Almost on a weekly basis, I meet new aspiring entrepreneurs looking to execute on their ideas.
Some believe in the all-in approach to product development: build an advanced app. If it works, they’ll hit it big, and if it doesn’t, they’ll make some changes and do it again. Others believe in the start small, grow strong approach: build a small version of the app, test user demand, and then take it from there.
In both scenarios, it seems that startup venture initiation and idea validation are strictly dependent on the app.
Here’s what I learned from launching my first app, Recycle Spotter:
1. Early stage idea validation can be accomplished without building an application. It’s possible to simulate user experience through existing, lower-tech resources.
2. An entrepreneur can quantitatively test potential buyers’ real intentions and develop a genuine understanding their needs before building out the product (app).
3. Survey responses should not be taken as ultimate proof of a potential buyers’ problems, needs, intentions, and personas.
To determine the viability of an app or startup idea without building out the full solution, entrepreneurs should:
- Test potential buyers’ real buying intentions by monitoring their willingness to pay for a beta version.
- Simulate the solution (app) by combining resources to serve users quickly, and gather feedback before investing in a scalable version of the application.
For instance, to simulate an Uber-like experience, you could create a Facebook ride sharing page that matches riders with drivers on demand, by simply asking members to post their ride requests, then privately chatting with drivers. This non-scalable approach to Uber’s sharing economy model is sufficient to test users’ interest while learning about their needs and expectations through one-on-one interviews and short surveys.
Back when I was junior in college in 2012, I had an idea for an app called Recycler Spotter, a platform that rewarded users for their eco-friendly actions. I wanted to use gamification techniques to increase environmental awareness and boost recycling rates. It worked by enticing app users to recycle, which earned them points they could redeem for rewards from local businesses. The end user of the application was those who recycled, however, the recycling and reward redemption process required partnerships with recycling facilities, local businesses, and government agencies. Those partners paid for a membership with Recycler Spotter.
There were two main benefits for partners who joined the platform: their brand became associated with an eco-friendly company, and their exposure to college students and households in the region helped boost their businesses.
As part of my initial customer outreach and research phases, I personally (not over a phone call, social media, or a landing page) met with over 600 potential partners (recycling centers and local businesses). Out of those 600, 256 committed to the platform by agreeing to be associated with Recycler Spotter for recycling (recycling facilities) and giving away rewards (restaurants, coffee shops, ecommerce stores, and so on) to our users. And that, by the way, was a great conversion rate for a simple survey-based research for the initial free subscription version of Recycler Spotter.
For me as a student with limited funding, spending tens of thousands of dollars to build a scalable and robust application was out of the question. At that time, launching Recycler Spotter depended solely on spending the least while achieving the most.
In line with my funding limitation, the plan was to introduce a very basic version of Recycler Spotter app to those 256 joiners. The beta app would include a list of recycling facilities and local businesses, like a simple directory page. The point tracking and documentation system would be managed manually by my team on the back end. In other words, users would send us a picture of their recycling receipt and we would do all the work of updating their Recycle Spotter profile in an Excel sheet. Then every week we would send them a summary of their account and ask them to email us if they wanted to redeem their points. It wasn’t a scalable solution, but it was a start.
Then, about two weeks before launch, I distributed a survey to those 256 partners. About 150 said they were interested in the premium version of the app which would include features that didn’t yet exist. 60 percent of respondents chose premium! I was expecting 10 to 20 percent at most. I never imagined that most partners would select premium since none of them had used or seen how the platform looked and functioned. Later, I learned that most of those who selected premium did so because of the personal relationship I built with them.
The problem was that building out all the features in the premium version would take four to six months and many thousands of dollars in app development that I didn’t have. But when I ran the numbers, the revenue from just the first three months from the 150 who were interested in premium would cover the investment and more. Since I didn’t have the cash to invest in the premium features, I extended development to eight months so I could leverage small payments from a scholarship I was getting from school. I ended up delaying the launch of both the free and premium versions until I had the completed premium app in hand.
I built out the premium version, launched it, and emailed those who said they were interested in that version. Guess what? Only three of them ended up buying the premium version. What happened to the rest?
What I learned from those meetings
I went back to them and asked. This is what I implicitly and explicitly learned from my meetings with most of those who selected premium (a little over 100 respondents):
Many people were nice.
Actually, most people are nice.They let a stranger interview them and talked about sharing the idea with their friends. The problem is that you cannot build a business out of nice.
The best entrepreneurs are able to get at interviewees’ real intentions. But I failed to ask open-ended questions that would yield information outside of the answers that I actually led them to give. I also failed to ask for a commitment up front, such as signing an agreement or making a small deposit in exchange for a future discount. This could have validated their interest and provided me with a tangible proof of demand. In fact, I recall hearing a lot of enthusiasm from an owner of a recycling facility whom I asked to commit to Recycler Spotter after our interview. He ended up saying that he would rather wait. One of my lessons learned is to pay attention to small signs like this.
It’s hard to imagine product functionality.
No matter how clear the explanation or how good our design plans look, it isn’t until buyers see the app for themselves that they feel able to make educated decisions. In other words, including a list of features in a survey may be informational, but it’s not practical. This fact adds a layer of complexity to pre-product validation.
However, big problems and urgent needs are always worth betting on. If Recycler Spotter had addressed an unbearable problem, companies would have committed regardless of product stage and quality. Therefore, one way to test the urgency of the need for an idea is to test potential buyers’ willingness to commit to it before its launch. Although Recycler Spotter was perceived as a great model for increasing awareness and sales, most partners decided to wait for the product launch. Recycler Spotter’s perceived value to partners wasn’t significant enough to justify early commitment.
Priorities can change from one day to the next, let alone over eight months. Ongoing follow-ups and small product versions are extremely important to maintaining momentum. When I periodically followed up with potential users, I noticed a decline in response rate. The lesson I learned here is that even constant follow ups don’t change buyers’ priorities.
People want social proof.
Most of those who said they were interested in premium were looking for social proof. They wanted to make sure they’re going to pay for a proven solution. They looked for reviews, social interactions, and recommendations. I could have proven the concept and quickly gathered feedback and reviews through the free, manually managed version, as I was building a scalable product.
Furthermore, as I was proving the viability of Recycler Spotter through the free version, I could have pre-sold the paid membership at a discount for another layer of validation that would have also helped finance product development. In fact, it wasn’t until I showed proof that users of the free version started upgrading.
The truth is that what happened in my case had very little to do with building out the premium features of the platform. I could have gotten the same answers, reactions, facial expressions, without wasting the time and money building a list of features almost no one used. Although I eventually grew Recycler Spotter to hundreds of users and many paid partners before I ultimately decided to move to another venture, many of the costly mistakes I made early on could have been easily avoided had I simply asked and leveraged existing tools, following through on the same trajectory as my initial approach when money was tight.
Testing: The approach that makes sense
The success of a startup is based on the value it provides to its stakeholders. Such value is centered around market validation and growth potential.
In other words, if the proposed solution has no proof of adoption, neither the customer, founder, co-founders or investors will benefit from the venture. Therefore, instead of securing the assets (funding and talent) from day one, hoping that the investment will pay off in the future, our focus should go to validating the viability of the solution first.
By testing potential users’ intentions and behavior by asking for small commitments, then getting another layer of validation through prototypes and quick product iterations, we focus on what matters the most: validating the idea. Validating first will actually help attract the best talent sooner and securing funding quicker.
Second, we have to get our hands dirty. No matter how complex the idea, there is always a way to serve customers manually behind the scenes or by re-engineering existing tools to come up with the closest experience of our future scalable product.
Groupon, the second fastest company to ever reach a billion-dollar valuation, used a WordPress blog, created an Excel spreadsheet with the list of businesses who were interested in selling coupons. They matched buyers with these businesses manually on-demand. No application and no advanced technology whatsoever.
Doordash is a food delivery application that started the same way. After interviewing over 150 local businesses, they learned that the biggest problem these businesses face is delivery. Their idea, helping local businesses to outsource delivery, needed some testing. So in an afternoon, they created a landing page that included a phone number and menus for local businesses, contacted everyone on their email list and distributed flyers at school.
The team at Doordash got the first call and order the same afternoon. When more people started ordering over the next week, they had to find a better process so they used iPhone’s Find My Friend app to locate drivers and dispatch orders depending on their location, they used Square to accept payment, a spreadsheet to organize the orders and their own cars to deliver.
Even though I had never heard the stories of Doordash and Groupon before, I was on the right track, aiming to quickly launch the initial simulated version of Recycle Spotter before building a scalable application. It wasn’t until I distributed the final survey to learn that most potential users are interested in the premium version that I decided to invest in a fancy app. It was a change of course.
This is what getting hands dirty means—it is by serving the customer non-scalably that we can go to market without an app, learn more about their behavior and at the same time, learn how the code or algorithm should look when we’re ready to build. It is an approach to minimize uncertainty, reduce initial investment, and enter the market sooner. When I postponed the launch of Recycler Spotter in the hopes of building out an advanced application, I learned that most of the premium features were good to have, but not imperative to address the core of the solution: boosting recycling rates.
The validate-first approach doesn’t only apply to tech startups; small businesses are better off with this method too. For instance, if I’m looking to start a printing service, instead of leasing a store and buying the equipment and tools (which tend to be expensive), I can distribute 300 flyers to local businesses who might be interested in my services and find a used printer. But first, it would be wise to pre-sell printing services at discounted rates to evaluate customers’ interests, while requesting a two weeks notice to take advantage of the discount. If they call, I collect the checks, use the money to buy the printer, serve customers from home and reinvest gains to purchase better printers and invest in a physical location in town.
Above all, we all have big dreams, but, success cannot be hacked. “Overnight success” in the business world actually takes years. When you focus on building the best small-scale app (or startup) you can, setting smaller, achievable goals will make it easier for you to check some milestones off the list, but most importantly in this highly competitive business world, it will allow you to celebrate the smaller achievements, gain confidence, grow stronger, and persevere longer.
In the words of Steve Jobs, I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.
Want to learn more about how to validate your business idea?
If you’d like more information on how to determine whether or not your business idea is a good one, be sure to check out the following resources, including the free Bplans business idea validation checklist download.