Over the past 10 years, I’ve been involved with the launching of six different companies, spanning from consumer-electronics to international travel and even a nonprofit. The question I get asked all the time is why keep moving from project to project?
Simply put, I’m in love with the idea of taking a concept and driving it into reality. That’s what business is all about. My name is Frank Pobutkiewicz, and today we’re going to be talking about market validation.
Forget the Jargon
You’ve probably heard some of these terms before: market validation, proof of concept, go to market. I want you to forget all the jargon, and concentrate on answering three questions throughout this entire process.
One: will people buy what I’m selling? Two: what’s the maximum price they’ll pay for what I’m selling? Three: will enough people buy it to sustain the business? Throughout this process, we’re going to try to answer these three questions in a systematic way so that you can repeat this process for whatever business idea you’re trying to prove.
An Business Idea Is Not a Company
Every business starts with an idea, that eureka moment that you have that you think can change the world. Now it’s easy to get caught up in the idea, but what you have to remember is that an idea is not a company. An idea is an argument, it’s a hypothesis – if I build this, people will buy it. If people buy it, I can build an organization around it.
Starting at the most basic level is incredibly important when you’re trying to validate a market, because you have to take a simple idea and be able to test it over and over again until you’re able to answer your question. Is your hypothesis correct?
Create a Very Basic Prototype
Once you’ve formed your idea hypothesis, the next stage is creating your prototype. Now there are several different ways that you can create a prototype, but the underlying principle is to make sure that you can do it simply and do it quickly.
Developing a prototype can take different forms in terms of goods, services and technology. Important to remember, don’t get overwhelmed with what you’re trying to build, just build it quickly so that you can put it into the hands of potential customers. It’s easy to get wrapped up in a final product, sometimes you’ll hear this referred to as idea creep or feature creep.
What you want to do is test the basic premise of the idea by building the most basic model of what you’re going to do. Throughout this series we’re going to talk about different ways to build, to develop, and to test your prototypes in front of live customers.
You Need an Audience to Validate Your Market
The third stage is all about audience building.
Now a lot of people think that you can go straight from prototype right into the market and start your company. Don’t do this, your audience build is your most important aspect. You need to get people behind your product before you actually start selling it.
This validates the marketplace for other consumers to feel comfortable and confident in developing and buying your product. Audience building is easily done now with the advent of social media, with rapid prototyping, and simply by utilizing your network. We’ll talk about different ways that you can audience build on the cheap to make sure that you really have a valid customer base before you go into production.
Related: The 300 Best Small Business Ideas
You may have also heard the term beta before, what is a beta test? Well this is nothing more than your initial delivery of your product, whether it’s a good, service or piece of technology.
Will People Buy My Product?
Figuring out how to service your customers and responding to their needs, incorporating their feedback into your prototype is critical when you’re trying to validate the market.
This is the ultimate test – after people have paid you, there’s an expectation of service and performance. Without actually collecting money from customers, you’re not actually validating your market. Remember, the whole process of proof of concept is ‘will people buy my product?’ and ‘what’s the maximum price they will pay?’ Without actually collecting cash from customers, you’re not validating your market.
Finally Begin Building Your Company
And finally, after you’ve validated your market, the process of actually starting to build the company begins.
Providing customer service, providing all the administrative support, most importantly getting that repeat purchase. There is no greater sign of validation than having a customer buy from you repeatedly. Repeat purchases are cheaper, and they’re the crux of sustaining business activity.
Company Mechanics Require an Idea First
There are two other topics that I want to touch briefly upon.
The first is something that I call company mechanics. A lot of young entrepreneurs make the mistake of jumping right into the mechanical phases of starting a company without actually developing the prototype and fully fleshing out their idea.
When I say company mechanics, I am referring to things like creating your bank account, forming your company legally, choosing your partners, building a team, and having your partnership agreements finalized. Company mechanics can be overwhelming for young entrepreneurs, and it can kill a business if there’s not an actual idea standing behind it. Don’t rush into starting a company.
Without realizing that you have a valid prototype and customers willing to pay for it, there’s no reason to start calling yourself a business or a company. Projects, ideas, these are some of the terminology you may want to use instead. Company operations don’t actually start until you’re interacting with customers who aren’t your grandparents and who aren’t your friends. Finding outside parties to validate your idea again is a critical step in the process.
We’ll talk about how company operations can sustain throughout the validation process, but it’s something you shouldn’t be concerned about until you’ve already built your prototype and you’ve begun to interact with outside parties.
Don’t Worry About Your Business Mechanics Until You Validate Your Idea
Young entrepreneurs get overwhelmed with the process of starting their company operations, don’t worry about it. The first thing you need to do is form your idea, validate the hypothesis, build your prototype, and get in front of third-party customers or clients. Without doing this, you don’t have an idea worth pursuing, and that’s okay. But remember, the process of taking an idea and driving it into reality is what market validation is all about.