97212 Ventures
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97212 Ventures

5 key principles for pre-seed startup validation

With founders viewing the pre-seed stage as a “tax” that they need to pay before fundraising, it’s no surprise that many try to fast track or skip this stage altogether. I believe it’s a mistake that can lead to an excessive amount of pivots and high cash burn. Founders should take the time to thoroughly validate their idea and plan prior to raising a large seed round

But what does it mean “to thoroughly validate”?

Other than a rigorous customer interview and product discovery process, founders should also make sure to pay attention to the following principles.

1. Playing devil’s advocate

Customer interviews typically focus on validating the thesis and logic behind the problem and solution. Yet, while validating the merit and logic can build some confidence, it doesn’t guarantee adoption in real life. Founders must assume that the logic will fail somewhere and try to expose those points of failure. For example:

  • Lengthy education process
  • Significant (real or perceived) effort from the user
  • Level of pain isn’t high enough to go through the change process
  • There isn’t a clear budget or set process for adopting the solution
  • And much more

2. Solidifying practical & meaningful differentiation

Most founders have a great grasp on who is playing in their space and are great at identifying potential competitors. However, many founders fall into these two traps:

  1. Assessing the competition based on tech capabilities and trying to differentiate via better ones. . As an example, think about all the amazing features packed into your iWatch and how many of those played a role in your decision to buy it.
  2. Differentiating in a non-meaningful way that doesn’t move the needle.

Instead, the differentiation must translate into real-life, everyday benefits and be significantly better than the current state (think 10X cheaper, 10X faster, etc.).

3. Evaluating how competition affects customer motivation

It is hard to change human behavior and habits, especially, as markets evolve and become noisy. It overwhelms consumers and businesses and leads them to “shut down” to new solutions.

It simply takes a high level of pain and motivation for a consumer or business to actually adopt (rather than just try) new solutions.

Founders must take this into account and seek to measure whether their target audience is in-market for a new solution. This is not a binary yes/no answer but rather a scale measure such as this:

This way, founders can reveal the level of investment required for building a meaningful and practical differentiation as well as how hard and long the sales cycle might be.

It’s important to clarify that “competition” here means incumbent solutions, new competitors, alternatives as well as sticking with the status quo (i.e. adopting no solution).

4. Identifying assumptions and their risks

Every startup idea incorporates many assumptions. Some are minor but others are critical. The issue with assumptions is that more often than not they are incorrect. If founders make a critical assumption without being aware and validate it, they are bearing a risk of everything crumbling down later on.

It’s the equivalent of driving a car without insurance. You can technically do it, but it would be very risky and unwise.

To avoid that risk, founders must identify all the assumptions that they make, find the critical ones and validate them. I wrote about this process in more depth here.

5. Testing (the right things)

The majority of founders invest their development resources in building the MVP, while others invest those resources in testing the market (often referred to as MVT — minimal viable testing). Both may be wrong in the sense that they aim to gauge the level of demand using a small sample of early adopters, a lean solution and no brand equity. The results, good or bad, will be hard to trust.

Instead, founders should focus on collecting data and testing their critical assumptions (e.g. the level of pain, perceptions, specific behaviors, etc) with the mainstream market. This is a totally different approach and a better use of resources.

Last but not least

My most important advice is this: first time founders should be honest and acknowledge that even if they can raise money for their idea upfront, it’s smarter to go through the pre-seed stage before committing to institutional investors (and the high expectations and pressure that comes with it).

Properly validate. Then fundraise.

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Ronnie Lavi

I'm a product leader who focuses on the interdependences and collaboration between Product and the rest of the organization.