Before you start your business, it’s essential that you make sure that customers are interested in buying your product. Taking this one step will save you weeks (or possibly even months) of lost time, and potentially save you thousands of dollars.

In this article, I’ll show you how you can make sure your customers are interested in your product before you spend any time building your business.

What is demand validation?

The truth is, your idea probably isn’t perfect. Sorry to deliver that hard truth.

But, the good news is that there’s a way to fix it.

For your idea to work, the first thing you need is for other people to care about it. If you are the only potential customer for your idea, your business isn’t going to get very far. Other people need to want to buy what you’re selling. In other words, there needs to be demand for your product.

This is where demand validation comes into play. Demand validation is the process of making sure that other people are willing to part with their hard-earned money to buy what you’re selling.

Why is it important to validate customer demand?

The reason you need to validate that there’s a demand for your product is because you’re starting out with a guess, not an actual product. You’re guessing that your product is something people want. You’re guessing that people want to pay you for your product. You’re guessing that you can grow your business into something profitable.

Because your idea is nothing more than a series of guesses, you need to take the time to change those guesses into facts. Once you know the facts, you can refine your idea and change it from a mediocre concept into an idea for a viable, successful business.

How to test and validate your product idea with customers

1. Ask yourself these 3 questions

Now that you have your business idea (really, your guess, right?), you’re ready to answer three critical questions:

  1. What problem do my potential customers have?
  2. What’s the solution to that problem?
  3. Why would people pay money for my product?

You need to understand the answers to these questions so you can easily explain your idea to other people. And, more importantly, you need a sanity check to make sure that your idea is valuable to potential customers. These are the first steps in demand validation.

Here at Palo Alto Software, when we were working on building a new team email product a few years ago, we went through this exact exercise. Here are our answers to these questions:

  1. Problem: It’s hard to manage info@ and sales@ emails with a single email account and customers sometimes get the wrong response or no response at all.
  2. Solution: A collaborative email management tool for teams.
  3. Value: Everyone can work in the same inbox without stepping on each other’s toes and make sure customers get better support with fewer headaches.

You might be thinking, this format won’t work for me because I’m starting a restaurant (or bike shop, or hair salon, or clothing store, and so on). But, you don’t have to be inventing some new kind of business or some new product for this format to work.

Here’s an example for a restaurant:

  1. Problem: There aren’t any good, reasonably priced Italian restaurants in this neighborhood.
  2. Solution: A new restaurant on the west side that offers authentic northern-Italian flavors.
  3. Value: A great meal out, near your home, at affordable prices.

Here’s an example for a bike shop:

  1. Problem: It’s hard to buy a good bike in this town without being an “insider” cycling expert.
  2. Solution: A snob-free shop where regular people can get top-notch gear and expert advice.
  3. Value: High-quality bike gear for your family and commuting at reasonable prices, without the attitude.

Trust me, you can do this exercise for any business. But, it’s not always easy and it’ll be tempting to procrastinate and skip this step. Don’t let the frustration get to you—the time spent on this now will pay back dividends later on.

2. Create a value statement

With the answers to your questions in hand, you’re ready to build out a value statement. This is often called a value proposition or a unique selling proposition, but it doesn’t really matter what you call it. Call it whatever you want, the exercise is still the same.

Value statement template

Here’s a quick template you can use to help create your value statement:

If you think that [problem], you should try [solution] like [company name] so that [value].

All you’re doing is taking your three answers from the previous step and turning them into a sentence. You might need to do a little wordsmithing to make everything work, but that’s OK. The key is that the message should stay the same.

This isn’t always as simple as it might look, but it’s worth the time it takes to get it right. You’ll use this value statement over and over as you work through the next steps in the demand validation process.

Email software value statement example

Here’s the value statement for the team email product we’re working on:

If you think it’s hard to manage info@ and sales@ emails with a single email account and customers sometimes get the wrong response or no response, you should try a collaborative team email management tool like Outpost so that everyone can work in the same inbox without stepping on each other’s toes and make sure customers get better support with fewer headaches.

Bike shop value statement example

Here’s the bike shop example:

If you think it’s hard to buy a good bike in this town without being an “insider” cycling expert, then you should try a snob-free shop where regular people can get top-notch gear and expert advice, like Garrett’s Bike Shop, so that you can get high-quality bike gear for your family and commuting needs at reasonable prices, without the attitude.

Restaurant value statement example

If you think that there aren’t any good, reasonably priced Italian restaurants in this neighborhood, then you should try a new restaurant on the West Side that offers authentic northern-Italian flavors, like Beppe’s, so that you can get a great meal out, near your home, at affordable prices.

3. Evaluate search volume

Armed with your three answers, you’re ready to start validating that your potential customers have the problem you think they have and that they’ll be interested in your solution.

Let’s start by looking at what people search Google for.

Using tools like Google’s Keyword Planner and Moz’s Keyword Explorer, you can see how many people search for specific words and phrases. You’ll want to think about what people might search for when they’re looking for solutions to the problem you’re trying to solve, so create a list of searches related to both the problem and your specific solution.

For example, for our team email product, we might look at these terms related to the problem we’re solving:

  • Manage email
  • Respond to customer email
  • Inbox management
  • Email overload

And, we’d look at the solutions that people might search for:

  • Team email
  • Email collaboration
  • Team inbox
  • Share email
  • Collaborative email
  • Email for teams

If you have potential competitors, you could also look at their brand names and see how many people are searching for those specific solutions.

Hopefully, your research has shown that people are searching for your problem and solution already. If you’re coming up empty at this point, though, you’re going to need to head back to the drawing board, refine your idea, and try again.

4. Join the conversation

Next, take a look at online forums and other services where your potential customers might hang out and discuss problems and solutions related to what you’re doing.

For example, if you’re starting a restaurant, check out Yelp and other review sites. Look for Facebook groups for foodies in your area. What are people talking about? Are they happy with the current options? If they’re not satisfied, what are they looking for?

This level of research will help turn your guesses about the problem you’re trying to solve into actual facts. Use your research to show that there are people who have the problem you think they have and what kind of demand there might be for your solution.

This type of research will give you some small indicator of the scale of your potential audience as well. The data is just an approximation of your potential market, but it’ll tell you at least if there are just hundreds or perhaps thousands of potential customers out there.

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5. Engage with your potential customers

Your next step is to actually talk to some of the people that you spied on from a 30,000-foot view in the previous step.

No, knowing how many people search Google for the problem you’re solving is not enough. You need to know more about these people. Are they willing to pay for your product? If so, how much? What are they doing to solve their problem currently? What do they really think about your idea?

Create a list of places where potential customers spend their time

Start out by finding 10 to 20 different places where people who have the problem you’re solving hang out. Don’t just say Facebook—be specific: Members of the Springfield foodies group, people who have reviewed other Italian restaurants on Yelp, people who comment on restaurant reviews in the local paper or the alternative weekly, and so on.

For our team email product, we looked for forums where people talked about customer service, people who commented on blog posts about office productivity, people who wrote blog posts about productivity and email hacks, and people who listen to the Startup podcast, among other things.

You’ll need to find at least 10 of these sources—the more the better. If you’re struggling with this step, you might need to return to your original idea and make some revisions. Maybe you aren’t thinking about the right potential customer or need to rethink the problem you’re solving. Either way, don’t proceed beyond this step without making your list of places where you can find potential customers.

Identify specific potential customers

Now that you have your list, you need to identify specific people from each group that you can reach out to and see if you can talk to them about your idea.

Try and find at least 10 from each group. Again, the more the better. And, yes, this is a lot of people (at least 100), and yes, it’s hard work. But, who said starting a new business would be easy? While this might be a bit hard, it’s much easier than having to shut down a business that you invested time and money into because you found out that customers didn’t want your product.

Talk to your potential customers

When you have your list of people, the next step is to actually talk to these people. It’ll be tempting to start with a sales pitch and see what their reaction is, but there’s a better way.

Dust off the answers to the three questions we talked about earlier. Now you’ll put them to good use.

Start by reaching out (phone, email, Facebook message, LinkedIn InMail, and so on) and use a message like this to get started. I’ll continue using our team email product as an example, but this format should work for other businesses as well.

“Hi—I really enjoyed your blog post about Gmail hacks. I especially liked [insert what you liked here] and plan to start using that hack with my own email.

I was wondering what you recommend to manage info@ and sales@ emails with a single email account to prevent customers from getting the wrong response or no response at all. Is this a problem you have? Are there solutions that you recommend for solving this problem?

Thanks again, and keep the great blog posts coming!”

Of course, you’ll have to tweak this messaging depending on who you’re contacting, but you get the idea. I’ve bolded the problem statement in the sample above, but that’s not something you should do in your actual message.

What to do when you don’t get a response

Now, not everyone will reply to you, but hopefully, you’ll get a few responses. That’s why you need to have a big list of potential contacts. If you completely strike out, you might need to go and look for new locations where your potential customers hang out, or you might need to go back and take a second look at your problem statement. It’s possible people don’t have the problem you think they have.

6. Analyze their responses

Of the people that do respond, you’ll get two types of responses:

  1. “I haven’t heard of that problem and don’t have it myself.”
  2. “I know a bunch of people who have that problem. Here’s what I do to solve that problem and here’s what I tell other people to do who have that problem.”

If you get a bunch of the first answer, you’re going to be headed back to the drawing board to work on your idea and come up with a new set of guesses that you need to validate.

Hopefully, you get lots of responses that fall into the second category. In that case, you’re going to want to follow up and talk more about your solution:

“Thanks for getting back to me! I’m really interested in how people manage their email. In fact, I was thinking about building a collaborative email management tool for teams.

I’m imagining a product where everyone can work in the same inbox without stepping on each other’s toes and make sure customers get better support with fewer headaches.

Do think a product like that would be interesting to you or other people in similar situations? If it cost $20 per month, do you think you might be willing to give it a try?

Thanks again for your time!”

Do you see how useful it is to have answered those three questions earlier?

Again, hopefully, you’ll get an answer. Not everyone will respond; after all, people are busy with their own things. But, you should get some responses.

Follow-up with new questions

If you get no response, try again. It’s OK to check in with your initial contact a few times. If you get a “no thanks, that doesn’t sound useful” response, you might be once again sent back to refine your guesses. Hopefully, you get a bunch of “absolutely!” responses.

You might get push-back on price or you might find out that you’ve priced too low, but answering the price question is going to take some additional research and testing. At this stage, just make sure that the price that you float is something sustainable for your business. Better to suggest too high of a price than too low.

At this stage, though, finding out the ideal price isn’t the goal. The goal is simply to make sure that people want your product. Price is something to tackle in detail a bit later in the process.

7. Develop an MVP

If you’re starting a business where online advertising makes sense, then the next step takes all of your research and puts it to a final test: Will people actually put their money where their mouth is?

Build a landing page and test some advertising

In this final test, you’ll build out a landing page for your product and buy some ads on Google and/or Facebook.

Your landing page doesn’t need to be fancy, but it needs to look real. Thankfully, there are plenty of great services out there that can help you build a professional website quickly and easily. Take a look at Squarespace, Wix, or Shopify and build out a simple page that describes your product or service.

You’ll want to include your price and a “buy now” button on your landing page. But, your “buy now” button won’t actually work. Instead of taking your potential customer to a shopping cart, you’ll want them to end up at a page that explains your current situation. Something message like, “Sorry! Product X isn’t available just yet. Please enter your email address below and we’ll notify you as soon as it’s ready.”

You’ve done two really cool things with this process. First, you’ve validated that people are willing to commit to buying what you’re selling. When they click “buy now,” they are voting for you and ready to buy. Second, the people that give you their email addresses are your first customers. So, while you actually build your product, you’re building an actual database of customers to market to.

To drive traffic to your landing page, you’re probably going to have to buy some ads on Google or Facebook. Target the lists of terms that you figured out earlier in this process related to your problem and your solution. If you have competition, consider advertising to people who are searching for those alternative products.

Consider content marketing

An alternative approach to building a landing page and buying advertising is to explore content marketing. Instead of buying traffic, you could start a blog with content that your target audience might find interesting. If you can get traffic to your blog by promoting your posts on message boards and other places where your target audience hangs out, then you’ll have a built-in platform to mention your not-yet-real product and drive traffic to your landing page.

The advertising option takes a little bit of spare cash but is easier and potentially faster. The content marketing option takes time, effort, and some writing skills—but, you’ll also be building a long-term asset for your company. If you have the bandwidth, you could try both methods and see which one works better for you.

An example of mistakes to avoid when launching your product

Several years ago, my team and I worked hard building a new product. We were certain that our current customers would want it and we toiled for close to a year before releasing the first version. We were proud of our work and even got featured on Techcrunch.

But, a successful press launch doesn’t always translate into a successful start for a new business. While an initial burst of press helped get the word out there, we had made one crucial mistake: we hadn’t bothered to truly understand our potential customer before we built our product.

We thought that our product was for “everyone”—one of the cardinal sins of the startup process—and we didn’t focus our marketing and messaging on any particular market segment. We didn’t even quite understand which features our customers thought were most important and exactly how they would end up using the product.

Needless to say, we struggled to get customers. We had to change our pricing several times and develop additional features as we slowly figured out who our true customer was and what they actually needed. Some features that we built in the first version of the product were rarely used, while we scrambled to build what our customers actually wanted.

The paradox of speed

My guess is that, in the end, we probably wasted hundreds of thousands of dollars because we built what we thought customers wanted instead of building what they actually wanted.

It turned out that we were trying to move too fast, and in the process, we ended up slowing ourselves down because we skipped the all-important step of making sure we understood who might want our product and why.

Being nimble and fast-moving are excellent traits for any entrepreneur, but even the smartest entrepreneurs should do a bit of planning before investing time and money into building a new business. Of all the steps in the business planning and startup process, validating that there’s demand for your product is one of the most important steps. It’s the step we skipped and paid the price for. Keep reading to find out how to do things the right way.

Light the fuse

If everything has gone well to this point, your guess is no longer much of a guess—it’s a collection of facts. You know:

  • Who wants your product
  • Why they want your product
  • What value your product provides to your customers

Now, it’s time to really get started.

What’s wonderful about this process is that it removes a massive amount of risk from the startup process. With demand validation, you know that if you execute well, your business is much more likely to be successful. You’ve removed many of the guesses involved in starting a business and are on a path that’s more likely to yield positive results.

A good next step is to do the first pass at a financial forecast. What are your expenses going to be? How much money, if any, do you need to raise to get your business off the ground? What are your sales goals? We’ve got a good guide to forecasting sales here and an overview of the ideal planning process here.

Of course, you’re going to continue to refine everything as you go and you’re going to come up with new guesses that need to be validated along the way. But, knowing that there is demand for your business idea is a huge win for your startup.

*Editor’s note: This article was originally published in 2017 and updated for 2021.

AvatarNoah Parsons

Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan. You can follow Noah on Twitter.