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How to validate your idea for a startup

  1. ChrisGoodfellow

    ChrisGoodfellow Editor Staff Member

    Posts: 130 Likes: 36
    2 |
    In association with Federation of Small Businesses

    The journey to starting up is fraught with difficulty. The statistics for the number of businesses that don’t survive their first two years of trading have been repeated often enough not to be mentioned here.

    Today, though, startups have more routes to test their ideas than ever before - it’s possible to see whether there’s a market for your product or service with minimum investment. So, we spoke to UK Business Forums (UKBF) members about how they test ideas.

    This feature was produced in association with the Federation of Small Businesses, which provides support services for new and existing businesses. Learn more here.

    Using marketplaces to test products

    In spite of the amazing tools available to build, promote and run ecommerce sites it still requires a huge amount of work to build an audience and gauge interest in a new product. However, it’s possible to trial virtual marketplaces like eBay and Amazon, or those targeted at small businesses such as the FSB Marketplace, and just see if something sells, which is something advocated by UKBF stalwart The Byre.

    “How does a newbie gauge 'price elasticity of demand' (a sexy economist's way of saying ‘so, does anybody actually want this damn thing?’) for some niche product that he or she intends to bang together in the front room or import from China in boxes of just 100 pieces?

    “I could go off on one of my usual tangents of how things used to be back in 49BC, when we had to perform basic market research, using a pointed stick, a rock and a bucket full of chicken entrails. Instead, I'll just say 'eBay,’” he says.

    The Byre recommends testing prices and different conditions, such as the number of products in a set, potentially using different accounts. The process allows a founder to identify whether there’s demand for the product and the optimum way to leverage it while minimising risk.

    Using pop-up shops to meet demand

    It’s possible to do this in the real world too. Pop-up shops and market stalls will not only help startup founders figure out whether there’s demand for their product, but the first-hand contact with customers is a potential gold mine of feedback.

    This requires a higher level of investment, but carries significantly less risk than taking on a premise on a long-term lease and it’s sometimes possible to make a less formal deal with an existing business that could display your wares.

    A couple of things to remember about setting up a pop-up shop:

    1. Check the footfall (number of people entering a shopping area) of the location, ideally at different times in the day, and speak to people in the area - what are they shopping for?
    2. Is the space ready to use (sometimes referred to as ‘turnkey’) and will you have any obligation to carry out repairs? Check the lease carefully
    3. How are you going to decorate the space? You could offer suppliers profile in return for useful branding collateral, and themes and a sense that it’s only open for a limited time period can attract shoppers
    4. Can you tie it into your ecommerce experience? You could take email addresses for a mailing list or give flyers advertising your website away with purchases

    Would your mum lie to you?

    Market research can be difficult and it’s easy to get biased feedback, particularly if you ask people you know.

    Rob Fitzpatrick sets out a strategy for researching product demand in the seminal startup book The Mom Test.

    “People say you shouldn’t ask your mom whether your business is a good idea. That’s technically true, but it misses the point. You shouldn’t ask anyone whether your business is a good idea. At least not in those words. Your mom will lie to you the most (just ‘cuz she loves you), but it’s a bad question and invites everyone to lie to you at least a little,” he says.

    In the book, Fitzpatrick explains a series of rules for asking questions. Importantly, you need to establish concrete facts about customers’ lives. This means talking about their pain points (what your business could hopefully solve) long before introducing what you want to do. Here are three simple rules to keep in mind:

    1. Talk about their life instead of your idea
    2. Ask about specifics in the past instead of generics or opinions about the future
    3. Talk less and listen more

    Start selling, develop, enhance

    While proper market research will help you establish whether a startup is a good idea, there is still little replacement for getting someone to pay for something.

    Johnathan Briggs, senior consultant at sales software business Target Dashboard (you can read their marketing manager webgeek’s posts on UKBF here), stresses the need to establish buyer intent.

    “There are a lot of people who will tell you how great something sounds or looks, but without using it have no idea if it’s fit for purpose. It’s only once they start trying it out that you get enough information about whether it fits a need or not,” says Briggs, arguing that the lack of experience makes market research prone to creating red herrings.

    Instead, the offering is built and refined while being actively used by customers, providing information on opportunities for enhancements. Put simply by Briggs:

    1. Have a look at the market, see who’s successful, what they’re doing and what you could be doing to add value, improve upon it, apply to a different sector etc.
    2. Quickly (agile development) put together a working product and get it in the hands of prospects to evaluate and provide feedback
    3. Enhance, expand and run through step two again (rinse, lather, repeat)

    In the initial stages of a product’s lifecycle this can be done as part of a beta group (this route was difficult for Target Dashboard because of the complicated set-up process), which we’ll cover in a moment.

    Beta testing for software startups

    The primary method to doing this is to build a Minimum Viable Product (MVP) - essentially create a program with sufficient features to satisfy early adopters, those that will generally use something that’s a little rough around the edges.

    It can be daunting and potentially damaging to open it up to the wider world, so startups will often establish a small group of users for testing.

    Robert Ollett, founder of co-working space software Habu, has just finished his beta group, which aimed to get feedback, develop traction and build the team’s confidence.

    “As an early-stage startup building a complex B2B product, getting that direct market feedback through our potential customers actually using Habu was absolutely invaluable. It helped us build both a better product and better support prior to release.

    “Creating an engaged global beta group also helped us show investors that Habu had that key quality of product-market fit.”

    To build a beta group Ollet approached people the team had done in-depth research with already, and used cold calling and networking. He recommends looking in your local area to make things easier.

    Whatever route your business takes to testing its ideas the process can provide invaluable insight at a low risk. And it’s a great time to start up. Customers are excited to buy from new businesses, the support ecosystem for is better than ever before and there are more low-risk opportunities to try out your idea.

    FSB’s aim is to help smaller businesses achieve their ambitions. We are the UK’s largest campaigning pressure group promoting and protecting the interests of the self-employed and smaller business owners. As experts in business, we offer our members a wide range of vital business services including advice, financial expertise, support and a powerful voice in government. To find out more call 0808 2020 888 or visit fsb.org.uk/join.

    #0
  2. nuwav

    nuwav UKBF Contributor Free Member

    Posts: 57 Likes: 5
    Thanks Chris for this post. I have an habit of starting projects without validating the idea first, I will try the ideas in the post.
     
    Posted: Apr 17, 2017 By: nuwav Member since: Feb 1, 2010
    #2
    ChrisGoodfellow likes this.
  3. webgeek

    webgeek UKBF Big Shot Full Member - Verified Business

    Posts: 3,506 Likes: 1,306
    Good stuff Chris, well done.
     
    Posted: Apr 24, 2017 By: webgeek Member since: May 19, 2009
    #3