Validating the Idea
There are three components of idea validation that entrepreneurs should complete before starting the company-building process. The first three steps are:
Customer Discovery
Customer Validation
Customer Creation
Identify potential customers and determine if the problem your innovation solves is important to potential buyers.
Determine if there is a need for your innovation within your target market.
Understand how to convert potential customers into paying customers and foster long-term relationships with customers.
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Customer Discovery
Idea Validation
Definition: Customer Discovery is the initial and iterative process of understanding customers’ situations, needs, and pain points. It should encompass the entire customer journey and define and prioritize customer personas.
Your Task: Identify potential customers and determine if the problem your product solves is important to potential buyers.
Customer Discovery is arguably the most critical part of market research. This is the tool that allows you to see into the consumer's mind most accurately. Ensure customer discovery is prioritized and protect the integrity of the process by conducting your interviews and research in an objective manner.
Key Takeaways for Your Team:
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Understand customers’ pain points
Objectives:​
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Form an estimate about the total addressable market (TAM) and verify that the market will have enough demand for your startup to be profitable
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Click here to learn more about TAM and how to calculate it. ​
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Understand the customer buying process and any barriers to adoption
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Validate that there is a strong market need that isn’t being met
3. Conduct Customer Interviews
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Interview people within your defined total addressable market. You want honest feedback, but asking a person who wouldn’t use your technology will skew your data rather than lead to helpful insights. Note that ideally, your interview process should include no less than 100 interviewees. This data will inform your decisions, develop your innovation, and reassure investors and stakeholders.
The Nebraska I-Corps: Introduction to Customer Discovery program is a free, six-week program to help you get started on the customer interview process. Visit the website or contact jeakin@nutechventures.org for more information.
Here are a few suggestions for conducting your interviews; these suggestions will help you conduct interviews with the least amount of bias to get the most accurate data from your potential customers. ​
Analyze Information and Make Insights
After completing your interview process, analyze the quantitative and qualitative information you gathered and use this information to make data-driven decisions.
Ask Open-Ended Questions
Ask open-ended questions like, “Tell me about a time when…” or “Walk me through the steps of…” to discern situational and behavioral insights.
Adopt a Beginner's Mind
Go into the interview with the intent to explore jobs, pains, and gains. Do not assume what your interviewees will say, as it can lead to incomplete or faulty data. Learn more here.
Open Doors
At the end of the interview, ask questions like “what else should I have asked you?” and “who else should I talk to?”
Eliminate Leading Questions
Ask your interviewees questions that will lead to data collection and insights about their problems, needs, pain points, etc. The goal is to gather facts, not opinions.
Ask "Why" Continuously
Many people like to use the practice of asking “why?” 5 times. This method helps the process of customer discovery by allowing the interviewer to reach the root of the customers’ problems.
Listen and Learn, Don't Sell
Though you may want to be an advocate for your company and innovation, the purpose of customer discovery is to understand what customers really want.
Do Not Describe Your Solution Until the End
You want real data which can get skewed due to biases and personal relationships. You should state the topic of the interview and information they need about your startup to properly address the questions but avoid stating solutions until it is needed.
There are endless ways to gain customer insights, but we have six tried-and-true techniques for you to try. You may want to combine several approaches for you to receive the most valuable insights.
The Data Detective
Conduct “Desk Research;” read reports and find data about your customers both inside and outside your industry.
The Journalist
Talk to and interview potential customers. Note that some people may say one thing and do another, so this method should be accompanied by additional research and observation.
The Anthropologist
Observe potential customers and study how they behave in the real world.
The Impersonator
Become your customer; spend a day in their shoes and note what you observe.
The Cocreator
Work with customers to develop and explore new ideas.
The Scientist
Get customers to participate in experiments.
If you are seeking additional information about the customer discovery process, click here.
NUtech holds bi-annual customer discovery workshops through our local I-Corps program that are available to university and community entrepreneurs for free.
Customer Validation
Definition: Customer Validation is the process of determining if there is a need for an innovation within a market.
Your task: Identify proof that there is sufficient demand for your innovation by conducting primary and secondary market research.
Validating your business idea can help you predict whether people will buy your innovation and lead to profitability. Validate your idea early in the startup process to ensure your team is appropriately utilizing their time. Additionally, demonstrating proof that your idea has been validated is likely to instill increased confidence in investors and business partners. The purpose of this practice is to analyze “market fit, scalability, feasibility, and repeatability.”
Market Research Steps
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Define research objective(s)
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Develop research questions
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Conduct/gather research
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Interpret findings
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Draw conclusions & make decisions
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Steps to Determine Market Validation
Dictate goals, assumptions, and hypotheses
Ask yourself questions like:
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What value does my product/service bring to the customer?
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How do you know?​
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Who is my target audience?
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What have I assumed about them?
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What about my product differentiates it from others on the market?
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Are those differences significantly valued by my target audience?​
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What are my hypotheses about my product, pricing, and business model?
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You have already done the process of determining your total addressable market, which encapsulates the total number of potential customers in the target market. The equation for calculating the total market size is:
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Number of target users
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Purchases expected in a given period
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Understand your market
You may want to try an exercise that will help you understand your market share. For products similar to yours, do research to learn about sales data, the number and share of current manufacturers, and what percentage of the total market your segment holds. Consider where in the market your innovation belongs and evaluate your business’s potential for market ownership.
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Market share and other market information are rarely found in one source, so expect to spend some time researching various sources. NUtech suggests you start with an online search looking for basic, reliable information. Additional sources you may consider for your research include:
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Articles from journals, magazines, and newspapers
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Consider sources including but not limited to NexisUni, Academic Search Complete, Academic OneFile, Business Insights Essentials to find information written about competing companies.​
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Trade associations and trade magazines/journals
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These publications may include market share data, industry growth trends, sales figures, product/service development
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Industry statistics from the Bureau of the Census
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Use these to inform estimations of metrics like the Total Addressable Market (TAM).​
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For help with market sizing, visit the Nebraska Business Development Center for free market sizing services for Nebraskans.
The process of customer validation interviews is nearly congruent to that of customer discovery. With the same consideration of avoiding leading questions, ask your potential customers about what products/services they currently use and further questions about motivations and preferences that were not captured in customer discovery. You should use the insights from both rounds of interviews to inform your hypotheses and assumptions and evaluate the reality of your goals. Be honest with yourself and your team; this may lead to clear proof that there is not a valid market need for your innovation, in which case, you may use that feedback to pivot your idea and restart the idea validation process or abandon your idea.
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Customer Creation
The customer creation process focuses on converting potential customers into paying customers, increasing CLV (customer lifetime value), and fostering long-term relationships with your customers.
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While customer discovery lays the groundwork for understanding customer needs and preferences, customer creation takes it a step further by devising strategies to effectively engage and persuade customers to purchase the product or service. This phase typically occurs after a business is formed and operating, as it requires a clear value proposition, a refined understanding of target customers, and a functional product or service offering. By focusing on customer creation later in the startup journey, entrepreneurs can leverage insights gained from earlier stages to tailor marketing, sales, and retention efforts for maximum impact, ultimately driving sustainable revenue growth.
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There are 5 phases of customer creation:
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Prepare to launch
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Set goals and objectives
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Learn how to set Key Performance Indicators (KPIs) here​
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Define marketing strategy
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Build a launch team
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Create a launch plan
Position your product
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Conduct a brand audit
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Define target audience
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Identify your unique value proposition
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Create messaging strategy
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Position your product in the market
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Work with PR companies
Launch your product
Steps for successful product launch
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Build anticipation
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Execute your marketing plan
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Monitor and adjust
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Provide excellent customer service
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Prepare to pivot
Build demand
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Optimize marketing funnel
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Increase brand awareness
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Iterate and optimize
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Create a memorable experience
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Reward loyal customers
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Collect customer feedback
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Show appreciation
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Stay in touch
You have proven that your idea is feasible... now what?
Now that you have completed the three stages of idea validation, you have proven that your idea has demand, and it's time to transition your company from an informal development team to a formal entity through the final stage of the Customer Discovery process, Company Building. ​Though no two companies' journeys are the same, there is a general company-building process that will help your team shift into a formal entity. ​The following steps delve further into the Company Building graphic.
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Step 1: Mainstream Customers
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Determine how you'll get early adopters to become mainstream customers
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Create solidified marketing, sales, and business plans.
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Step 2: Management/Cultural Issues
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Evaluate the ability of current management to properly and sufficiently fill their new roles
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Evaluate the management style of founders to determine if you can scale
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Step 3: Functional Departments
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Define mission-driven goals for the new departments
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Make sure you have departments that support the company's goals
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Step 4: Fast Response Departments
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Establish trust and communication across departments
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Delegate and create mission-driven culture
To learn more about how to shift from idea validation to a functional business model, click here.