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How to Validate your Business Model before You Start?

I'm looking for feedback on ways to validate your business model and market need prior to MVP build. I have a concept that I believe is valid and for which there is an important need but I want to be sure before I invest in funding the start-up.

The product platform being considered will be marketed to enterprise clients in the consumer products manufacturing sector. It also involves a consumer app for the whole thing to work. Adoption and usage of the app is the key to the whole thing.

I am validating on 2 levels:

1) I am seeking direct feedback from companies in the target market to gauge their receptiveness to the idea and need for such a product. So far, the feedback is very positive. Most have expressed interest to be part of a beta program. This feedback will be very valuable in terms of informing product direction, feature set, market penetration strategy and value proposition development. My goal is to talk to about 15-20 companies in a few key sectors.

2) I also need to validate the consumer side of the model. I can talk to friends and people in my network but it's highly anecdotal. I need more data. I was thinking of having a research firm conduct a gen pop panel study (n=1000) to assess consumer proclivity to use the app and maybe get some suggestions. Is this a good idea? Some say it's dangerous as the study may indicate high interest but users don't adopt. We see this a lot in research: what people say they will do and what they actually do are two very different things. Is it worth investing (approx $6K) in this and taking the results with a grain of salt in the hope that there is some valuable insight to be gained. Are there other ways to validate consumer needs?

Thanks!



39 Replies

Philip Chang
0
0
Philip Chang Entrepreneur
Strategic Communications Consultant
Hello Richard: On #2, discussion panels to assess interest and generate suggestions is one of the bigger mistakes I see. Yes, what people say they will do and what they actually do are indeed two very different things.

Where the panels can be useful is understanding how a target market talks about a product or service. From there, come insights on how to market or iterate the product. You might not need a panel and a research firm to get enough of a general feeling re: this to act on it.
Monica Borrell
0
0
Monica Borrell Entrepreneur
CEO and Founder at Cardsmith
For #2, we pinged our networks and our networks' networks to find roughly 30 people to attend one of 5 small focus groups where we facilitated a pain points gathering exercise in order to confirm or deny our hypotheses. In hindsight, this worked well, but I wish we had better qualified the attendees to make sure they were really our target (some turned out not to be). If you find people that likely have a problem that you are talking about solving and they are referred via your network, they will be willing to attend a 90 minute focus group either without any payment, or for beer or dinner. Not paying them is another test if you are onto something valuable. You can of course hire someone to do this, but it is pretty cheap to do it yourself and you'll learn more. We iterated on our process between each of the focus groups.
Jason Rosengren
0
3
Jason Rosengren Entrepreneur
Co Founder and CEO at Airzurv Technologies
Have you tried clarity.fm?
JC Duarte
8
0
JC Duarte Advisor
Co-founder & COO @ Distribu.td
Apologies in advance if this is too basic, but have you run your business model through the Business Model Canvas?

Also, although your targeting Enterprise, have you considered this advice? HBR's Start-ups Should Sell to Small Businesses, Not Big Enterprises

Too often I've seen Entrepreneurs get ahead of themselves, that's why I'm checking the basics have been thought through.
Adam Burke
0
0
Adam Burke Entrepreneur
Vice President of Active Water Solutions
There's two books that will layout this out for you. - "If you build it, will they come." - "The startup owners manual" Tactics, techniques, checklists, etc are all there. Good luck!
Adrian Andrade
2
0
Adrian Andrade Advisor
Creative Director at emPower

Richard, We are dealing the same exact issues you've outlined. B2B reception is strong and we're in the process of laying the groundwork of iterating through consumer feedback. Interviews with your potential consumers are invaluable. Not only because they may reaffirm your vision, but more importantly because they may cause you to question your hypotheses and can potentially make you see something you hadn't thought of. The key question to ask yourself going into consumer research is "what do these users need?, rather "what do these users want?".Take a qualitative approach and strive for more direct research with fewer testers over a quantitative approach which surveys 1000s without direct interaction.Since you don't have an MVP or prototype to obtain direct feedback, you may consider using the competitive landscape approach instead to determine what users love/hate about current market offerings.

Richard Pridham
0
0
Richard Pridham Entrepreneur • Advisor
Investor, President & CEO at Retina Labs
JC: Thanks for the Biz Model Canvas. I'll look into it. Themanufactures I'm speaking so far are mostly small compared to the megaconsumer brands out there.Although I dohope to speakto at least couple of big companies as their paintpoints are more acute.

Jason Thx for briningclarity.fm to myattention. I'll sign up.

Monica: the problem we're trying to solve for consumers isexperienced by everyone. It's universalacross demographics.
Jeremy Grodberg
6
0
Jeremy Grodberg Entrepreneur • Advisor
Web CTO & Software Architect - Available
Before I get to #2, let me make a few comments.

1) Your post title is misleading. I know you know it, but for anyone else reading, you have already started, and you're starting with validating your business model, which is a good place to start. You're not doing this "before you start".

2) You should read (or at least be familiar with) Running Leanby Ash Maurya and Business Model Generation by Alexander Osterwalder & Yves Pigneur. I can recommend a few other books if you want. These have a lot of wisdom and research results that will help answer your question. (By the way, I recommend the Lean Canvas over the Business Model Canvas. See Why Lean Canvas vs Business Model Canvas?)

Now, as for #2, you should continue to do 1-on-1 interviews for insights, but you are absolutely right, there is a huge difference between what people say they will do and what they actually do, and getting more research on what people say is not generally worthwhile. I say no, at this point, having a research firm conduct a gen pop panel study is not a good idea unless you are trying to understand their existing behavior rather than trying to predict responses to a hypothetical new product. (Also, if you're just trying to understand existing behavior, there probably is a cheaper source of data than commissioning your own study.)

The best way to gauge consumer interest is to get people to actually take action and commit to a purchase. If it is a product you know you can build profitably for a relatively small amount of money, use Kickstarter. This doesn't seem to be the case for you, so I recommend building a web page that explains the product and offers people a chance to buy. You can roll your own or use a service like LaunchRockor Unbounce. Then fine tune your sales pitch both with A/B testing of the landing page and with Google AdWords testing. See what it costs to acquire a customer, see what features drive the highest conversion rates, and see what pricing works best. (In case it is not obvious, when a customer clicks a "sign up" or "buy" button or link, then and only then do you tell them that the product is currently in development and offer them a chance to leave their email address to receive an invitation to the free private beta when it is ready.)

You can do all of the above for much less than it costs to do some focus groups and the information you get will be much more reliable. After the real-world testing generates a pile of data, analyze it and use it to generate the next round of questions to ask your friends. Maybe then do a small focus group or 1-on-1 interviews, drawing at least some of the people from your new list of prospects. Repeat until satisfied.

Let me know if you have more questions or want my help with this. This is one of the areas in which I offer consulting services.

=Jeremy=
Paul Bostwick
2
0
Paul Bostwick Entrepreneur
Researcher and Self-Employed Product Designer
Hey Richard; I cannot tell if replying works anymore on FD discussion boards as they are so keen on folding into LinkedIn that being said: The consumer side is both the weak side and, advantageously, the high visibility side for you. Plus they do not take a long time to decide (at least at the individual level.) If they embrace you and your offer and then you hold the value they hand over, then the business side will be easier to test/approach as youll be able to show them the process underway. At that point it will not be an "IF we get this flow offer but a, "Now that it has started, we can aim it your way offer so clearer and easier to embrace. You might have $6k to spend but you could learn tons from the smoke test and keep that $6k in your pocket for when you have some more viability feedback to go on and maybe a couple of rethinks all on the cheap. anyhow: google up Smoke test and landing page. if you can get consumers to act on the offer (if and only if) then spend a bit to quantify it. But a marginal case will look marginal and you can tweak it and/or move on. A strong gimmie! signal from both sides might justify a study to dress it up and make it more credible to others you desire to bring on board. But a study will not generate heat that you did not discover in the first place. Not a $6K study done by somebody else, anyhow. OH also. Just because it is a need does not mean it is important enough to change behavior. The status-quo is a real heavyweight so you need more than reason on your side: looking for and serving pain-points for your customers should be more important than helping them do better: they think they are doing fine. Change is a hassle and not a rational act but an emotional one: for example You should quit smoking to save yourself and money Quit! vs Howd you like to meet your grandkids? - Quit! -Paul
David Fowler
0
0
David Fowler Entrepreneur • Advisor
Looking for opportunities, Currently part time APD Chief Engineer
Jeremygives some good advice. I have often wondered about the notion of Kickstarter vs test-starter (just made that term up)

You have a new product idea and want to test the market. Start with the prototype, show it off, personally to as many people as you can. If you still have confidence then go on to test marketing either directly or with Kickstarter.

With Kickstarter, you would create a video and marketing materials (obvious I know). Pick a minimum number and price for your product that would get you into early production and take your chance there.

Or, with the same materials, create an online store and take orders, before you commit to production, as you do with Kickstarter. When a user clicks the buy button, you inform that the product will be available soon. Collect their email address etc.. If you decide not to go ahead or make a major product change, you can inform them by email.

Is this legal and ethical? Does it happen now?

Pros for test-starter include
*don't have to make a full up campaign at Kickstarter
*collect prospects who may provide input on product features
*bypass handling cost of Kickstarter

Cons for test-starter include
*Kickstarter can bring you customers, this is a big deal
*Kickstarter handles the money (Amazon), another deal, especially to the prospects
*Kickstarter prospects understand that you might not get to production
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