6 Ways to Do Market Validation for Your Startup

2. I’m going to give you six market validation methods and then we’ll take a short tea break. Technique number one is simply to interview your customers. I put up the book a moment ago called Running Lean. We have a stack of ten copies of that book and I give it out to anyone thinking about doing this type of work. Some people I know they don’t read it because I say ok, we should do some customer interviews. They haven’t read the book and I say, let’s do it, no problems. I take their business, I substitute the words into the interview script out of that book, I sit on the phone with them and I say, let’s call the customer. I copy it word for word and I look like a genius consultant. But I’m just copying what’s out of that book. You can do customer interviews really easily. Just make sure you focus on the problems first before you start to show off your solutions. The next one is wire frames and prototypes. This is showing people visual representations. This can either be in paper, this is what it is going to look like. For a lot of people you’re selling to, actually putting things on paper is, funnily enough, quite non threatening, it is very easy. They don’t feel like they have to gaze at a screen, paper can actually work really well.

3. Or you can build dummies, you can build pages. We’ve done this before where this system would be a $200,000 system but we build five web pages, click to click to click and just link to each other. It allows people to get a feel for what it is going to look like. A concierge service is where you manually perform now what you know you can automate later. Let me give an example of that. There is a service in the US where I think the way it works is you tell them the basic staples you have in your cupboard. You give them some indications of what you’re interested in, they give you recipes and the remaining food items you need. You get a box and you get told what to cook each night. It takes the thinking process out of that. They get to know you and the suggestions get better and the food gets better. The intention for this business is to be effectively a massive logistical business. It’s to have warehouses that have food and do all the moving of food and have a lot of intelligence around the preparation of recipe recommendations. But they tested this by essentially having some pretty basic online forms where people answered their questions or they would just talk to them over the phone.

4. The first run of it, they just went and bought all the food from the supermarket. They lost money. They bought cans of beans for $1.50 that they know down the track they can buy for $1. A lot of the intelligence they just had chefs actually working on the examples. But what it allowed them to do for really a modest amount of money, was test the concept before they went ahead and did the bigger deal. To give an example in our space, one of the speakers from this afternoon, Andy from his business Plexus, what we’ve built for them is a really sophisticated interface for people running trade promotions. So if you’re going to run a competition, it just happens that that field is legally quite complex in terms of lots of legislation. The laws are quite complex state to state and the different types of competitions people run are quite complex. What we did for them was build, firstly all the interface that we were hoping, typically a marketing assistant in a marketing function, would be able to use to enter all the data and not to have to brief a lawyer. He would enter all the data, capture it and then produce a contract. But we were nervous that people without a legal background would actually give us and get through this process effectively.

5. So the first piece we did, we literally cut the project in half, it was like a duck on the water. All the data entry would go there, but it would just save into a database and in the background they would have people, like I just said, this will take 48 hours to create your document. In the background, they had people saying, oh there’s another one. They were making these contracts. But what it did, it allowed them to prove the business model, before we built the backend creation piece which was quite a complex piece to build. So concierge services can work really well to test your market. Halving your market. We’re working with a client at the moment who has a really interesting buyer/seller market place they’re trying to set up. Oftentimes my observation in the buyer/seller marketplaces is that one side of that equation will be much harder than the other. In some markets it’s really easy to get buyers, in some markets it’s really easy to get sellers, but often the other one will be really hard. What we’re doing in this particular case, we took a project that I think we originally quoted something like $130,000. I remember the scenario. I sat down with the person and said we want to test this thing. It’s got a lot of planned intelligence around it. We stripped all of that out and the quote was still $80,000. It was still a lot of money. Then

6. we said on a whim, what about if we only did it for half the market? What about if we just did a registration system that let people log in and fill in their profiles? Because one half of the market we don’t know about and the other half are just rabid and want the service. So we know if we can test that one half of the market, we’ve probably validated 70% of what we’re trying to do. So we ended up doing a project for I think it was around the $20,000 mark that this client will be able to roll out and test that market. If it works, it gives a lot more confidence for what the rest of the project is. We’ll probably learn some things along the way – we’ll probably have some changes and some other bits and pieces. For buyer/seller markets, halving the market makes sense. Minimum viable products. Who here before today has heard of a minimum viable product? I think it is a pretty common phrase in the industry. This is my experience of what minimum viable products look like to people. We have the conversation and it says: We should build a minimum viable product just to test your market. People agree to that concept.

7. What ends up happening though is, they get really worried about what their friends are going to think about the system. So minimum in their world is actually the minimum that I’ll be proud to tell my brother-in-law about at the Christmas party. Personal pride, I’ve seen it lots of time, they don’t want to release something that they are going to be embarrassed about. That is not a minimum viable product. A minimum viable product is the minimum you can do to deliver a unit of value and do some market validation methods. So often, if you think about your system, your systems will often have four, five ort six key units of value. How could we pick one of those off and get that into the market and start to test that? I can tell you first hand, when Content Samurai came out, there were bits of it that I thought were undercooked. Eugene my partner, who is a lot wiser than I said, But I want to get real market feedback. He said, I’d like to get paid to build this product. No one tells you what they want more than real paying customers. So we released a really skinny version of that first up. Test marketing. There will be people in the room who will be uncomfortable with the suggestion I’m about to

8. make. Before we released Content Samurai, we created the most amazing promotional video we could do. We got a video guy in house and he did a number on it. He worked on it for a week and it was a ripper. It showed the product inside and out. It had the subscription plans. We did the works on it. We had testimonials saying how great it was. We lead people though to a sales page. It was to the point that they put in credit card details. We didn’t get them to put in their credit card details, we got them to the point where they would put in their credit card details. We know for a certain number of people who get to that page, because we know our stats very well lined up, what sales we will make. We have a large list of about 400,000 people. We made a random selection of 10,000 and we sent them an email as though the product existed. Yet we had not written a line of code of the product, it did not exist. We asked, we wanted to see how many people would buy it. Can I tell you, after you lose a large chunk of your life and a large chunk of money, it is really reassuring to build something knowing that people are going to buy it before you’ve actually built it.

9. For a lot of people being able to reach the market is a big issue in your business. You don’t know if it is going to work, so test marketing. The question is, is it ethical? I wrestled with that issue, because effectively we were testing something that didn’t exist. So we made sure we did really good things like giving them free versions of it. Thank you, you got to this page. We haven’t actually built it yet but we are going to do so soon. You got here, so we’re going to give you something free, to make up for it. We got no blow back. We had no issues with people saying you ripped me off. From our perspective, and I understand this walks a fine ethical line but test marketing gave us a lot of confidence.

10. IN THIS VIDEO: Ben Stickland, the founder of Alliance Software, discusses the six market validation methods commonly used in Australia.

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