Jessica Livingston, Co-founder of Y-combinator said “Nothing else you do will matter if you are not making something people want. You can be the best spokesperson, the best fundraiser, the best programmer, but if you aren’t building a product that satisfies a real need, you’ll never succeed.”

This module highlights the importance of validating your proposed solution before going too far down the path of development and prototyping. Successful start-ups find the right solution to a well defined problem, and confirm that solution through research and significant deep thinking. You will find, however, that your upfront work of validation will become an ongoing part of your entrepreneurial journey.

By the end of this module, you will be able to:

• Outline the problem you are trying to solve
• Summarize assumptions about the problem you are trying to solve

Section A: More Questions than Answers

As a founder of a startup, you are doing something new. This means you will likely make some mistakes or lose direction along the way. So get comfortable with uncertainty and questions, because a startup founder’s job is to search for answers and to figure things out. Read this article by Dan Woods from Forbes Magazine. In this article, entrepreneurial expert, Steve Blank, says “A startup is an organization formed to search for a repeatable and scalable business model.”

Martin Magill, Michele Young-Crook, Nick Baksh, and Tenille Spencer provide their perspective on uncertainty in the startup world and the role founders play in figuring things out.

Section B: Validating your Problem and Solution

Potential activities in the first year of a startup’s life include validating different parts of the business: from the problem, solution, and distribution channels, to the revenue model, and validation. This is an ongoing process.

To survive, a startup must do four things:

1. Solve a problem. This is the easy part.
2. Solve a problem worth solving. This means a customer will want to pay money for the solution. This is where most startups fail.
3. Have the right solution to the problem. A lot of startups miss this target too.
4. Build a minimal viable product (MVP) to test the hypotheses of points 2 and 3.

Startup founders Hanna Haponenko, Michele Young-Crook, and Sarah Butts share some insights on how they identified a specific problem, and the solutions they found to solve those problems. 

Hard Truths

As Jessica Livingston says “If you aren’t building a product that satisfies a

real need, you’ll never succeed.” The key words in that quote are “satisfies” – meaning having the right solution – and, “real need” – meaning a problem that a customer cares about solving.

Take a few minutes to watch this video of Steve Blank, the godfather of Lean Startup, as he talks about validating with customer development.

Next Steps – Validating with Experiments

After the problem and solution are validated, and the MVP gets built, then people need to use it. The next stage in the validation process is to run experiment testing:

• Channels – These are often marketing and sales channels used to reach the customer segments. For example, these can be social media platforms or B2B sales. You will learn more about this in module 3.2.
• Business model – How do the revenue streams fit with the cost structure? Can resources or activities change to make the business model more efficient or profitable?
• Revenue Streams – How do you charge for your product or service? Subscription? Pay-per-use? Transaction fee? Think about YouTube, Netflix and Apple Movies. All of them stream video, yet each company charges differently based on its unique customer experience:
  • YouTube – Advertising
  • Netflix – Subscription
  • Apple Movies – Pay-per-view

“I’ve rejected the startup dogma that you have to move fast and break things, or always be “crushing it” or “killing it”. I’m doing none of those things. I’m building a thoughtful, empathetic FinTech business from the ground up. It’s slow going.”

Section C: Identifying Your Customers

In order to accurately identify your problem and test your solution, you must identify your customers. This part of the validation process includes these steps:

1. Build targeted customer profiles – covered in module 2.2
2. Frame the problem into a hypothesis or a question.
3. Consider the underlying assumptions to the problem. What needs to be true for this to be a problem?
4. Draft questions or talking points to test those assumptions with potential customers,
5. Find potential customers – Where do they spend their time? What do they pay attention to? – covered in module 2.2.
6. Talk to potential customers – covered in module 2.3
7. Update Business Model Canvas with learnings and insights from customer development interviews – covered in module 2.5

Remember that validation will become an on-going process as you develop your business.

Quiz