How can founders validate their product without spending a ton of resources

Why do startups fail?

Data (from 101 startups!) shows that even the best ideas don’t make commercial sense if the market is unwilling to pay for them, making validation an important step in building your business. We stress for validation from paying customers when we screen deals at Malpani Ventures. And during my conversations with founders, I also receive inputs like:

“Everyone wants validation, but we already know that! Can you share how to validate instead of sharing gyaan?”

Without further ado, let us look at the key areas where founders can validate their idea before diving deep into building a solution:

Get Industry know-how

I can’t stress this enough- the founding team needs to have in-depth know-how of the space it is trying to enter. Founders are advised to start up when they have sufficient understanding of the ins and outs of their target industry.

Am I saying that outsiders will not be successful? No. They can be successful as well. However industry insiders may have a leg up, and may be able to start off at a better stage than their counterparts.

Founders should be able to talk about their industry, key market participants, key metrics for the industry to succeed, operational nuances, and velocity and trajectory of its growth.

But, not everyone starts off being an industry insider. In the absence of industry-specific domain knowledge, a founder has two options:

a) Recruit an advisor or co-founder with domain knowledge, OR

B) Get the domain knowledge themselves by gaining experience

When founders or the founding team does not have prior domain knowledge of the industry they are trying to disrupt, it creates problems. A lot of them. These problems can range from setting up the right business model, validating business ideas, GTM strategy, and what not. And when these things happen, these startups usually end up playing catch up while the startup with the right founding team zooms past.

Research the Incumbents

The industry that the founders are trying to disrupt and the problems they are trying to solve will most likely have incumbents. Founders need to understand the entire business landscape - both horizontal and vertical in which they are operating. Founders need to know the top 10 competitors, their products, key features, business size, talk to industry experts, talk to customers of competitors, read/answer/solve open questions on open forums like Reddit, Slack channels etc.

Today most products are listed on G2 or Capterra. Founders should go through each and every similar product and especially reviews that have pros and cons. Most websites have user reviews, sometimes with user names which founders can find out from LinkedIn and learn about the companies that those products are serving.

There are data providers like Clodura, Slintel, etc which can help founders narrow down and reverse assess the customer persona of companies they saw in the previous step.

Narrow down

A common problem that I’ve seen founders trying to be an ‘Uber for X’ or ‘Shopify for everyone’. This doesn’t help anyone. At times, founders zero in on a customer profile and then try to create a product. But the customer profiles are so broad that it is meaningless to create something that will wow them!

Building X for everyone is a huge red flag. Even if the founders are able to build the product, how will they start selling? If you are building something for everyone, who will you approach first? What if they aren’t your ideal customer? Imagine the amount of time and resources that will be wasted.

Instead, another option is to start off as a micro solution for a very specific use case that you can’t go any more narrow with. For example:

• We are building a chat bot
• We are building a customer support chat bot
• We are building a customer support chat bot for D2C companies
• We are building a customer support chat bot for D2C companies selling on Shopify
• We are building a customer support chat bot for venture funded D2C companies selling on Shopify
• We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs
• We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales
• We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales a team size of less than 20
• We are building a customer support chat bot for venture funded D2C companies selling on Shopify with less than 100 SKUs and $1mn in annual sales a team size of less than 20 not using any CRM

Founders can go even more narrow. The narrower the better. The narrower they go, the less competition they will face. And that means their solution will be more targeted, more specific, and more value additive. Imagine how many chatbot companies make something specific for D2C companies with $1mn in sales? Very less, because these companies will hardly have a budget to pay for these services. But there is a product need. And since these are venture backed companies, they have a mandate to grow. Growth brings complexities and a chat bot specifically tailored for them will help solve for human resource, timing, data issues. As a founder, you can create very specific workflows for small teams that large companies will neither have the bandwidth or the inclination to create. And that makes the pitch to these D2C customers that much easier.

Land and expand capabilities

As a startup, it is imperative that you grow your accounts. Expansion ARR (please see below) helps grow existing accounts organically thereby putting lesser workload on the sales team to show growth from new accounts.

Do notice I mentioned ‘venture backed D2C companies’ in the previous example. I mentioned that because venture backed companies have a mandate to grow a minimum of 3x every year. This kind of growth brings complexities. If founders are able to help these companies grow, reduce inefficiencies, increase productivity, reduce manpower, it will be a no brainer for customers to scale with your product.

Market validation of your product is the single most important process that may make-or-break a business. Founders are requested to take as much time at the validation stage to avoid value destruction later on. I find that founders with intensive validation tend to be more prepared and equipped to solve problems and douse fires later.

If this resonates with you in building your startup, lets have a chat. Email Dhruv or Siddharth for a call.

An earlier version of this post appeared here.