In this article, we invite Trevor Newberry of Harmony Venture Labs to share his thoughts and process on idea validation and how the startup studio he works for has applied validation frameworks to three of their now-launched startup ventures.
What is idea validation?
To be honest, validation is a misnomer. What I mean is, the term implies a binary state; either an idea is validated or it isn’t.
In reality, ideas are validated progressively and continuously and there are multiple things that need to be validated for any given startup. Many of your favorite startups can still be considered to be validating their ideas despite having a product in the market and paying customers.
I like to think of the process we commonly call “validation” as derisking. You start by validating there is a market worth entering. Then, you validate that there is a problem in that market worth solving. Then, you move on to validating one or several solution ideas and launching your v1.
By validating progressively like this, you are de-risking the investment you are making in time, money, and other intangibles like your social life and connections.
Why is startup idea validation important?
As I stated in the previous section, validation is progressively de-risking your investment into the idea and eventual product.
This is important because the hard truth is that most ideas are bad ideas and most startups fail. We validate so that we can both improve the odds of any one idea becoming successful and also so we don’t blow all of our resources on one bad idea, leaving ourselves with no “dry powder” left to take another swing at a new idea.
What is Harmony Venture Labs’ startup idea validation framework?
At a venture studio, sometimes things get meta. What I mean to say is that our own validation framework is being, well, progressively validated in its own right.
However, I can give you the broad scaffolding of validation and you can fill in the blanks.
First, we begin our validation process with market research. For HVL, we want to build companies in markets that are big and growing. I work directly with an analyst to create research material that helps us understand three key things:
- The overall size of the market or opportunity (aka the TAM)
- Growth projections for the market
- Segmentations within the market
We use this research to validate that building a product in a given market is consistent with our company goals, that there is sufficient growth in that market, and that there are segments we can evaluate as “beachheads” for our initial go-to-market efforts.
Second, we validate that a problem worth solving exists for a given market segment.
We do this through conversations with people in the industry and use the information we gather from those conversations to build a map of the problem space. We also use this process to identify and define the user and the buyer in our chosen market segment.
This process is commonly called “discovery” and, in lieu of going into too much depth here, I will recommend two books, Continuous Discovery Habits by Teresa Torres and The Mom Test by Rob Fitzpatrick.
We then turn our attention to problems and opportunities that begin to emerge frequently from our conversations.
Third, we validate our solution ideas.
Once we have a problem worth solving for a segment within a market we believe makes sense for us to enter, we ideate solutions to that problem and test them with prospective customers. We do this using prototypes.
Prototyping is a complex subject, but I’ll simply describe it as a fake version of your product you don’t mind throwing away. This can be hand-drawn mockups, high-fidelity mockups in a tool like Figma, or even a functional prototype built with actual code.
When we demo our prototypes with prospective customers, we’re testing for the following:
- Value Delivery
- Price Sensitivity
Fourth, and finally, we validate willingness to pay.
Price sensitivity is a part of this process, but it doesn’t give us a complete picture of the willingness to pay. As Teresa Torres often teaches, what someone has actually done is far more useful information than what they said they would do.
We can validate willingness to pay by simply asking how our prospective customers are solving the problem today. If they’re paying for a product or a service to solve the problem, it’s pretty clear that they are willing to pay.
We can even consider our prospective users paying for several products–which are used together to solve the problem–as an indicator of willingness to pay. Plus, this also gives us an opportunity to create efficiencies within our product by consolidating many solutions into one.
Key questions to validate your startup idea.
Instead of asking prescriptive questions to your discovery interview or demo participants, I’ll give you a piece of advice to help you craft your own questions.
Distinguish between research questions and interview questions.
- Research questions are those that you are trying to answer for yourself.
- Interview questions are those you ask your interviewee in order to learn what you need to know to answer your research questions.
People are bad at answering direct questions. When you present someone with a question that asks them to formulate an opinion and then deliver that opinion, you’ll often get an answer that is a projection of who the person answering wants to be, not who they actually are.
As I stated earlier, the better way to learn is to ask questions to understand past behavior and the motivations behind that behavior. So you may want to know how someone handles a given situation, but instead of asking them to describe how they would handle that situation, ask them to tell you about a time they actually did handle the situation.
Instead of answering in a way that projects the type of person they want to be, you’ll get to hear how they’ve actually handled a given situation in the past and open up an opportunity to drill down into that story to uncover more information.
Next, I’m going to share a few case studies to illustrate how our validation process has evolved and highlight some of the mistakes we’ve made along the way.
Case Study #1: CoWello
We cut our teeth, so to speak, as a team with CoWello. It was our first attempt to build something from scratch and we learned a lot in the process.
Namely, you really have to take validation efforts seriously. We had some early indicators that there was a market for a space management tool for wellness businesses that were either built as shared space businesses (think coworking) or wanted to monetize unused space, but we really didn’t dive much deeper into that. And that would have been okay if we hadn’t also gone straight to building the product from scratch.
After four months, a few changes in engineering partners, and a lot of money, we had a product. Not a perfect product, but one we could sell…
To a market that really didn’t want it.
It was a hard lesson. We all thought we knew how to do this startup thing, but it turns out that the gap between theory and practice is often much wider than one might think.
Thankfully we’ve been able to right the ship. Despite the time and money it cost to build, CoWello is a relatively inexpensive product to maintain and operate. It has provided us with the opportunity to pivot several times, polish the product itself, and explore several promising market segments (like community centers, independent coworking, and commercial flex space) that need a sharp space management and growth tool.
With CoWello, we learned a lot about what we didn’t know (and in some cases thought we knew) about validating and building products. Our takeaway was to examine our processes with a humble eye taking a microscope to each and looking for gaps, assumptions, and even missing steps.
Case Study #2: ListedKit
Having learned some hard lessons from CoWello, we set out to build something in the residential real estate market. We based our discovery and validation on the fact that real estate agents are independent contractors–their own small businesses.
We set out to interview as many real estate agents as we could find. During that time, we ran a pretty complex, but fun design sprint with our team, and created a prototype we could test with our target customers.
And things went really great. A little too great, you might say.
With ListedKit, we made some big improvements to our validation process, but we learned another important lesson about validation, specifically in B2B SaaS: the user is not always the buyer. And it’s the buyer you need to convince.
When demoing ListedKit with agents, the response was really positive. We created something that could streamline transaction management, create an amazing client experience, and generate more referrals for our agent users.
But we missed the crucial fact that agents don’t often purchase their own software. Instead, software tools are provided by their brokers or sometimes even the MLS (multiple listing service).
This required some pretty hard conversations and several pivots away from our original model. Thankfully the product is in a good place today. ListedKit’s CEO, Derrick Magnotta, has repositioned the tool as the operating system for real estate teams, and the current signals are showing great signs of traction.
The moral of the ListedKit story is that validation requires that you not only understand the user, but also the buyer. In many cases, especially B2B, they are not the same person. Each has different desired outcomes, motivations, and fears that need to be addressed. If you miss one or the other, you’ll likely end up building something that you’ll struggle to sell or that will fail to engage the user.
Case Study #3: Extelli
We got a lot more right than wrong with Extelli. The team did a thorough and careful discovery process, we made sure to include users and buyers in our discovery, we prototyped quickly, and made important changes to our product idea based on feedback from those demos.
We recruited a cofounder with startup experience who we could trust to lead the product and company. And we built the first version of the product in two months within a very reasonable budget.
At launch, we had customers ready to pay us for the product.
We missed one thing, though. We failed to identify and cultivate demand from a specific niche. Extelli is a process capture and knowledge management tool. It’s a really cool product, but the market for this kind of product is pretty crowded.
Today, we know that the way to handle this is to get very specific with your target customer. In fact, you can actually get so specific that the niche you’ve chosen is too small. The key is to ensure that there are adjacent niches within that market into which you can expand.
In a crowded market like knowledge management, it’s critical to find an underserved customer who is willing to pay you and focus on winning that very specific customer first. This is your beachhead. We failed to do this as a team and it cost us some momentum at launch.
Extelli is very much a work in progress but there are clear early signs that we have a great product on our hands. Our current challenge is to find the right specific customer segment to win and with which to establish our foothold in the market.
Extelli has taught us the importance of segmentation and niching down to the smallest market segment we think we can win. This helps establish a beachhead from which startups can expand outward into adjacent market segments as they find traction.
Validation is hard. It’s also not binary. Validation is multi-faceted and progressive; you’ll be validating more elements of your business than you think, for longer than you’d expect.
You’ll also probably screw it up (more than once). We’ve got a whole team of brains at our disposal and we still screwed it up.
The key is that we’ve improved and, more importantly, have had the time and flexibility to improve our process along the way.
How does this apply to you? Here are a few pointers to help avoid running out of time, money, and patience when validating your product:
- Develop a strong discovery “muscle”
- Transition to showing people a prototype, no matter how low fidelity, as fast as possible
- Identify, distinguish between, and define your buyer and your user
- Validate the following elements of your idea progressively
- The problem exists for a market segment you wish to enter
- Your solution can be used and understood
- Buyers are willing to pay
- Run as lean as possible
Do things that don’t scale early to buy yourself more time and runway to validate the elements above.
Validation is a huge topic. I’ve barely scratched the surface here and this article is pretty dense.
The good news is, you don’t have to have everything figured out to get started. Validation, being a non-binary, progressive process, is a journey that you will get better at over time. My encouragement to you is to get your hands dirty and commit to working on the process. Start by validating that you have a problem that’s worth solving (and that someone will pay you to solve) by speaking with target customers and even testing your idea with those customers in a manual way, like a consulting engagement.
If you’re diligent, smart, and a little lucky, you may find that you strike it rich with one of your ideas.
About Trevor Newberry
Trevor is the Director of Product for Harmony Venture Labs, a venture studio based in Birmingham, Alabama. He loves building software products, spending time with his wife and friends, playing video games, and science fiction.