How to validate your startup idea? This probably is the most important question to ask before jumping into a rabbit hole of potentially months or years of new product development and launch. The best approach would be to focus first on building a relevant Research Plan to verify the feasibility of the new startup concept.
A good Research Plan is efficient. It comprises of the minimum required checkpoints, but at the same time ensures the full coverage of the researched topic. I have seen on multiple occasions when startups pitch an idea, have spent time and money on it, only to hear from an investor or somebody else, that whatever they were building has already been done, or even been available in other countries for a long time.
Setting Research Goals
For research to be successful, it needs to answer few critical questions and provide answers that are going to satisfy your startup needs as well as the investors’.
Tip: Check How To Determine Your Customer Segments Using The SPA Method to see how to use the SPA method to determine customer segmentation and where to focus first
What problem does the startup or idea solve and how painful it is
Most of the companies have been created to solve a need, discovered by their founders. Either personal experience or by simply recognizing an existing need, all companies are created with the only goal to solve an existing problem. The more painful the problem is the greater chances for success for the startup. The worst situation to be in is to build a solution before you recognize the problem to solve. In fact, this is why 42% of startups fail. Market need is an extremely important question and it is critical for the startup to answer it.
Next, it is important to understand how big of pain your startup is eliminating. If your offer is simply ‘faster, smaller, chapter’, but not elevating a big pain, sales will suffer and it will be hard to establish your brand on the market. On the other side, if the pain is substantial and your solution eliminates it or removes it completely, the solution will sell by itself. Remember that ‘faster, smaller, cheaper’ might be what will remove the pain.
Who is affected by the solution and to what extent? This is where the customer is defined, personas are created and your target customers are defined.
Once you understand who you are targeting, it will help you determine if there is enough market for your product and idea and would that be of interest to any investor. It would even make you think if you would like to spend money and next years of your life building something that would address a small market. This of course depends on the price point you will select for your product. If your product is with a high price ticket, you may afford to focus on a smaller market. In other words, your price would depend on your target customer and other factors (like competition), but the numbers reflecting revenues and profits should be in the range expected by your investors. Define your Total Addressable Market (TAM) and make sure the pie is big enough to justify the efforts of building the startup.
Who is trying to solve the same problem? Are there other startups in the same field fighting to take over the same market?
Having competitors is good. It simply shows there is interest, the market is there and the problem is proved to exist. In the case you are the only one solving this problem, there is the possibility the problem doesn’t exist or it is too small to get the attention of startups and investors. It is also possible you are too early on the market with your solution and nobody understands what you are solving.
Once you recognize the key competitors, and have already done previous steps, it is time to do SWOT analysis.
Tip: Review Employ SWOT Analysis For Your Startup for detailed explanation and examples of how to use SWOT analysis for your startup
Keep in mind that if the problem exists, the pain is big and the market is promising, that it is very possible somebody else is already working on the solution. There are many startups that are ‘in stealth’ mode working on 100% capacity solving problems without too much noise, so they can capture the market once their product is ready.
Use Reliable Research Resources
Knowing the right questions is a big challenge. Knowing where to look for answers is even bigger. Having an experienced researcher helping you to do the actual research is critical. You will not only need to know what to ask, but also understand the answer you just received, and verify that this is from a credible and trusted source.
Nowadays it is easy to Google for your answers. Google covers a lot, but don’t forget that Google is mainly focused on navigating you to the right purchase options. Even when you have good answers to your questions, the whole research can be seriously biased by the restrictions and business rules exercised by Google. You may need to dig deeper and find resources that are specific to the industry you are researching. There are many industry associations and organizations that could help with more accurate results.
Here are some available resources, that are still easy to reach, but may provide a slightly different research data:
- Google Business (Local)
- Crowdfunding platforms like Kickstarter, Indiegogo, Amazon Launchpad
- Pinterest, Etsy
- Startup groups on Facebook
It is worth adding to this list places where you can research your competition that has already been funded. It might be a startup in a similar industry, a similar idea or even developing the same thing, but without that secret sauce, you have and will help you crush them.
One good place that offers good information is CrunchBase. Check also TechCrunch often to keep a finger on the pulse of the startup economy.
Review Research Results
This is the final and most important step. It can be very simple, like simply comparing data in a spreadsheet, or it can be a fully-blown statistics effort to determine what would work for your startup.
The most important result from your research is to recognize if the problem exists, is painful enough to make customers seek your solution, and is there a market with the potential to satisfy the investment criteria of a VC partner.
It is always a good idea to run your startup through an incubator or accelerator to help you with idea validation, proper research and prepare you and your team to present it to investors. Incubators and accelerators are specialized in recognizing the potential of startup ideas and help with commercialization support for your team.
Tip: Our resource page has a long list of incubators and accelerators in Los Angeles area.
Importance Of Idea Validation Process
Creating good competitive analysis and creating comprehensive research about your idea is a necessary and important first step of your startup journey. It should actually be a fun process because it would show how advanced your thinking is. It would also help adjust, tweak to change your idea. It most likely will give more ideas and help grow your startup before you even start it.
In addition, good knowledge in the area where you will start your race with the competition will only give you the competitive advantage you need and the confidence to talk to investors to support your idea.
Use tools like SPA and SWOT, to utilize best practices and have the right tools on your side.