example you may choose to focus only on women’s clothes and launch in one city. This allows you to concentrate your marketing efforts down to one product category, one gender and one city. A much more manageable solution than trying to cover all products straight out the door.
Recent Research from Gartner states that only 0.01% of all consumer facing apps will be considered financially rewarding by 2018.
Often when faced with this issue some Founders turn around and say that they can only build such an MVP if they get $x in investment. Unfortunately, unless you are a successful entrepreneur already, getting funding for an unproven idea that’s a consumer orientated app is like pushing a boulder up a hill. In fact recent research from Gartner states that only 0.01% of all consumer facing apps will be considered financially rewarding by 2018. With such low rates of return it’s no wonder why investors ask you to get to some level of product market fit before providing cash. So as a Founder/Cofounder you need to invest some of your time and money to prove what this app could potentially become.
And to be honest, that may not take too much money at all. If you are technical founders, creating an MVP of a consumer orientated app then you are essentially putting in sweat equity, i.e. time. If that’s what it takes to validate your idea on that narrow subset of users, then that’s what you have to do!
Alternatively, consumer focused goods could also be something like a hardware product. Obviously the steps to validating an idea like this are vastly different to a consumer app. As hardware startups are more capital intensive there has been a strong trend in recent years to launch on platforms like Kickstarter and Indiegogo.
Initially many Startups used this as a pathway to validating their idea. They pre-sold their product when they had little more than some 3D renderings of what they hoped to create. Unfortunately, there was a string of high profile failures and back in 2012 the rules were tightened. While you can still crowd fund a “prototype”, you can’t offer that as a reward.
As a result of this change many consumer startups that are successful on these platforms are now much further along in their journey. In essence they are essentially using Kickstarter or Indiegogo to pre-sell their first production run of the product they have created. To get to this stage could take a couple of years and hundreds of thousands of dollars. In fact, some successful Kickstarter campaigns drop north of $25 — $50,000 just of video production to showcase their product.
On top of that is the enormous amount of effort that goes into getting media attention and early coverage in the critical 24 to 48 hours post launch. In a nutshell what I am saying is that Kickstarter and Indiegogo are extremely valuable platforms. They are just not the right platform if you are at the earliest stage of your startup, the idea stage.
So if these platforms are no longer viable options, where can you turn to? This is going to be largely dependent on your skill set, experience and the industry you operate in. One would hope that if you are serious about developing a hardware product in a specific field you have an “unfair advantage over everyone else”. That is to say you see something in the industry, or have a specific skill set that is extremely hard for other people to replicate. For example if you were creating a haptic suit for Virtual Reality that could mean your team has a unique combination of skills across game development, costume design, electrical engineering and fabrication. A team that would be hard for other people to replicate with ease.
You can then leverage this experience to provide some level of validation to your idea. You can do this in a number of ways.
- Similar to the B2B example you can reach out to your customers. In keeping with the Virtual Reality Haptic Suit example you could reach out to early adopters of VR and ask them about their experience, ask them what was missing from that experience and see if it correlates with what you are trying to achieve with your product.
- You can also reach out to industry contacts. Chances are if you have x number of years experience as a game developer you are going to have a strong network of people with an interest in the space. For example if you are building the haptic suit you would need to know if game developers would be open to building games that provide feedback which you can capture. If they aren’t interested in developing games that would allow for the use of a haptic suit then no matter how good a product you design, adoption will always be low.
Based on this you may decide to move forward with a prototype. While the above two groups have not provided 100% validation for your idea, their feedback should have provided you with enough insight on whether to take the next step or not. Assuming that the feedback was positive and that there appeared to be a demand for a haptic suit you may now press ahead with developing an early prototype. While this will involve some investment, you are hopefully able to pull off most of it using sweat equity (and your skill set/that of your founders alone).
This should hopefully allow you to develop a rough prototype. You can now use a similar process to that which we outlined in the B2B example to see if you can get people to pay for this upfront, or at least put a deposit down. But to be clear I am not saying you launch on Kickstarter now. No what you want to do is get a handful of people to buy it/put a deposit down in person. This will put you in a much stronger position for what comes next.
If you have reached this stage with your product there appears to be clear demand for what you are building. You have essentially validated the idea. To take it to the next stage though will require more resources. A successful kickstarter campaign is not spun up on a weekend and you may need to bring on additional employees and capital. By now however, you are in a position where you can take a much stronger value proposition to investors. You can outline how you got to this point and how each step provides more validation for what you are setting out to achieve. Not only did you get great feedback from your target market, but up and downstream players (in this case game developers) were supportive and people actually pre-paid for the product in one capacity or another.
What happens next is another series of blog posts in itself. But I think we can again see that the process outlined above for a hardware product is going to be 100x more powerful than validating your idea than simply asking for sign ups.
The Benefits of Validating Your Start Up Idea Using More Than Just Emails
Having covered both consumer and B2B products and services and the approach that can be taken to validate each idea, the final step is to understand the benefits of such an approach. While it should be obvious, too often startup founders think all they need is an idea, a team and a bit of luck to get funding. While this may be true if you have had a past exit, and an exceptionally well structured team I have really written this guide for the first time founder. If this is you then an idea and a landing page with some email sign ups isn’t going to cut it.
Not only do you want to validate your idea for the benefit of investors you are approaching now or in the future, but you also need to do it for yourself, the rest of your founding team and any early stage employees you look to bring on board. Going through this process and actually getting feedback from potential users and even having them commit to buy whatever it is you are selling provides added incentive to get the product to market. Why? Because you know there is a willing and able population of people/businesses waiting to hand over their money
So lets break this down. From the eyes of the investor it should all be about reducing the potential risk for them. Let’s contrast two situations:
Situation One: We have 10,000 email sign ups and have started developing our social media management tool. We have showed our email list and early subscribers the wire frames and mockups and everyone said it looked great. In order to get to market we need to raise a small seed round of $250k and start looking for investors.
Situation Two: We believed there was a gap in the social media management space based on our own personal experience. However, before we dived head first into this we wanted to see if this was an issue other people also faced. As a result we reached out to over 1,000 people in the marketing industry. From this we managed to have face-to-face conversations with 100 people. We asked them a whole host of questions about how they currently market online and through which social channels. From this we actually found that areas X, Y and Z were well served by existing products. However, a key pain point was that there wasn’t an effective social media management tool for video. As such we focused our efforts on this particular vertical.
So we now have a group of 75 who identified this as a pressing issue (out of the 100 we interviewed). As such we went to them and their organisations and asked them to pre-pay for the solution, which we priced at 20 per month based on our research of comparable offerings targeting other social media channels. From this we managed to pre-sell 30 twelve month licences. While the revenue generated from this is low, it goes a long way to show that not only is there demand for the idea, but people are willing to pay for the solution.
Out of the 45 who didn’t pre-pay we managed to secure deposits and Letters of Intent from a further 27 companies and individuals. This further validates that there is a real world need for this software and that organisations are wiling to invest to overcome the pain point they suffer.
Finally, based on all of this feedback we were able to create our landing page with a much more targeted message. Instead of building a social media tool, we are building a social media tool specifically for video. As our message is more targeted and because we have a much clearer idea on our likely market we have been able to drive additional traffic to our landing page and convert at 30%. We have also begun investing in content marketing around this space and already have had a post featured on “this awesome tech website” that generated 500 sign ups.
As you can see from the example, situation two is vastly superior. From the investors point of view they can see that you have done your research and that there is clear demand for your product. Not only that but people have actually paid for it already. Congratulations, you just removed a significant amount of risk and are in a much stronger position to raise the funds you need.
Turning now to you, the founder and founding team, you have also benefited. While the initial investment in time is greater than that of simply throwing up a landing page, you received feedback that allowed you to refine your product and solve a real pain point faced by the market. This saved countless months of development time that would have been thrown into building the wrong product had you just assumed that a general social media management tool was what the market needed. Not only that your landing page marketing efforts are now much more targeted. You generated revenue and had a much stronger story to pitch to investors.
Bringing this all together we must remember that we now have an environment where launching a startup is cheaper and easier than ever. Reducing the cost of entry has increased the number of players in the market. As such we need to grow and adapt to ensure we are providing real value to our customers in order to stand out. The days of using sign ups on a landing page as validation for your idea are over.
If you take this approach you run the risk of building something nobody wants, launching to crickets or only seeing a brief initial spike in downloads before your app disappears into obscurity. A much more valid approach is to get out there and speak with your users, understand their wants and needs and build something that solves a real problem. Prove that you can sell it, or gain traction in an initial market (especially if you are a consumer app) and you will be in a much better position to raise funds. And as a bonus you will know you are on the right track and are investing your most valuable asset (time) in the pursuit of something that has a much better chance of succeeding.
Latest posts by Paul Towers (see all)
- My Speech On Validating Startup Ideas At The University of Sydney - September 19, 2017
- CREATING CLEAR GOALS FOR YOUR GROWTH WITH ADVICE FROM CHANDINI AMMINENI FROM 500 STARTUPS - September 5, 2017
- 16 Websites & Groups Covering The Australian Startup Ecosystem - September 4, 2017