Quick ideas on market validation: research is testing

Quick ideas on market validation: research is testing

This is something we see a lot when walking through business plans with startup groups, especially where there’s a big room of people brainstorming at once: paralysis by analysis.

Aside from some initial assumptions and intuitive knowledge, market knowledge isn’t a debate.

You can spend an awful lot of time huddled in a conference room talking about whether you think this or that might be true, and maybe your business partner disagrees or there’s third party influence or two competing blog posts that you both pulled up about the same “fact” of the market.

The solution to this wheel-spinning is something like the scientific method: you merely have to pick a good way of framing the question (hypothesis) and then go out and collect enough data to verify the answer.

This used to be in the format of test focus groups and big surveys and slow man-on-the-street methods, but we have the internet at our disposal and the internet does not stop, it does not sleep and it connects the people you’re after conveniently close together.

So let’s leverage that!

Facebook ads are an easy way to do this. They’re cheap enough and reach a wide audience quickly. Pair them with Typeform like Ryan did for a survey approach.

It’s also a stackable thing – buying $50 in Facebook ads might give you an idea of whether or not to spend thousands making an MVP, which would save you the tens of thousands or more making a real final production out of it all.

So in a sense, you can validate before you validate. As things go you can decide to pursue or pivot with the increasing feedback.

The Why

Perhaps this is obvious, but a lot of first time entrepreneurs (and veterans!) forget that validation is the key to investment, and is our main method of looking at risk.

Entrepreneurs are known for “being risky” but this isn’t actually true – we’re in the business of risk mitigation. We’re not gamblers. This is data and judgement.

Knowing your market means knowing your investment.

Investments not only of money, but of time and stress and energy. You’re often trading chunks of your life away for this stuff, so we want to make sure it’s at least somewhat valid before we get too deep into it.

They say only one in ten startups succeed and while that stat has some disclaimers, it does represent the overwhelming fact that people tend to come up with “the next greatest thing” and then throw themselves whole hog into it without first looking at the bigger picture: will the market support this?

From that same research: VCs allocate 2-3x more capital towards companies who haven’t found product / market fit yet. If you’re not funded, that’s 2-3x the amount of your own money you’re spending.

On average they take 2-3 times as long to validate than the founders expect.

This isn’t just some weekend of studying.

Also interesting side note, companies that pivot (start something and then end up doing something else) tend to raise 2.5x more money and 3.6x better user growth. Pivoting is sort of like market validation being forced on a company in such a way that they can’t ignore it.

This isn’t a bad thing – markets sway and your original hypothesis might be half-wrong or need some adjustment over time, it’s totally fine (recommended even) to learn more as you go and adjust course.

Conclusion

In the end, every business venture is a theory – a hypothesis – and an investment. Market research combined with market validation can help offset risk and mistakes in spending time, money, energy, resources on the wrong things or in the wrong directions.

Market research is getting to know a demographic, market validation is knowing if the market will buy your product.

In the old days this was a big time and money investment, to corral focus groups and physical meets of users to test. Now we can automate and leverage the internet to get feedback faster and cheaper. Often only tens or hundreds of dollars in Facebook ads can get you a decent idea of how to continue.