Validating Your Idea

Where to start?

A lot of people get started with an idea, skip the validation, hire a team, and get going on the build of their project. Then, they get to the sales part and don't have a plan in place. They quickly find out that what they built won't sell, doesn't solve the problem, and that they don't have the skill or knowledge to sell to their target market.

Here's what I see a lot:

  1. I have an idea!

  2. Hire a team to build my idea.

  3. How do I sell this thing?

  4. Throw money at marketing something that never had a chance in the first place.

  5. Give up and complain about how the developers destroyed a great idea.

As you probably suspected, there's a much better way.

You MUST Validate Your Idea

You’ve got to validate your idea and get customers or potential customers to put money in your pocket as soon as possible in order to do so. That’s where the rubber meets the road, and where your success is determined.

To learn to validate your idea the best thing you can do is to read The Lean Startup by Eric Ries. But since you’re already reading this book and you’re probably going to finish because this book is way more interesting than that book (he’s actually a better writer than I am, so read his book), here are the basics of what you need to do.

Step 1: My SaaS solves [STATE PROBLEM HERE] for [STATE AS SPECIFIC OF A GROUP AS POSSIBLE HERE]

The easier it is for your SaaS to answer this question, the easier it will be to sell, and thus the better chance you’ll have at success. On the flip side of this, the broader the statement and the group, the bigger the budget you’ll need to build and market the product.

Something I’ve seen so many times is an entrepreneur trying to do something that directly competes with monster companies like Facebook or Google. They try to explain how this is different, but inevitably they get crushed by this. So, take an objective look at your system, if you’re trying to do something that could compete with Facebook or Google, you probably are. That said, you can definitely compete with the big players as long as you have the budget to do it.

Facebook brought in about 40 billion dollars in 2017. That is about 3.3 billion dollars per month. Do you have that kind of budget? If so, call me and I will be so happy to help you build your platform. If not, think about specifying your target market or offering a bit more.

Remember that specificity is key in your target market. So many new entrepreneurs I’ve met are hesitant to focus on a particular market because they feel like they are going to lose business. In reality, specifying your market enables you to sell a lot more. When you know exactly who your target is, you know exactly who to call. Besides, after you open this market up, you can always look at an adjacent or similar market.

Step 2: Reach out to your personal network of people and find a group of advisers who work in this industry or are your target market. Convince them to be on your board.

You’re going to need this group for a few different things.

  1. Get feedback on your system.

  2. They are your first customers. If you can’t sell them on your product, it’s going to fail.

  3. Each person is going to give you a testimonial for your website and marketing.

  4. They are going to tell their friends about your product and will jumpstart your sales.

  5. They are going to tell you if your idea is any good and if other people are going to buy it.

At a certain point, you’re going to be in a spot where you can confidently say “I know better than this group does about their own market.” But when you’re first starting out, you need this group to guide you. Remember, you’re going to mess things up initially, so make sure that your idea is a hot winner and everyone agrees with you and is clamoring to get your product.

My Grandfather had a great saying about business that directly relates to this. He said “Don’t fall in love with your businesses.” I see this happening all the time where new entrepreneurs fall in love with their idea and are willing to live and die by them. Unfortunately, it is usually more of the latter. Your business is there to make your life better

Step 3: Make a list of competitors and sign up for their systems.

Pretend you’re a buyer and have them give you demos on their systems, learn how they pitch you on their products, and record the conversation. Throughout the calls you do with your competitors, ask them questions about different scenarios, how they handle different kinds of clients, and why they charge what they charge.

Step 4: Now that you know your competitors, figure out how you’re different.

What are you offering that they are not, or to what people? It could be that there is just room in the market for someone who does exactly the same thing. It’s fine either way, as long as you know where you stand.

My recommendation is to make a spreadsheet of all your competitors and their products. For each product make a row, and for each feature, a column. Now you can go through and make a list of features and services your competition offers and how you are different. It is a simple exercise, but if you do it, you will see the differences in black and white. Maybe you're a lot different, or maybe you need to think more about what you're building.

Step 5: Figure out your pricing model & determine if you can make money running this business.

Plan on spending some time figuring out your pricing model. Since you already signed up for your competitors’ systems, you know how they are pricing. So figuring yours shouldn’t be a big stretch, but it’s still going to take more time than you expect. There is a whole chapter on pricing (Appraisement). I highly recommend you read this section.

As you can tell from the section title, this comes in two parts; knowing how much to charge and determining if you can actually make money. When you figure out how much you can charge and for what, you're looking at what the market will accept for your system. But you also need to ensure you will make money doing all of this. For more on this aspect, I recommend the chapter on Lifetime Value of a customer verses the Cost of Acquisition.

Step 6: Hire a designer to do some basic designs for you so you can pitch it to your advisers and potential customers.

Plan on spending between $1200 and $5000 for a first round of designs. But don’t spend too much, these are going to change a lot once you get feedback. Just get enough design work done to get to the next step. If you’re not used to working with a designer, remember to hire a UX designer who has done this before, and expect for it to take a number of revisions!

Step 7: Get your advisory group into a room (physical or virtual) and ask them all if your solution is going to solve their problems and if the cost is worth it. If the answer is yes, ask them to buy it during the meeting.

If your product is what they need, they know they need it, and the price matches their budget, you’re in the money. But if you designed something that you can’t sell to your group of advisers, you’re going to have a hell of a time selling it to anyone else.

The rubber meets the road where people open up their pocketbooks and give you money. If that is happening, then you are all set.

Step 8: Double check by asking more questions to more people

By the time you're at this point, you have a list of people who want to make a purchase, a system concept that generally works, and hopefully a lot of enthusiasm. But if the only people that buy your system are sitting in the room with you, then you're probably still not going to make it.

So what do you do to be sure?

This is critical: Ask as many people in your target market as possible. What you find may still surprise you.

Storytime with David:

David had an idea. He had been spending ten to thirty thousand dollars, per facility per year with consultants to get this data. For all of these years, those consultants were doing work that he knew could be automated.

It was so easy, just a few simple features; a surveying system to ask questions, a template with all the questions pre-built, some simple systems to enable the survey participants to flow through the survey faster than other systems, and he would have a for-sure sale. He knew the industry, he knew the people. Heck, he was one of them!

After a 60k investment, a year of work, and more testing and frustration than he could have ever imagined, it was done. Time to take it to market, and he knew exactly where to go. He took the team to the regional association trade show to show off everything he had built.

Over the course of the tradeshow his heart started to sink.

The system was perfect, it did exactly what he needed it to do. But over the course of three days, he realized that in states across the US other people in his industry didn't want the software, they wanted someone to do the work for them. They wanted the consultants.

His target market didn't care about the software at all, what they wanted was the service, not the system. They didn't have time to implement the software he had built even if they wanted to. He had built a great system, but in the end, he could run the exact same business by just using the current industry leading survey software system and avoided all the cost of development.

He realized that what he had built was not an innovative solution to a major problem. He was just a new consulting company to do the same work that all the other consultants were doing, but with less tested and less effective software.

How could this have been avoided?

David had gone through most of the aspects of the validation process, but he didn't get in front of a lot of other people and ask them specifically if they could and would use the system.

There are several ways this could have been accomplished.

1. Go to the tradeshow as an attendee and just ask people if they would buy the system.

So many people I have spoken to when I recommend something like this say "I can't afford to spend 2k on a tradeshow where I'm not going to make any money!"

My answer is simple. Would you rather spend 2k figuring out if this will work or 50k building something you'll never make a dollar from?

2. Send a survey

If you don't know your audience, you probably shouldn't be doing this in the first place. So, get started with taking a list of people in the industry and asking them all to take a quick survey. You'll want to have some aspects of what you're building ready to view before you do this, but even if you don't you can still ask questions.

Even if you are entering a new market that you don't know that much about, you could take the following methods to find the people to ask:

  1. Join an association and get their members list

  2. Do market research and hire a VA (virtual assistant) to find email addresses

  3. Run some ads on Facebook targeted towards your users and ask them to fill out your survey. You can also offer to compensate them. Just make sure to set up only a limit to the number of people you're going to pay.

Here are some of the questions that David may have used for his target audience:

  1. How do you currently collect local wage and benefits information from the largest local employers?

    1. We don't collect or distribute this data

    2. We have a consultant do this for us

    3. We use state-wide data

    4. We have an in-house person do this for us

  2. How often do you collect this data?

    1. More than once a year

    2. Once a year

    3. Every other year

    4. Every three years

    5. Whenever we have time, but more than every 3 years

  3. What is the cost of collecting this data?

    1. Free

    2. 1k - 5k

    3. 5k - 10k

    4. 10k - 20k

    5. 20k - 30k

    6. 30k+

  4. What are your top frustrations with collecting this information?

    1. Text answer

  5. For groups using consultants or in-house staff, what is your process for getting this data?

  6. If there was a software system that just required you to send out a pre-built survey and make some followup calls to your industries, would you use it?

  7. How much would you pay for this system?

    1. I wouldn't pay for it

    2. Less than 1k per year

    3. 1k - 2.5k per year

    4. 2.5k - 5k per year

    5. 5k - 10k per year

    6. 10k+ per year

  8. What system features would you find most valuable? (put in order of importance)

    1. The form would auto-fill last years' answers for industries (link to video showing how this would work)

    2. The system would anonymously collect all data and auto-compile it for you.

    3. Integrate with HRI systems to import industry compensation data automatically.

    4. Advanced web-based dashboard specifically built to help industries understand this data.

  9. Would you buy this software if I built it?

    1. Yes

    2. No

    3. Maybe (if maybe, why?)

  10. If yes: if I were to give you 50% off for the first year, knowing the system would be done a year from now, would you be willing to pay for the system now?

    1. Yes

    2. No

  11. If yes, would you be willing to do a phone call with me to talk more about this?

    1. Yes - links to calendar scheduling system

    2. No

Think about this simple step for just a minute. An hour of time spent working on this survey and sending it out to friends who would absolutely complete the survey would have saved someone $60,000.00, a year of work, and countless hours of frustration.

Don't let this be you. Don't be David.

Step 9: Distribution channels

Enterprise vs. Standard SaaS Sales

Standard SaaS

The first thing to understand is that your overall process is dependent on what you're selling and to whom. If you're selling what I would call a 'Standard SaaS', meaning a SaaS that is marketed to you target audience primarily through the web, affiliate marketing, or other further reaching marketing methods and sells for what starts out as a fairly small amount of money on a monthly basis. This amount can grow tremendously based on your value metric for the right customer, but most users are going to spend somewhere between $10 and $1000 per month on your project.

Enterprise SaaS

This is a SaaS that is sold first at the enterprise level, then maybe at a smaller scale. It is what is known as an Enterprise Sale. Most enterprise sales have a much longer sales cycle, as well as a much higher price. Enterprise sales come with their own set of problems but very often a hefty price tag. A friend of mine sells his Enterprise SaaS to some of the worlds largest consulting companies for what amounts to $200,000 per year per business, and they are happy to pay him.

A lot of SaaS businesses sell both standard and enterprise, but when you're launching, you need to know the difference because it is very difficult to do both sales at the same time. Thus this launch and sales difference affects your overall process.

If you're building a system that is sold via an enterprise sale, most of your sales are going to be in person or virtual in person via a video call. But if you don't know who those people are, or how they will find you, then you can't get these people on the phone. If you can't get the decision makers on the line, how will you make the sale? Or, if you're selling a more mass marketed system, even to a specific targeted audience, you need know if you can be competitive insofar as marketing is concerned.

Some things are always the same

No matter what who you're selling to, if you can't get the message out there about your product, you're not going to be able to sell it. So you need to validate your distribution methods before you get started. So you need to validate your distribution and marketing models, at least to the extent you know they are available, and preferably to where you know they will work.

Since there are a large number of different distribution channels in different industries, we are going to take a look at a few key aspects of distribution.

SaaS Distribution Questions

Do you have a list?

I don't mean "can you buy a list," I mean do you already have one. Do you have easy access to a list of the majority or a large number of businesses in your target industry with the names, email addresses, and phone numbers of the people who would use your system?

Will people respond to ads and how much does it cost to get one person from your target market to click on an ad?

My recommendation on this item is to run a set of Facebook ads, if your users are on Facebook, and see if they will click on your ads and how much it costs. Check out the chapter on Acquisition for more information on how to do this.

Can you compete in organic traffic?

So many SaaS CEO's I know compete heavily on SEO, myself included. The questions you need to answer here are:

  1. What keywords am I competing for?

  2. Can I rank on the first page of Google, or preferably as number one on the search engines, for this keyword?

  3. How long will it take to do this, and how much will it cost?

In the chapter on Organic Search Marketing, there is a formula for how to determine what keywords you can rank for and how to do it. If your SaaS is going to depend on SEO, I would not start unless I knew I could rank.

Who are your distributors?

In the beginning, you're going to need people to help you get your SaaS out there. Unless you've got a monster sized marketing budget, and even if you do, you're going to need distributors. So who will they be? Take a look at the chapter on influencer and affiliate marketing to learn how to find and grow these channels.

The more of these distribution channels you have, the better. If you can't find or don't have any or any good ones, then this may not be an idea worth pursuing.

Step 10: Validation Success

You've got the list above, but what really constitutes validation? For each item, enter a 1 for "Yes" and a 0 for "No" in the list below.

I can or have:

Statement

Yes =1 No = 0

Fill in the blanks in the statement "My SaaS solves [SOLUTION] for [SPECIFIC AUDIENCE]."

Thoroughly reviewed all your major competitors products and understand the features of those systems as well as how they sell their systems and to whom.

A unique selling proposition, a reason for your customers to buy my product instead of my competitor's product.

Some designs that walk your advisers or potential customers through your system, and those designs and ideas are easy to understand.

Advisers that think this is a good idea and have given me money for my product.

Sent a survey to my potential buyers and they have told me that they will buy my product and have given me a good idea of how to price it.

At least a few users are willing to talk to me about buying my system before it is built.

A identified and tested several different methods of distribution and determined that these systems will definitely work.

A pricing structure that my customers accept and will make me money.

A budget to work with in order to build the system and distribute it.

The enthusiasm to do this project and the time to devote to it.

Add up all the items from the list above. If your score is less than 11, then you're not done validating your system and are in danger of losing all your money and wasting all of your time. So go back and finish your homework before you get started!

Don't be put off by the work it will take to plan out this project. The more work you do now, the less money it will cost in the long-run and the faster you will get to market. The biggest mistake you can do is to jump head-first into the deep end and drown in a sea of debt and sadness.

If you're questioning this, just think about what you're going to tell your investors when they ask you why your product isn't selling or why you're not making money. It's going to be a pretty hard conversation, and it can be resolved before you ever get to it if you'll follow these steps before you start.

Remember what Sun Tzu taught in "The Art of War." He said "Every battle is won before it is fought."

This is how to win.

Sometimes this process doesn’t apply

But most of the time it does, or at least some variation of this applies. So don’t skimp on it, go through it, take the time, and know your business, or you are going to end up throwing away your time and money.

An example of how this may not apply is if you’re already in the market and fulfilling requested needs of existing customers, or have some inside knowledge about the market. While these situations may mitigate the need to go through this whole process, you will still almost definitely want to go through some aspects of it.