How to validate a startup idea?
Using a simple formula
At eFounders, we build 3 to 4 SaaS startups a year. Our process is to develop our business ideas inside our startup studio; once an idea is validated and falls under our “building thesis” we hire two co-founders to develop the business with us and make it skyrocket.
Therefore, we have developed a methodology of business idea validation. Our core philosophy is “You want to make something people want”. Yet, as Ford said “ If I had asked people what they wanted, they would have said faster horses”. As people don’t know what they want, you cannot count on them to directly validate your business idea.
Here is a simple method to interview people in order to understand whether they will go for your idea without asking them directly.
People will take your solution if they need it and if they perceive that what you offer is significantly better than what they have today. Rather than asking people if they like your solution, you need to understand what they really need and to appreciate whether your solution brings enough value to the table to make them change their current habit. The main advantage of this method is that it brings a quantitative dimension to a usually very qualitative phase.
Phase 1: Target a survey panel and run interviews
Your goal is to interview 20 people you think are your target, using face-to-face or phone interviews. The goal of this interview is to really understand your future clients’ needs.
Your questions should enable you to understand:
- what are their current needs
- how those needs are currently fulfilled.
The interviews are a unique occasion to scope this need by asking as many details as possible (how often they use their current solution, why they use it, what are its limits).
It is very important before designing any solution to be sure that you fill an existing need.
Example: our latest project, OfficeX, wants to provide a single app to manage Office management tasks. We targeted 20 companies between 5 to 50 employees, in our “tech” ecosystem (because it’s easier to reach out) — we met individually with every one of them (essentially Office managers, and also some CEOs, HR or COOs). We asked them first what tasks they specifically do on a daily basis, second we go into details on specific workflows, providers, software used and thirdly we asked about the challenges they face.
Phase 2: Ask your panel about the 4 dimensions of their users’ satisfaction
Specifically ask the client how he/she perceives the price, the quality, the performance and the convenience of the solution she/he is currently using. The definition of these four criteria depends on the context (see example below), be sure to bring your own context to your questions.
* Price: purchase fee, setup, fee, subscription fee, license fee
* Quality: relevance of results, infrastructure availability, customer service quality
* Performance: response time, delivery time, travel speed, quantity of items, number of results
* Convenience: easy to use, easy to carry on, easy to park, easy to access, easy to order
The goal of the exercise is to define for every of theses dimensions if they are perceived as
- a) not a problem at all
- b) a problem
- c) a serious problem.
Example: Compared to what Office managers currently use, that is to say multiple and complicated Excel sheets and multiple SaaS apps, we offer a single and free app. Here is what we got from the interviews:
Phase 3: Ask yourself about the 4 dimensions of your product’s promises
You should do the same exercise with your own idea. For every dimension you should determine if your solution makes
- a) no difference at all
- b) some improvement
- c) a serious improvement compared to solution currently used by the client.
Example: Here is what we got from applying those questions to ourselves
Price: c) Office managers tend to have several subscriptions to software applications they use partially. Office X has a multiple-apps approach and is free.
Convenience: c) Office X centralizes all the tasks an Office manager is facing on a daily basis in one single, user-friendly interface.
Phase 4: Calculate your Perceived Created Value
You can then calculate the PCV (Perceived Created Value) which defines the value that your solution brings relatively to what your client perceives. You can calculate your PCV by rating you and your client’s answers
a)-answers = 0 point,
b)-answers = 1 point
c)-answers = 3 points
PCV is the sum of the value created on 4 dimensions (Price, Quality, Performance, Convenience) weighted by the importance that your client dedicates to each of these dimensions. This score depends on the people your are interviewing and should be considered in average. A score of 7 is a great score and should mean that the created value is higher than the cost of change (in algebra, it can be defined by the dot product of the 2 vectors Perceived Values and Created Values).
Some example of good PCV:
- BIKE vs WALKING
PCV: 0*0 + 0*0 + 3*3 + 0*0 = 9
- UBER vs TAXI
PCV : 1* 1 + 1*1 + 0*0 + 3*3 = 11
- TEXTMASTER vs TRANSLATION AGENCY
PCV : 3*1+3*1+1*1+1*3 = 10
- ALGOLIA vs ELASTIC SEARCH
PCV : 0*1 + 1*1 + 1*3 + 1*3 = 7
- Go ahead, do it with your own solution ☺
Interviews have to be conducted as honestly as possible since we know that we all are capable of convincing ourselves of almost anything. This methodology is worth what it’s worth, but the worst thing that can happen is you lose a few hours talking with future potential clients, discovering a lot about their problems and having a better overview of the competitive landscape!
Note: this article is extracted from TheBook. TheBook is a component of TheNetwork which is the platform that eFounder’s startup studio offers to it startups. TheBook is a collection of best practices to build a (eFounders) startup the best way from ideation to product management or recruitment. Most of TheBook will be made publicly available chapter by chapter.
Thank you Rachel Vanier, Pascaline Bertaux, Sacha Schmitz and Cyril Gantzer for reviewing this article.