{"id":47180,"date":"2023-10-20T15:52:42","date_gmt":"2023-10-20T15:52:42","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/how-to-know-when-your-startup-idea-is-validated-startupsmart\/"},"modified":"2023-10-20T15:52:42","modified_gmt":"2023-10-20T15:52:42","slug":"how-to-know-when-your-startup-idea-is-validated-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/how-to-know-when-your-startup-idea-is-validated-startupsmart\/","title":{"rendered":"How to know when your startup idea is validated? – StartupSmart"},"content":{"rendered":"
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The author of the book Running Lean<\/i> and successful startup founder Ash Maurya says \u201cthe true product of an entrepreneur is not the solution, but a working business model. The real job of an entrepreneur is to systematically de-risk that business model over time.\u201d<\/p>\n

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Validating assumptions is important in a startup because it is ALL conjecture at the moment of inception. Nothing is proven. Startups are statistically LIKELY to fail and the reason they fail is because one\/all of the 100 initial assumptions are wrong. A validated business model is one that has moved assumptions in the model from hypothesis to fact.<\/p>\n

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Validation in a startup is proof that a business model has been de-risked appropriately for the stage it is at. Some commonly articulated stages are emerging from startup practice. The initial stages are:<\/p>\n

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\u25cf Problem\/Solution Fit:<\/strong> prove that others agree there is a problem to solve and that your idea can solve it.<\/p>\n

\u25cf Product\/Market Fit:<\/strong> prove that there is a working business model. Customers discover the business, use it and come back. All this makes money.<\/p>\n

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As a startup moves through the stages, more risk is taken. People leave jobs, stake their reputation and invest capital in increasingly large chunks. I like to look at validation against this. Against the pain that happens if we are wrong about validation.<\/p>\n

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Ask yourself, what do you want to know is true (not just a hypothesis) before you take on this next level of pain?<\/p>\n

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Problem\/solution fit<\/h3>\n

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Before problem\/solution fit, the goal of an entrepreneur is to prove that there is a real problem to be solved with a low cost of failure. This means that it is ideally possible to achieve it without investing too much capital, without quitting a job, without taking any investor money.<\/p>\n

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This is completely possible. Here is an idea for what you might do in a single day,<\/span> for example.<\/p>\n

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Some principles:<\/p>\n

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\u25cf Every validation should have a strong signal from BOTH the feeling in your gut AND actual numbers. Numbers can become a crutch used to support crappy ideas on their own. And your gut? Malcom Gladwell is right that it can tell us a great deal in a blink, but it is also the greatest liar when you want something so badly to be true.<\/p>\n

\u25cf You should define what you want to see in the numbers BEFORE you start trying to get them. This is to stop you changing the rules along the way.<\/p>\n

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In problem\/solution fit, it is quite possible to run this phase (without creating a custom web application). I like to see a small number of people do something that proves they value what I want to build as a business.<\/p>\n

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Problem\/solution fit quick benchmark<\/h3>\n

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Every business is different. So apply these suggestions to what your gut tells you.<\/p>\n

 <\/p>\n\n\n\n\n\n\n
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Customers<\/p>\n<\/td>\n

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50<\/p>\n<\/td>\n<\/tr>\n

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Activated customers<\/p>\n<\/td>\n

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70%<\/p>\n<\/td>\n<\/tr>\n

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Visits \/ customer \/ month<\/p>\n<\/td>\n

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3+<\/p>\n<\/td>\n<\/tr>\n

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Payment<\/p>\n<\/td>\n

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More than $1 (it\u2019s the hardest $)<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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Here, you have a decent number of customers trying your prototype. 70% of them are \u2018activated\u2019 which means they have performed the steps you need them to perform to truly engage with the solution rather than bounce. Users are coming back three times per month or more and someone somewhere has given you some money because they value what you are building.<\/p>\n

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If you hit these numbers, and your gut told you that the people behind the numbers were valuing it, would you quit your job or invest $50K? Imagine the \u2019pain\u2019 and then decide if it is validated enough.<\/p>\n

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This validation can be done in under three months and you would be a bit worried if you could not do it in that time.<\/p>\n

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Product\/Market Fit<\/h3>\n

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This is harder. Product\/market fit can take six months to a couple of years and is challenging because there are so many parts to a working business model. One of them can be a point of failure and send ripples through the rest of the model that can send a team back to the whiteboard.<\/p>\n

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The main metric to track in product\/market fit is \u2018traction\u2019.<\/p>\n

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Traction shows that the business is going somewhere. Customers value it. Customers keep coming back. Customers tell their friends.<\/p>\n

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Andrew Chen gave a helpful talk last year that started to define some benchmarks for what product\/market fit looks like (slides 7-8) in the numbers. Usefully, he suggests different benchmarks for SaaS and consumer products as the business models can be quite different.<\/p>\n

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