3 Reasons to Validate the Market Before You Invest in a Prototype (and a checklist to help)
Spending time to validate the market before prototype
Seed stage investors are presented with more potential deals than they can fund or even put through due diligence. In fact, there can be so many eager entrepreneurs with great sounding ideas, that most investors look for reasons to say “no.”
It’s not to crush dreams. They do it, first, to prioritize. Resources (money and especially time), even for venture capitalists and wealthy angel investors, are limited. Second, savvy investors know that the clearest product differentiator of pre-prototype deals is how well the entrepreneur’s solution aligns with the target market to solve that market’s needs.
In the pre-seed phase, market validation comes ahead of everything else.
With startups, investors don’t have to drill down through years of corporate records and financial statements. There aren’t any. They also don’t have to deal with teams of folks whose job it is to powder the pig.
“All” they must do is assess the evidence that the startup has the potential to solve a big problem for a large market with a solution that can scale.
Learn what investors already know: Early market validation is critical for pre-concept stage companies. Here are three reasons why.
1. Entrepreneurs need direct feedback from customers to build what the market really wants.
Entrepreneurs are bright and earnest people. They have confidence in their dreams and ideas. They often think they know what the market wants. But, charging forth and building a pre-concept prototype based on the wrong market assumptions will blow what early funding the startup has (often from family and friends and the entrepreneur’s home equity, credit cards, or 401K).
A feature set of nice-to-haves, a value proposition that the marketplace can’t embrace, or a misunderstanding of the complexity of the sales cycle—will present an entrepreneur with a difficult choice: to “pivot” to what the market is saying, or to stumble forward seeking traction with the original idea. Neither is an attractive situation especially if you need money to continue.
2. Customers can help find the pony in the poo.
Customers will tell an interested listener what their problems are. I can’t count the number of times I’ve worked with startups who thought their solution would have applicability one way, and then changed directions based on customer feedback. Sometimes it’s a major redo (better this happens at two months while the company is still in pre-concept than at two years), but sometimes it’s just a few tweaks. When an entrepreneur with a promising idea listens to and cultivates relationships with potential customers, they may just help pay the startup to build a prototype
3. Successful entrepreneurs know how to sell, and enjoy doing it.
Some lucky entrepreneurs are naturals at signing up customers; most are not. There’s no better way to learn how to get over any discomfort or inhibitions about working with customers than to seek their input on shaping the product and business plan. Sales is nothing more than convincing a customer that your solution can satisfy a need that they have at a price they would be willing and able to pay. All startup founders must wear this hat. Every startup is unique. But within that uniqueness, understanding the product/customer/market intersection and validating this comes first, even before any attempt at a prototype.
The bottom line:
“You’ve got to start with the customer experience and work backwards to the technology. You can’t start with the technology and try to figure out where you’re going to try to sell it…I’ve got the scars to prove it,” – Steve Jobs
For more information about validation go to our checklist.