Validating a market need is one of the most important things a startup can do before sliding down the long startup roller coaster ride.
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This step will save you years of redundant hard work and millions of dollars spent on building and marketing the wrong product. Validating a need should precede both fundraising and building a commercial-grade product. A common concern I hear, often comes with an analogy along the lines of “how did Steve Jobs know people would buy the iPod if it didn’t exist before?”
While it is true people didn’t own an iPod before one was invented, there were other MP3 players out there, which gained popularity and also had some disadvantages. Steve Jobs saw the existing state-of-the art and understood that the missing ingredient was a great user experience. Jobs was known for his customer-centric approach. Customers wanted a device with simple controls (hence the click wheel was born), that would fit in their pockets, that would have longer battery life and that would support at least a 5G hard drive to store many songs.
Though we are not Steve Jobs, we can be smarter about how we validate the market need as early as possible. Here are a few ways to validate your market need early on:
- Competitive analysis: Look into other companies and competitors, learn about their positioning, offering, pricing, target audiences. See what they are doing well and what they can improve on. Are there many small players or a handful of large players? This is important on several fronts, including attractiveness to investors, exit potential and more. If you feel you have no competition, think again, you may be looking through a narrow window. Your competition may be other solutions to the same problem, using other or no tech. Competition can also be similar technologies solving other use cases today. Knowing your competition will help you benchmark your product against theirs, making sure you are not building a sub-par product, rather a much better one.
- Market research: What is the size of the market, how fragmented is it, what is the annual growth in this market that would indicate a growing need? What are the trends that may indicate future needs? COVID is an example of an event that will define new industry trends moving forward. These trends will help you understand the market today and also a few years from now.
- MVPs: Create a minimal viable product with limited resources that will showcase the basic capabilities of the product, this should be enough to show to potential customers and get initial feedback.
- Design Partners: Work with a potential customer who will help build the spec based on their specific requirements, under the assumption that there will be other customers who would have similar requirements. This approach will help build a useful and practical product, based on real market requirements, rather than a product you think customers will use.
Written by Itay Sagie, a lecturer, contributor, and strategic advisor to startups and investors. He is also co-founder of VCforU.com, which helps over 18,000 startups with their Executive Summary while hundreds of investors use the platform for deal flow. Itay is also the Israeli advisor at Allied Advisers, a boutique investment bank from Silicon Valley. You can connect with him on LinkedIn and follow him on Twitter at @itaysagie.
Illustration: Li-Anne Dias.