That is why most successful digital businesses start small and test a lot to limit the risk of investing too much into something that no one wants. That’s a baseline of the Lean Startup. This is a checklist that we at M&M apply before we actually start validating an idea
So, to validate an idea, you, of course, need one. I don’t want to go too much into detail in this article on generating ideas, but two approaches seem to be working well for many people.
Solve a problem: Look for problems you or your surrounding has. It could be a personal pain or something that would make your (or other) company’s life easier.
Look for big markets: Identify growing markets and search for opportunities there. E.g., the delivery market is growing, or healthcare is facing many paradigm shifts. Try to figure out what you can build and test there that is maybe not so well covered. This is actually our core approach at M&M.
This is much more difficult than it sounds. The purpose of defining the clear target customer is not to have a stigmata persona with demographics, etc., it is much more about having a clear kick-off focus while testing. If you know who should use your product, your cost of validation and marketing will be much lower and you will have a much clearer positioning on the market. Ask yourself, who has the most value out of your product or service? If you don’t know and can’t find someone, rethink if you have the right idea or look deeper into your market and try to figure out who the stakeholders are.
Here are some simplified examples for target customers:
B2C: school teens from big cities in Germany, pregnant women from Germany, Berlin techno scene lovers, couples in big European cities, young couples with relationship problems, people suffering from diabetes type 1
B2B: small businesses in Germany under ten employees, big and global enterprises with manufacturing, enterprises with many office locations in Europe, courier companies, young tech startups from Berlin
Do intense research on possible competitors. You need to understand what is going on in your market and what is a suitable substitute for your target customer/user. Figure out if you are replacing something (e.g., the new better way of doing XYZ) or creating something completely new.
The easy way to conduct the landscape check is:
Network - Ask your friends and network if they know something similar. This might save you a lot of time with Google or other search engines since you do not rely on indexing or keyword creativity (side note: do not show up with an NDA, do not take yourself too seriously and ask for honest feedback instead).
Google! - Just sit down for some time and Google a lot. Once you have found something that goes into your direction, use the keywords from their site to expand your search.
Important: If you have a well-defined idea and target customer, you will most probably find similar ideas through Google. Don't be frustrated; sign up for their service, test it, and figure out how far they are.
Once you have completed the steps above, you should define and write down a clear, unique selling proposition (USP). The question you should answer is, what makes your idea different and better than the rest. It needs to be something that matters to your customer. While doing this, it is vital to be objective and not frame it in a way that sounds good.
At M&M, we use the following framework by Geoffrey Moore from his book Crossing the Chasm to challenge our USP:
Researching market potential is one of the most important things if you want to build something really big. Make sure that you are on the market that enables you to grow big out of a niche. You have to understand how big the possible market is in volume (money, people, etc.) and the growth trend. There are many institutes or organizations like Gartner, McKinsey, Ivy League Colleges (Harvard, Stanford), etc. that publish reports on specific markets regularly.
While estimating the market, focus on:
The market size in general (huge = 3 figure billion, big = 1-2 figure billion, medium = 3 figure million, small = 2 figure million)
Size of your niche inside of that specific market - this makes it easier for you to estimate how big business you could build in your vertical
Without knowing what you are testing, you will very, very probably fail. The testing hypothesis is a replacement thesis for data that you don’t have. It consists of your assumptions about what will work on the market and under which circumstances (test scenarios).
Frame your hypothesis in an obvious and simple way. You should be able to extract product features from that hypothesis and define KPIs that will enable you to decide if it was a success or not and whether to take a next step (=MVP building), ditching the idea or pivoting it to test again. Killing an idea within six weeks is better than wasting time and money for 12 months. In the best case, your brain has new things to process and connect; in the worst case, you have new brain space.
Here are some examples:
“Young people from Berlin will order a hairdresser to their home.”
“Celebrities that talk about their mental problem will encourage others to accept that this is a mass problem.”
Once you have your hypothesis, you can much easier frame the core features your product or service needs to fulfill the user value. While describing the main features, you can focus on two or three that are crucial and matter the most.
The actual form on how to describe a feature should not bother you at this stage, be pragmatic and frame it so everyone can understand it.
Most people are visually or haptically driven (feedback-driven). Having this in mind, you should build a first sketch or wireframe for your product.
By making it visual, you can also figure out if you have missed something essential and explain to your tech team or other engineers easier what you envision. While sketching, focus on your core features defined above.
Assuming that you are building something with custom software, get technical feedback for your idea and, in the best case, conduct some technical research to see how hard it would be to build it. In many instances, we experience that the first technical feedback happens weeks or months after initial ideation - that is a wrong approach.
If you have a tech-heavy idea with more complexity, you should invest more time into this step and gather an excellent technical team around you or be an engineer yourself.
This step is maybe not crucial for the validation. However, if you want to build a digital business, you should think about how you can make money with it directly from the beginning. Check out how your possible competitors are doing it and what are the norms for your industry (e.g. for SaaS annual recurring revenue (ARR) per customer is the norm).
In many cases, you can even test your business model during the validation, e.g., for marketplace or platform models.
After completing these ten steps, you will have a clear picture of your idea and start preparing your validation process. You can even use the results as a first white paper of your idea to gather feedback from your network or peers.
At M&M to complete this checklist, it takes us something between a day (if we have a good market pre-knowledge) or a couple of weeks (if we are tackling a new market). The most important part is not to lose too much time on preparation and research. If you are unsure - just do!
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