How to validate startup ideas

Everyone says that you need to validate your startup idea. Very few do it. But fewer people can tell you HOW. Today's post will aim to address this gap. Do share your questions, comments and experiences in the comments section so that others may learn, including me!

First, we must understand the difference between the Business Model and Innovation and how they're linked. 

The Business Model is how you make money. In other words, how you deliver value.  You want to know this because you need it to attract talent, customers and investors. Innovation is your offering; it can be in the form of a product, service, process, methodology, etc.

In the tech world, there are only nine business models. Any business you build will fall into one of these nine business models. You can have multiple business models; however, in the beginning, you want to focus on just one. You will need to add more as you start to grow and scale. 

Validation #1 - The Problem

As entrepreneurs, your goal is to validate if the innovation you're working on can be delivered to the customers using one of these models. A process that's commonly known as finding product-market fit. Often, founders are successful in building innovative products. But they fail to identify a sustainable model to deliver it to their customers. They try to solve this by including more features, thinking it'll attract customers. It doesn't!

The good news is that a proper process and discipline can help you avoid making rookie mistakes. When you think you have identified a problem, focus on the adjectives; 

1. Popular
2. Growing
3. Cumbersome
4. Complex
5. Urgent
6. Costly
7. Frequent

These are some of my favourite features or characteristics for a problem. You want to ensure that your pain point has 3+ of these attributes. Next, you want to rate them based on their impact. For example, if the problem is growing, by how much? Each of these attributes can be interpreted with data. Stick to numbers and reduce the dependency on opinions as much as you can. 

Having one paid customer tells you more about the direction you need to go than having 100 free customers. Having hundreds of potential customers is worthless; most don't know they have a problem, some aren't interested in having the problem solved, and the rest can't afford it. 

Some attributes have a direct correlation to the potential solution. For example, if you think the answer is SaaS, the problem you're trying to solve needs to be Frequent & Growing at the very least. If you're working on an Enterprise solution, attributes such as Complex, Urgent & Costly are critical. For some, not solving a said problem is also a solution. The goal is to fine-tune your customer persona to avoid these customers. 

Validation #2 - The Solution

Once you identify your market segment (and before analysing competitors), understand how potential customers are currently solving the problem. Typically there are a few scenarios, (1) they are unaware of existing solutions or (2) there are unmet gaps within existing solutions. So we're trying to validate a few things here;

1. How soon are they looking to solve the problem
2. What are the top priorities in a solution
3. What has prevented them from solving the problem until now?
4. What are they currently spending to solve this issue?
5. Who is the decision maker?
6. Do they have a budget?

The goal in doing all this is to gain an unfair advantage via insights. The answers to these questions will show what features customers value, the level of expected quality and how much they're willing to pay. It will also give you a more realistic way to frame your TAM, SAM, and SOM. You're now in a better position to build the correct MVP. And you have gained the foresight necessary to scale rapidly. 

In any business, there are only two ways to make money. You're either the cheaper or better option. If you're selecting to be better, aim to be 10X or more. More features don't necessarily mean better, so don't build features that won't drive KPIs. Finally, let the business model drive innovation. As the business model delivers value to you and the customer, you can innovate further.