Validating Your Startup Idea
The first step in developing a profitable business idea is to spend some time validating the concept. Long before you spend the first dime building a prototype you should be spending time actually talking to your target market. But when I talk to aspiring entrepreneurs about validating their business ideas, one of their biggest concerns they have is talking about their idea: “Someone will steal my idea!”
Let’s start by talking about why that is the wrong thing to worry about.
Don’t Worry About Someone Stealing Your Idea, Worry About Your Barrier To Entry
The are a number of reasons you shouldn’t worry about having your idea stolen, the number one being: People are Lazy. No one has the passion, energy, time, or inclination to go chasing after your idea than you do. In the movie The Founder, about Ray Kroc and McDonalds, the McDonald Brothers ask Kroc why he didn’t just steal their idea once he knew their proprietary fast food process. Kroc said, I needed the name McDonalds. It wouldn’t work if it was named Kroc’s. Anything you put your passion into will have a bit of your special sauce that can’t be replicated.
And secondly, people don’t steal untested ideas. It is expensive to bring a product to market, especially when the product is a “first to market.” If someone wants to steal your idea, much better to wait until you’ve spent the time, money, and effort to build the market and validate the concept. Then, you swoop in, make it better, cheaper, and spend more marketing dollars on it. That is why the more important question to ask yourself is: What is My Barrier To Entry?
What IS the special sauce that keeps others out? It could be patented intellectual property. It could be data that you have that can’t be replicated. It could be exclusive relationships and contacts. But without a Barrier to Entry, your idea is never safe, so get used to having competitors.
The due diligence phase starts by literally talking to anyone and everyone about your idea. Of course, you want to talk to as many people in your target as possible, but even those outside your target can give you good ideas.
Every time you pitch your idea, I guarantee you, they will give you 3 improvements on your idea. Those improvements get incorporated into your next pitch, thus the idea gets refined.
But you are also looking for the objections. The trick is to never defend your idea, your really want uninfluenced feedback. If you start hearing the same objection 3 times, you have a problem. You need to either figure out a solution to that objection, or figure out a response that answers the objection.
But it doesn’t stop there. By the time you are through with this process, you should know if anyone will buy your product, what the sales cycle is like, who has to sign off, and what all the objections are with responses to over come buyer doubt. You also should know the price point you can sell your product at.
They other thing you come away with is a list of potential beta testers and early adopters. Keep the people you interview informed of your progress. Get them engaged. And when the time comes, let them play around with the beta for additional feedback.
And hopefully by the time you launch you have customers and testimonials and are ready for success. But you also might find that the idea isn’t worth pursuing after the due diligence phase is over.I’m going to demonstrate what I mean by example and talk about the process I went through in validating two business ideas, one I built and one I didn’t.
Example One: Deathbook.
The Idea: A “memorial” website that would never expire and never cost users a penny.
The Business Model: Revenue generated from links to the pharmaceutical industry and related Memorial products (i.e. Flowers).
The Pitch: When there is a death in the family, many of the deceased personal papers, interests, and belongings disappear. Things like personal letters, and other events that were important in key moments of a persons life are lost. Deathbook (as a working, not the final, product name) would solve these problems by allowing family members to create a free and never expiring memorial page where photos, documents, videos, and remembrances from friends and family members can be permanently posted in a permanent memorial page. Each page would contain a link, linking the cause of death to treatment options for that cause. For instance, for Joe Doe, it says he died of liver cancer at age 64. The link would provide treatment options for liver cancer, links to pharmaceutical brands, and statistics (who else on Deathbook died of liver cancer, what is the average age that someone dies of liver cancer, etc).
Classic memorial sites cost money to maintain and stay published. Other than immediate loved ones, the majority of the traffic to the memorial site will occur soon after death and to a less degree on the anniversary. Deathbook on the other hand costs nothing and will never expire. Engagement is created via alerts: sign up for alerts when anyone who graduated from your high school or college in a particular year dies. Get an alert anytime someone with your last name dies, your home town dies, or relations die. And because it never expires, generations from now will be able to look back and actually see and hear what their grandparents and great grandparents looked like, and sounded like.
Validating the Idea: I spent about 6 months validating the idea and the first step in that process is to discuss the idea with every one I could. Initial feedback was great. Everyone LOVED the idea, including the business model. I investigated the funeral industry where I thought my first leads would come from and had lunch with someone whose family were in that industry. After spending 6 months interviewing and refining the idea, I decided NOT to go forward with the idea.
There were two main reasons. One had to do distribution and one had to do with Barrier to Entry. My interview with the person from the funeral industry was not positive. The funeral industry is very traditional, family run, and extremely hesitant to new ideas, especially technology ideas. My initial ideas around Go To Market Strategy included heavy reliance of the funeral industry for early adoption and now that seemed unlikely. This, of course, was not an idea killer by itself: other methods of gaining customers could be worked out. But then I slammed into a wall that I couldn’t see over or around. That wall was Facebook itself.
When I started on this idea, Facebook was still really new. It did not have the role it currently controls in our daily lives. But it was clear to me, it eventually would grow and could easily replicate what I was doing into their current offering. THEY could easily become the Deathbook I was imagining and leave me in the dust to become the next Myspace.
Example Two: Email Data Source
The idea: The first competitive intelligence tool for Email Marketers.
The Business Model: a SaaS Annual Subscription.
The Pitch: Companies purchase competitive intelligence about every aspect of their competitors marketing programs (tv, radio spots, print ads, banner ads) except email. By archiving marketing email campaigns, insights into a companies creative, frequency, cadence, and segmentation could be studied. Additionally companies can monitor the partners the company works with to deliver emails and they can monitor their own affiliates, which are often working rogue and without the brands awareness.
Validating the Idea: The idea itself was suggested to me by one of my clients at the time, a large New York agency. One of their clients wanted to monitor their competitors email campaigns so could I find them a vendor? After spending weeks attempting and failing to find anyone who monitored email campaigns, I decided that it sounded like a great idea for a business: I already had a potential customer if I could provide the service.
Again I interviewed people in the email marketing industry, told them my idea, and got their feedback. Everyone I spoke to gave me encouragement that there was indeed nothing like that in the industry and that it was needed and people would buy it. And the idea had a built in Barrier to Entry: the data. Because email is here and then gone, our database became the only database that was collecting data that could not be replicated by anyone. Even if a competitor were to start today, they could never catch us. We’d always have more data.
So, I had an idea, one that I had a potential customer ready to buy, I had a strong Barrier to Entry, and I could finance it. Feedback in the industry was positive and the related competitive intelligence companies where thriving. So I went ahead and built it, and today, 14 years later, it is called eDataSource.
First Published on the OnlyInfluencers.com blog