Idea Validation: A How-To Guide

The process of developing a business idea should be fairly straightforward, yet we see countless startups getting it wrong. Why? One of the main reasons is poor, or lack of, validation. In other words, the ‘idea’ doesn’t solve a real problem for consumers.

We previously discussed the ways that Demium’s Ideation Committee identifies and analyses a range of ideas in generating a business idea, which are then passed on to our aspiring entrepreneurs in the incubation process.

Once a Demium startup selects their idea, the next critical step is aggressive discovery mode. During this stage you will find out as much information as possible about the problem your target audience is experiencing and make a firm decision as to whether or not that problem is widely encountered enough to be worth solving. That’s not to say you’ll get a simple yes or no answer to your research or that you’ll come up with a near-perfect solution. Ultimately, validation is about making sure an idea has true potential.

Idea validation is a repetitious process. One that involves much gathering of feedback and proof points that relate to assumptions surrounding the idea. These enable a startup to make more informed decisions — and at a faster rate — about the development of a valuable product or service. Essentially, this is more about problem discovery than anything else.

Of course, you also need to understand the pain point and know that if a solution was on offer that would improve people’s lives, would customers be willing to pay for it? This is what we mean by real problems. And remember what we said about not attempting to devise a perfect solution immediately, because the initial idea is just your sounding board. This is what you’ll work off in order to develop and refine your idea.

The difficult part comes when assumptions are made and they don’t match up with the real-life challenges. It’s so important that you expose your idea to potential customers before building an MVP, which will cost money, and that you validate the idea before getting emotionally attached to it. You almost want to focus on disproving your assumptions, as opposed to finding workarounds that’ll fit them.

At Demium we have a relatively straightforward process to guide our startups through idea validation quickly and effectively.

1. First we get them to write down a problem statement. For example: “It’s impossible to buy prescription glasses online, and at a reasonable price, in Spain without physically trying them on in a store first.”

2. Depending on how much information they have, the startup will then develop an outline of their target customer personas and any associated customer journeys.

3. Then come the assumptions: outline and rank the biggest, riskiest ones that a potential solution might need. For example: “People won’t want to buy glasses online if they have to pay for return postage, but they will if we offer a zero-cost returns/exchanges policy.”

4. What is it that the startup specifically wants to learn? They need to define goals to validate the size of their market and determine if there is enough buying power; understand how the problem is perceived by the customer; find out if there are any headline features of the product/service that addresses the problem and whether they need to validate potential price points to determine if the business model is viable.

5. Develop a hypothesis and minimum success criteria. If the startup is selling glasses online, their key assumptions are about whether people would be willing to make a purchase online and what price they’d be willing to pay. For example: “More than 70% of 25 people interviewed would buy glasses online.”

6. The penultimate step is all about conducting tests and/or research, which we’ll explain in more detail a little later.

7. Validate assumptions. This is when startups decide whether or not to proceed to MVP or loop back and revisit the problem.

Our incubation teams are pros when it comes to guiding entrepreneurs through these steps. They can help startups rationalise and map everything out, which means research can be carried out efficiently, therefore gaining meaningful and actionable information quickly.

Plus, working with Demium’s network of advisors and mentors means there’s a strong chance that someone will easily be able to help you access a sample of a relevant target audience. We can’t stress enough how vital this is. All too often early stage startups test their assumptions on friends, family and their immediate networks, but these aren’t appropriate test audiences, as the risk of bias is too great. You need accurate information from customers who actually experience the problem you’re researching to ensure you fully understand it and to prove — or disprove — your assumptions.

The fastest and most cost-effective way to conduct research at this stage is to interview potential customers. Depending on your product/service, you could develop a web page to gauge responses to product/service features, benefits and even names. Some entrepreneurs also A/B test concepts by setting up variations of ads (eg. promoting different benefits or features) on social media to analyse the response.

When it comes to interviewing target customers, our advice is to keep it short and to the point. If it takes too long, the interviewee will get frustrated and this could bias or reduce the quality of their responses. Also assure them you’re simply conducting research and not trying to sell them something, as this is another factor that tends to agitate. Overall, just be prepared, clearly outline the problem you’re looking to solve and why you believe you can do it, and list your questions. These should be along the lines of:

Do you experience this problem?
How often do you experience it?
How frustrating/painful is this problem for you?
How do you attempt to overcome it at the moment?
Can you avoid the problem or prevent it from happening?
What is it about the existing solutions that you like and dislike?
If you aren’t aware of any, what would be the benefits of a potential solution?
Would you be willing to pay for a solution?
If so, how much might you be willing to pay for it?

Be sure to make a note of reactions, body language and words used by the interviewees. Ask ‘why’ wherever appropriate, as this will get you as much detail as possible. Also, if you’ve mapped out your customer journeys beforehand, modify them based on feedback and share these with your interviewees — you’ll be surprised how quickly this simple action can help you validate. And remember: “The customer is always right.” Don’t let your love for the idea lead you to ignore valuable, impartial feedback.

At this early stage your results will be fairly qualitative, so it’s often helpful to summarise the feedback, especially the most common answers.

1. How has your customer perceived the problem? Use the words they use to describe this.

2. Articulate the job or activity they were trying to do and adjust the customer journey(s) based on their feedback.

3. Refine your target market (people who said they’d likely buy your product) and customer needs. Rank these depending on frequency of response.

4. How likely will demand be? Can you size up the people who said they will buy and repeat buy your product/service?

5. Outline the solutions the customer offered up.

6. Propose pricing. How much did people say they would be willing to pay?

7. Note key quotes that you feel capture all of the above.

8. Draw conclusions.

If you’ve validated your assumptions, you can start to refine them and determine your next steps. This could be conducting further research or starting the process of developing your MVP. If, however, you haven’t validated your assumptions, you’ll need to revisit your problem statement. Repeat the process until you’ve narrowed down your assumptions to key proof points.

Now, idea validation won’t always lead you to victory, but it’s an essential part in the process. How you utilise that validation to develop your MVP is what really counts. Do this right and you’ll be well on your way to entrepreneurial greatness.