How to validate startup idea before pitching investors?

Always start with a why

It is widely advised to have your idea validated with potential users before committing to any further activities. Is it just a stock phrase? Should we really put so much emphasis on this phase? What can we gain or lose? Let’s take a quick look at some historical data and statistics.

Millions of startups are created each year but only a fraction don’t fail within the first 12 months of existence. What is the reason? A few years back, CBInsights conducted research about reasons for startups not succeeding. It turns out that the lack of demand on the market landed on the top of the list, being responsible for 42% of failures.

It proves that no matter how innovative your concept is, it might simply not respond to actual customers’ needs – which, at the end of the day, makes your product useless. Dedicating time to thorough research and idea validation enables you to challenge your assumptions and prevent the waste of time and money in the long run. And that’s not just an empty phrase – in fact, our workshops saved a couple of clients from creating something that wouldn’t find its place in the market and convinced them to take a different direction instead.

Additionally, validating a startup idea with users is an excellent opportunity to discuss the concept, exchange thoughts, and compare perspectives. There’s no point in relying only on your own vision, as it can be too narrow. Insights from a multidisciplinary team should never be underestimated, especially at the beginning of your entrepreneurial journey.

Once you’ve done the research, validated the idea with prospective users, and gathered some valuable feedback, you are ready for a more thoughtful and productive discussion with a potential investor or partner. It’s safe to say that holding a conversation with members of your target audience enables you to prepare something more tangible and structured that can be shown to investors.

And this is an important point to remember because investors prefer to understand the deliverable before deciding on putting their money into a new venture. Gathering information from questionnaires, as well as preparing a visual representation of your findings and goals, make it easier to explain the idea and convince other people about its potential. As a result, you become well aware of challenges and solutions, and you can easily present them to your pitch’s audience.

Now that you know why it is crucial to have your idea validated, you are probably wondering how exactly the whole process can be approached. There are, in fact, several options to choose from, all of them serving different purposes.

Customer discovery to validate the initial startup idea

The customer development phase is a framework created by Steve Blank ensuring that you get to know your target users better and minimize the risk of them abandoning your product because it doesn’t address their needs or they are not sure how it works. It is probably the most straightforward way to see if your assumptions about the product and business are correct. It usually includes 4 main steps, namely:

• forming a hypothesis,
• defining assumptions,
• sharing them with users,
• gathering and evaluating user feedback to refine the assumptions from the beginning.

The process may be repeated many times until you’re content with the result and have a clear idea of where to go next.

Your hypothesis should be the result of a thorough market analysis: based on meticulous research, you find a problem to solve. You focus on users potentially concerned by the problem and engage with them to address their worries. Once the problem is well-defined, you can figure out different ways to resolve it.

You may wonder how to proceed with customer development. It boils down to using reliable services and tools. Survey and analytics software allows you to gather feedback and draw conclusions based on it. There’s an abundance of resources available on the Internet, including SurveyMonkey (an online survey platform used globally), UserTesting (a platform for gathering feedback from real customers), Hotjar (a tool for behavior analytics), or Firebase software for monitoring performance and user engagement. Of course, you can also decide on a budget-friendly Google Forms-based survey or discuss your idea during face-to-face meetings with target users, which often take place at the very beginning of the validation process.

The customer discovery might be beneficial in almost every possible scenario, as real users and their needs are what make the startup world go round. It is a perfect beginning of the entrepreneurial journey, but it also works well when you want to invest resources only in well-grounded ideas and gain access to your target audience.

Pros:

• It enables you to check your assumptions about the product and users against reality
• It allows you to make more thoughtful and less risky decisions
• It ensures you deliver value to the market
• It allows you to save both time and money in the long run

Cons:

• For the customer discovery to be effective, it needs to involve the right audience, being as close as possible to your target users (you should, for example, avoid gathering feedback from family and friends who might not be objective)
• It requires a great deal of subject matter knowledge so that you know what answers to look for
• It is very theoretical in nature, as opposed to user testing and prototyping, which are way more practical approaches

Proof of Concept to test the feasibility of a groundbreaking idea

Modern technologies enable us to create revolutionary solutions on a daily basis. However, we shouldn’t forget that they also have limitations we are not able to overcome just yet. As a result, our groundbreaking ideas may simply not be doable in the current context. How to verify a solution’s feasibility before actually investing a huge amount of time and money into it? Building a Proof of Concept seems to be the perfect option in this case.

First things first: how exactly can we define a Proof of Concept? While it’s not a fully functional product yet, it’s definitely a step in the right direction to create one. The main goal of a PoC is to prove that creating a specific solution or mechanism is technologically feasible. It allows you to check if given functionalities are doable and how much work or resources will be required to implement them. It is also a way to verify your initial assumptions.

During the creation of a PoC, customer-facing elements and an impressive interface are put aside. Instead, the focus is more on the “inside part” of the whole solution. The PoC may also constitute a part of the prototyping process.

Pros:

• It allows you to save both time and money, as opposed to full-blown development
• It gives you a hands-on experience and tangible proof that your idea is feasible
• It enables you to better manage and mitigate risks, which may be a crucial factor during the conversation with investors

Cons:

• While a PoC provides you with information about the technical feasibility of the project, it does not go into much detail regarding the architecture, further scalability of the product, os user feedback
• It won’t necessarily fulfill its goal if the software you’re willing to create is not extremely innovative and disruptive
• It serves mainly research purposes and, in many cases, will simply be thrown away once it’s finished

Design Sprint to validate startup idea with a multi-disciplinary team and users

Brilliant ideas don’t necessarily translate into successful projects – there are simply too many factors that may come into play. Before investing time and effort into activities that won’t potentially bring any fruitful results, it’s helpful to perform a quick reality check with potential users by organizing a design sprint, which can be viewed as a short version of the development process.

A design sprint usually takes up to 4-5 days of intense work with a multidisciplinary team, enabling you to understand the problem and come up with possible solutions. Via a brainstorming session, you focus on one or two specific solutions that will be submitted for further analysis and will serve as a foundation for creating a simple prototype.

During a design sprint, each day is dedicated to a different, practical activity. These include understanding users’ motivations, prototyping, and testing the idea.

While a design sprint doesn’t require a long time to be completed, it is a powerful tool to validate a startup idea and provide you with a solid base for future development activities. It will work best when you already have a more or less clear vision of short- and long-term goals, as well as understand your customers’ needs. It’s also a time-efficient way to receive a basic product’s prototype (if a fully-fledged, immersive prototype is not necessary for you at that stage).

Pros:

• It encourages collaboration and provides you with insights from multiple perspectives
• It is more practical and active that user research, which is sometimes perceived as a form of procrastination, delaying the final decision to make something tangible
• It quickly equips you with answers to critical questions
• It effectively sets the stage for further development, especially if you decide to continue the work with the software company responsible for conducting the design sprint

Cons:

• It requires thorough preparation and a high degree of awareness on the founder’s part
• The outcome of a Design Sprint may turn out to be too simple and limited for your actual needs (e.g. a simple prototype may not be enough)

Prototype to conduct user tests, gather feedback, and identify loopholes

Designing a practical, useful solution is not easy when your head is full of ideas, cutting-edge features, and powerful mechanisms. Focusing too much on the long-term vision prevents you from seeing what’s the most important at the beginning; namely, creating a product that would actually serve other people and solve their pain points. In many cases, going big straight away turns out too risky. Sometimes it’s better to start with something smaller, like a prototype, being a true reality check of your concept.

Let’s start with a short definition. While prototypes may take different forms, each of them is created to test a design concept that can be then shown to potential users, and eventually to convince investors. Prototyping is a perfect way to uncover all strengths and weaknesses of your idea both business and functionality-wise. Having that information early on, you can polish the solution and change the approach before investing resources in the full development. Capturing user flow through prototype can show you problems you logical loopholes and iffy elements you could have missed – working on them with a designer is much cheaper than working with developers.

Choosing to build a pretty advanced interactive prototype works best when you have enough resources to create a functioning iteration of your product. It gives you a chance to show the first version of your product to real users who can then interact with it and formulate feedback based on their experience. Developing a prototype also enables you to go a step further and conduct user tests.

The aim of user tests, usually managed by a UX designer, is to determine user stories (how will the user interact with your product, what steps will they take to execute actions). During the session, users are asked to explain what they’re doing and why they’re doing it. Based on the verbal responses and observations of user behavior, a UX designer draws conclusions about the software’s functioning and provides you with a step by step instruction on how to reach specific goals while using the product.

Pros:

• It highlights the design and functional problems that may have been skipped before
• It indicates which features are missing or redundant
• It gives invaluable feedback on the look & feel of the final product
• It allows testing hypotheses and assumptions in real-life conditions
• It engages the target audience very early on

Cons:

• It won't happen unless you have access to end-users
• It requires time and financial resources
• It is subject to changing requirements

While talking about interactive prototypes, it’s worth mentioning the power of something tangible. A visual representation of your software is always an advantage when it comes to searching for financial support and reaching out to investors. It is easier to convince a business angel about the value of our idea if they can actually interact with it and experience it, even if it’s just a fraction of what your product will actually become.

Idea validation is key

Validating a startup idea before committing to serious investment turns out to be crucial in limiting the risk of failure. Each of the techniques mentioned above serves different purposes and requires a specific approach and knowledge, which your internal team may or may not have. Especially in the latter case, it’s worth having an experienced tech partner guiding you through the process and suggesting the most suitable solutions.

At Merixstudio, we’ve supported dozens of startups in testing their assumptions and crafting state-of-the-art web and mobile apps. This is the reason we decided to create a special offer for early-stage founders, helping them convince investors and start a successful product development journey.

You’ve come up with a brilliant idea but you are not sure how to validate it and show its value to investors? Feel free to check out Startup DNA, a full starter pack for founders prepared by our designers and developers.