An idea becomes a business opportunity if two key criteria are fulfilled:
- First, if developed into a product or a service, the idea will solve an existing customer problem or satisfy an existing or a future customer need.
- Second, consumers of the product or the service will be willing to pay for it in order to solve their problem or satisfy their need.
Business ideas can be validated through conducting primary and secondary research.
Primary research refers to information collected directly through observations, experiments, interviews and surveys. Secondary research is related to data that have been already compiled, such as industry reports, future outlooks, research articles and more (Synthesis, 2017).
While secondary research can be very helpful as a start and to get a general feel of the industry or area you will be operating in the future, it is not suitable to be used exclusively. Research that has been done by someone else has a lot of variables that you cannot control, one of which might be that they haven’t spoken to the customers you are targeting or the customers you are targeting were just a part of their research. Therefore, it is crucial to conduct primary research with your target audience through observations, experiments, interviews or surveys.
However, before you go out and start researching and testing, we need to know what we are actually testing and how to measure it, otherwise we can waste a lot of time and get inaccurate results. You need to not only test for the things you don’t know, but also the things you think you know!
The best way to do this is by coming up with C-P-S (Customer – Problem – Solution) hypothesis. Write down what you believe about your business with regards to these areas. This will allow you to learn. If you don’t write the hypothesis down, it will impair your ability to learn as you might change them in your mind to suit the outcome, which leads to you not being able to measure successes objectively (Cooper and Vlaskovits, 2010).
An example for an hypothesis would be:
Customer: I believe my customers are funded startups that have raised at least $50,000.
Problem: Quality assurance for startups is very difficult as it is expensive, complicated to implement and does not produce the required outcomes.
Solution: Reasonably priced service for startups that easily integrates in their existing teams and produces outcomes previously agreed upon with the startup.
These components can also form part of your elevator pitch to the people you speak with.
After coming up with your hypothesis and asking yourself the additional questions, you will quickly arrive at a point where it is difficult to give answers as you don’t have the required information available. Hence, in order to test your hypothesis and answer the questions, you need to find prospective customers to talk to. The goal is to find customers who are suffering from the problem you are trying to solve and who are willing to pay for your solution. Usually you cannot find those customers immediately, so you need to seek them out. As you move through the different stages, the interviews become more focused:
|STAGE||WHOM YOU ARE LOOKING FOR||INTERVIEW ACTIONS|
|Stage 1||Broad search
Family and friends
|Stage 2||Possible users
|C-P-S hypothesis feedback
|Stage 3||Target users
|Product-market fit insight
(adopted from Cooper and Vlaskovits, 2010)
You might be wondering, what is the best way to find and reach your prospective customers? There is no magic formula as it depends on your existing network, time, money and the assumptions you made on what is the best way to reach them.
One way to go about it would be to come up with 5 names of people you know who have some characteristics (like job, demographics, hobbies, industry, etc.) of your ideal customer. You can look through your social media (Facebook, Twitter, LinkedIn, etc.) to find some suitable names. Message them or write an email and ask for five introductions to five people they know who fit your criteria (Cooper and Vlaskovits, 2010).
Furthermore, it is worth not limiting yourself to one method of acquiring prospects to talk to, but also experiment and you might discover a hidden gem of who your ideal customer is.
One of the major pitfalls is to simply talk to your family, friends and colleagues to ask them about their opinions of your idea. The problem with this tactic is that those people love you and don’t want to hurt your feelings and they will give you positive feedback no matter what. Thus, use them to find people who can answer your questions, but do not expect to find answers to your questions from family, friends and colleagues (ibid.).
We would recommend that before you speak to any customers, you should read ‘The Mom Test by Rob Fitzpatrick’, which helps you with the pitfalls of conducting customer conversations/interviews and aids you in learning if your business is a good idea when everyone is lying to you. It also covers how to ask questions to avoid getting flawed data while you might be speaking to the right people.
- The Mom Test by Rob Fitzpatrick: https://www.amazon.co.uk/Mom-Test-customers-business-everyone/dp/1492180742/ref=sr_1_1?ie=UTF8&qid=1514480209&sr=8-1&keywords=mom+test
A notion that is also discussed in the book is that you should not fall into selling mode when you talk about your business, as this will make the other person less likely to give feedback about your idea, information about competitors, internal decision making processes and so forth. You want to create an atmosphere of ‘needing the expertise’ of the other person, where most people will react positively and help you.
It is tempting to avoid ‘getting out of the building’ because of the fear of rejection and it can be scary to talk to people and hear something that is not what you expected. Nonetheless, it is crucial to not assume your hypothesis about your customers are true and go out to test them to learn whether you have a viable business or not. Talking to your customers from Day 1 helps you to minimize your risk and keeps the real and opportunity cost down (ibid.).
There are multiple ways to get insights from customers such as via email, a messenger service, online surveys or a phone call, amongst others. However, these should be additions or last resorts if you don’t manage to schedule a face to face meeting with the person you want to talk to. The problem with avoiding face to face interviews is that you will miss out on important things such as emotional clues, tone of voice, body language, etc...
Another great resource for learning more about your customer and understanding their point of view is this free Design Thinking course from Stanford (d.school, 2018): https://dschool.stanford.edu/resources/virtual-crash-course-video
These first interviews are to test your hypothesis and work out your core value proposition while matching your idea with a market segment that suffers from the problem you are trying to solve. You should only begin to build your product after confirming your assumptions! This is crucial as many entrepreneurs make the mistake of thinking of a solution and starting to build it right away.
If the data you have collected from your interviews so far is all over the place and very different from each other, then you might need to go back and rethink your hypothesis. If the data is looking the same, then you either have identified your ideal customer and are able to move forward to the next assumptions or you made a mistake with your C-P-S hypothesis and need to go back to the drawing board. In that case, Cooper and Vlaskovits (2010) recommend the following: making small changes to your product idea; tweaking who your buyer might be; changes to the market segment you selected; finding the exact problem you are solving and/or rethinking your proposed solution.
With the new insights you gathered through this module you can go back to the previous module (module 4) to continue exploring the ideal market.
A great resource for validation is this book:
- Cooper and Vlaskovits - The Entrepreneur's Guide to Customer Development: https://www.amazon.co.uk/Entrepreneurs-Guide-Customer-Development-Cooper-Vlaskovits/dp/B00G0A089W/ref=sr_1_2?ie=UTF8&qid=1515368888&sr=8-2&keywords=Cooper+and+Vlaskovits
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Cooper, B. and Vlaskovits, P., (2010). Entrepreneur’s Guide to Customer Development.
d.school (2018). Virtual Crash Course Video. Available at: https://dschool.stanford.edu/resources/virtual-crash-course-video [Accessed 8th January 2018]
Synthesis (2017). SYNTHESIS Center for Research and Education – Module 5: Spotting Opportunities.