The Key Stages in Validating Ideas

“Don’t solicit feedback on your product, idea or your business just for validation purposes. You want to tell the people who can help move your idea forward, but if you’re just looking to your friend, co-worker, husband or wife for validation, be careful. It can stop a lot of multimillion-dollar ideas in their tracks in the beginning.” — Sara Blakely

Have you ever thought about the process startups go through to validate their ideas before launching a business?

In one way or another all startups have to validate their idea and business model. Usually the reason for doing so is to get product-market fit. Carrying out this validation allows you to have a better understanding of your target market, your potential customers, the status of your product, the business model, and in general whether the strategy you are using makes sense or not.

The first stage of the process is to carry out a market validation. This is your product’s target segment. It involves a geography, a consumer segment, consumer profile. The goal is to find a market that is underserved, has growth potential and is large enough to compete.

The first thing every entrepreneur should consider is market size. The first measure is the TAM (Total Available Market), i.e. the total market size to which you could aspire. This is followed by the SAM (Serviceable Available Market), i.e. the market size of your technology or services. Finally there is the SOM (Serviceable Obtainable Market) which is the realistic market size you can obtain considering competition, geography, trends, expected demand, sales and distribution channels, among others.

It is important that the entrepreneur also understands first hand the needs and pain points of the target market. For this reason, a group of potential customers or users should be identified for initial interviews and to answer the most basic questions about the product or service planned. This is an iterative process where communication with customers must be constant.

The next stage is idea validation. The idea is to launch your idea to the market and see the reaction of consumers to determine if it is something that really makes sense to do. One suggestion is to determine what is the market test you want to launch to determine the interest of customers around your product by getting timely feedback regarding the added value and functionalities of the product.

There are different ways to perform this part of the validation. It is important that the execution of this process is not costly and can be done quickly. One way can be the creation of a landing page, where you explain the objective and functionalities of the product, and you can adjust it so that the idea resonates with your target market. Within the landing page it is possible to offer the potential customer to register their data to access a waiting list and be among the first to try your product.

You can also choose to conduct focus groups with a closed group of potential customers in order to explain your value proposition through the different features of your product and determine if it is attractive to your target market. It is important to be as objective as possible with your product at this stage and to be open to receiving negative comments about it in order to modify it if necessary.

As you receive information from the market you are developing the product with the objective of reaching your customer quickly. Product validation is a fundamental element in business development. Without a robust product you will not have a chance to be competitive in the market. During this stage it is important that you have the ability to continually reformulate the product according to user feedback.

The bottom line is to have a minimum viable product that you can achieve in the shortest possible time and with minimal resources. The faster you can get the MVP in the hands of the user and get feedback from the user, the faster you will be able to launch a complete product. At this stage of the process you will probably have a basic product, however you should always keep in mind the different functionalities you want to develop in order to build the product over time. Building the product takes time and multiple iterations. Proper planning of the resources invested and the value levers to capture your customer are fundamental elements in this stage.

Sometimes the entrepreneur will be motivated to focus on the potential solution. However, at this stage it is important to focus on fully understanding the problem, the customer’s expectations and the levers to create value. It also requires a lot of interaction with the customer and really listening to them in depth in order to shape the product. Going to market does not imply having a final product, but rather having a minimum product that you build over time.

The validation of the business idea for any startup is a fundamental process that can be the difference between having a totally successful business and a failure.

Note: please refer to the original publication at EL CEO: Estas son las etapas clave en la validación de ideas en los negocios (elceo.com)

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Gonzalo Soriano. VC Investor at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.