This is Part 2 of a series of articles on how to validate your startup idea. Do you want to reduce the risk of failure in your startup journey? If Yes, you have to systemically validate the core idea before implementation. This also helps you create an appealing case for investment. This article describes a framework to validate a startup idea. This framework is built upon 3 pillars each of which is split into 3 sub-pillars.
- Need. Do users really need the product?
- Market. Is the market attractive enough?
- Execution. Can you overcome execution challenges?
You have to, first, convince yourself that answers to these questions are all positive. Then, you have to systematically answer them to convince a third-party. If you want to find a co-founder or an investor, you must have the answers ready. In this article, I only describe the framework without explaining how you should measure each sub-factor. You can validate a startup idea by this framework and significantly reduce the risk of failure.
Do Users Really Need The Product?
According to human psychology, our actions are always motivated in order to resolve a need. Plus, the main objective to build a product is to resolve user needs. But what is a need? A need is a pain that will be removed by using the product or a gain that will be achieved by using the product.According to human psychology, an individual always takes action to remove a need. Click To Tweet
You can evaluate the need importance based on 3 sub-factors as follows.
Quality is the importance of the need for users either as pain or gain. You can rank the quality of need using a recommending test or disappointment test. You should not get excited by good results in this step, but you definitely must get concerned otherwise. Note that incremental improvement does not attract users since they always look for a 10X factor change.
Quantity is the number of times that potential users may use the product. You must estimate the quantity by considering the number of users and frequency of use.
Variety is the number of needs such as convenience, affordability or accessibility that the product aims to resolve. A product is built based on a vision. And, a great vision must resonate with different needs. In this case, you can engage users who have different needs with the product. This creates an opportunity to pivot if you find an assumption is wrong since you did not rely on a need.
Is The Market Attractive Enough?
You can evaluate the market attractiveness based on 3 sub-factors as follows.
- Market Size
- Market Trend
- Monetization Time
Market size is a quantified value of a target market. You can calculate it using the number of individuals, the number of purchase transactions, or the total amount of sales volume. A cool product that doesn’t have a reasonable market size is not worth a dime. As a rule of thumb, a high-potential idea must have at least $1B total available market to increase the chance of building a viable business.A cool product which doesn't have a reasonable market size is not worth a dime. Click To Tweet
Market trend (or, market readiness) is a perceived tendency of users to purchase a product. If the potential users are not ready to purchase a new product, even a great product has a hard time to convince its users. That has no connection with the quality of product or execution.
According to CBInsights, running out of cash is one of the top failure reasons among startup companies. But how can you prevent suffering from this challenge? One of the methods is to have a low monetization time. If the monetization time is long, a small company will find challenges to finance the project. you always have to keep an eye on the burn rate and runway.
Can The Team Overcome Execution Challenges?
You can evaluate the execution complexity based on 3 sub-factors as follows.
A successful product always has an outstanding founding team. They must have aligned visions on the product and philosophy for their lives. The founding team must also in power to attract talents and build a happy and excited team with a great sense of ownership. So, if there is no great team with a great culture you should think twice.
Related Link- How To Build An Outstanding Company Culture?
The underlying technology must be well developed in academia before a company starts using it in industry. So, if the technology is still in its infancy stage, you must not build a company relying on that technology.
Related Link- Technology readiness levelsIf there is no great team with a great culture you should think twice. Click To Tweet
In the end, the company must have a clear and solid product strategy. A product strategy includes competition analysis, a go-to-market strategy, and a growth strategy. You do not need to have an extensive plan, but you have to create a well-thought one.