How To Select A Test To Get Market Validation For A Business Idea

Landing Page and Advertising Campaign

This a classic way to test a business or new product idea in a quick and fairly cheap way. You just have to buy a domain, put a landing page live showing off the value proposition, and run advertising campaigns to drive traffic. Then you measure the conversion rate and you tweak either the customer targeted, the channel/message used for driving traffic or the proposition until you get a decent conversion rate.

If you want to be super lean and minimise expenses, you might opt for one of those services that allow non-coders to create landing pages with a professional look and feel (WordPress.com, Wix or Squarespace to name a few).

Whatever you use to put the webpage live, it is absolutely mandatory that the landing page has a call to action in it, such as a button with a “leave your email to pre-order” or a “leave your email to get updates”. Without a call to action, this exercise is wasted time, as you won’t be able to measure customers’ commitment. Besides, all these emails collected are going to be useful in one way or another (i.e. you could contact these customers when you have something to sell).

The landing page is such a powerful and multipurpose tool that it can be used not only to validate a value proposition at a very early stage but even to recruit customers to run customer discovery interviews in case you are struggling to secure meetings with them.

There is one important thing we feel we have to recommend: before starting to design the landing page, you should invest 10 minutes of your time to compile a lean canvas of the business idea. We put together a few tips on how to compile a lean canvas and an example.

Compiling a Lean Canvas will help enormously to clarify the value proposition message, the channels and the customers to be targeted. You are going to need these things anyway, so better to start off on the right foot.

• Use this test to: validate a value proposition for a new product or business idea, or recruit customers for customer discovery interviews.
• When to use: either you have just an idea, or you have defined a competitive value proposition based on customer insights and you want to measure customers response.
• Time and resources required to set up: from just a few hours to up to a week, depending on the tool you are using, and how refined you want the landing page to be. A few hundred pounds will be required to run the AD campaigns – traffic doesn’t come for free, to buy a domain and to pay for the website, either because you hired a developer and a designer or you purchased a premium subscription to a service.
• Evidence level: medium. These are not words anymore, but actual customer actions. Customers pre-ordering or leaving their email have clicked on an advert, gone through the website and found it convincing enough to leave their email address. A pretty good validation.

Explainer Video And Landing Page

Alongside the landing page, this is one of the most popular cheap and fast tests you could choose to validate a business idea on the market.
In case you have a business idea in mind that requires a combination of technology, infrastructures and physical aspects, a video might of help.

A famous example of an explainer video is the one that Eric Ries, founder of Lean Startup, used in 2011 to explain his concept of a Minimum Viable Product, or MVP (the fastest way to start learning how to build a sustainable business with the minimum amount of effort).
He used the example of Drew Houston, founder of Dropbox. Drew wanted to raise money for a proof of concept being able to demonstrate the revolutionary and seamless file sharing system over the cloud he had in mind. He needed around $1M to develop the complex proof-of-concept, which investors weren’t keen to provide without any evidence of market demand.
So, instead of falling into the build trap, he put together a banal, simple three-minute demonstration of the technology was meant to work. Drew narrated the video personally, describing the use cases and the kind of files you could synchronise. The viewer could watch his mouse manipulate his computer.
Drew combined the video with a landing page where users could pre-register to get early access to Dropbox. As he shared the video on a forum where his early adopters gathered, driving hundreds of thousands of people to the landing page. The beta waiting list went from 5,000 people to 75,000 people literally overnight, providing him with enough market validation to convince investors to fund his company.

• Use this test to: validate a value proposition for a new product or business idea and decide the next steps.
• When to use: you have already defined a competitive value proposition based on customer insights.
• Time and resources required to set up: you could easily do this at home using the camera of your phone, paper-cut figures and your voice, just like Drew. If you want to be more professional, you may ask a designer or an illustrator to do it for you.
• Evidence level: medium. By asking users to register for a demo, or to be the first to access the beta version, you are triggering behaviour and gathering valuable data about your customers.

Crowdfunding Campaign

This is quite a popular way to validate a value proposition and get funding for the next steps. Successful companies such as the editors of the best seller book “Bedtime Stories for Rebel Girls” use crowdfunding most of the time they want to launch a new product on the market and need to get validation before making an investment.

If you have done your homework right, i.e. you have gone through the process from initial idea to a value proposition validated by customer commitment, there is a good chance that the campaign is going to be successful and will help you raise the money to launch a Minimum Viable Product or improve/grow the existing one.

However, a crowdfunding campaign is not an easy feat, and the effort required shouldn’t be underestimated. The idea that you will start a campaign, share it with your friends and money will come with a snowball effect is comparable to being convinced to go into an off-licence and because you will buy a winning lottery ticket. In fact, succeeding at a crowdfunding campaign is damn hard, and you won’t get the money pledged unless you at least achieve the funding target.

You might need support from video makers, PR agencies and potentially specialised agencies that create the strategy and execute it (this one is quite good, for example).

All this will divert your energies from the exercise of understanding target customers needs and defining a competitive value proposition to get their commitment. So it’s really pointless to start a crowdfunding campaign before you have completed those tasks.

Considering the effort, it’s certainly not the first thing to do when you have a business idea in mind. There are much faster and more effective ways to gather market insights and de-risk the idea instead (see above).

• Use this test to: validate a value proposition for a new product or business idea, and get the funding required to launch a MVP or grow.
• When to use: you have a competitive value proposition already validated with customers.
• Time and resources required to set up: this will take at least two/three months and a few thousand pounds. There is a lot of competition out there, and you need to invest if you want to win.
• Evidence level: quite strong. Customers are opening their wallets and pledging their money on your idea and team. A pretty good validation.

Pre-Sales and A/B Test on Pricing

This a more advanced version of the landing page test. The difference is that in this case you are not just gathering customers emails, you are actually asking them to pay for your product, before it is available.

A giant leap of faith for your target customers, and a huge validation for your value proposition. You might also implement an A/B test infrastructure so that you can see to which price customers respond better and adjust the pricing strategy accordingly. This is quite useful especially if you have no references in the market.

However, this test is quite advanced and does not come for free. The payment and A/B testing things require more complex tech capabilities than a simple landing page, and you are expected to have done all the homework (see here the 7 steps to validate a business idea) in order to be able to convince customers to give you their precious money for something that does not even exist yet. Moreover, you need to be mindful of legal and regulatory requirements before selling something that does not actually exist yet. So it’s not for beginners then.

• Use this test to: validating a value proposition for a new product or business idea, and get the funding required to launch a MVP.
• When to use: you have a competitive value proposition already validated with customers.
• Time and resources required to set up: depending on the complexity and tech background of the founders, this might take from half-day to a couple of weeks. You will need to invest cash to drive traffic to the landing page, to buy a domain and to pay for the website, either because you hired a developer and a designer or you purchased a premium subscription to a service.
• Evidence level: very strong. Customers are paying for something that does not even exist. They definitely fit the description of early adopters: they are so crazy about what you are doing that are willing to commit before it makes rational sense to do it.

Customer Validation Interviews with a Working Prototype

From this test onward, we start dealing with real products. So no more sketches on paper, scrappy prototypes or promises, here we test the real stuff. With all the cash and time investment that follow.

This test is the pro version of Customer Validation Interviews to get commitment (see above).

We see that most of the deep-tech startups we work with have been asked by their clients to see a working prototype before they can commit to practical next steps. It makes sense, if a business idea is mostly based on a tech wonder, they want to see whether the team can deliver before going ahead.

The process and objectives (get commitment) are the same as Customer Validation Interviews, but instead of showing sketches on paper or a mock-up, you will show a working prototype of the product.

It’s easy to see that a rejection at this stage might cost quite a lot, and it might hurt badly, simply because building real things does not come for free.

So this test is good in case either you have a working prototype ready for any reasons (e.g. it comes from a R&D or University Lab), the product requires multiple real iterations because of its intrinsic nature, or you are so much advanced in the validation process that you decided to invest in creating something real.

• Use this test to: validate a value proposition for a new product or business idea.
• When to use: you have a working prototype ready for some reasons, the product requires multiple real iterations, or you have a competitive value proposition already validated with customers.
• Time and resources required to set up: this might take from a few days in case of a 3D printed object to several years.
• Evidence level: medium. It really depends on the kind of commitment you are going to ask for, but if they do commit, it’s a good sign that you have something valuable.

Sell Concierge Service

With this test we enter the realm of “fake it before you make it“, and we are validating customers demand by selling a makeshift product that we pretend to be the real thing.

Just to clarify: this does not mean we are deceiving customers! They are going to get the exact service for which they are paying for, nothing less. However, what is in the background is quite Do-It-Yourself, as what would enable the service is so complex, expensive and full of uncertainty that instead of building it we will be just doing it…through the founders’ manual work.

A good example is how Nick Swinmurn founded zappos.com back in 1999. He had an idea to sell shoes online. He could have raised enough capital to buy a giant warehouse, put in place a complex value chain, stock million of dollars worth in shoes and send them to customers ordering online. All this provided that he had been able to find someone believing in his idea and giving him funds, and most importantly, that customers were willing to buy shoes online. Instead, he made a deal with a few shoe shops in his neighbourhood, took pictures of the shoes and published them on his landing page. If a customer ordered, he would go to the shop, buy the shoes and send them by post. This helped him validate his idea, prove with traction that there was market demand and then raise the money he needed to build the actual service he had in mind.

As you can see, selling a concierge service requires a lot of work from the founders, and it’s not intended to be ready for scaling, or even to make a profit. Let’s imagine this: a concierge service for testing the search engine idea for google could have been a form where users would submit a request, founders would receive the search term by email, would manually look for related urls through a list, and then send them over to the users by email.

Selling a concierge service it’s a learning exercise, it helps validate a value proposition, de-risk the new business idea, and get plenty of insights to put together a meaningful financial plan.
And if orders start piling up, you will have enough validation to meet with investors and convince them to give you the funds required to automate the most time consuming and customer critical operations, thus creating the proper infrastructure able to deliver the value proposition.

The concierge service requires a landing page with an order form able to accept customers payments, and advertising campaigns to drive traffic.

• Use this test to: validate a value proposition for a new product or business idea, get insights for a financial plan, get traction either to convince investors or to decide to take the plunge.
• When to use: you have a competitive value proposition already validated with customers in cheaper ways, and you want to try the real thing.
• Time and resources required to set up: providing the actual concierge service might be extremely time consuming, depending on the service.
• Evidence level: very high. Customers are buying, leaving you feedbacks. It’s like you are really live with your business idea, just at a very small and DIY scale.

Sell by Pretending to Own or Re-labelling

Again, with this test we are “faking it before we make it“, and we are validating customers demand by selling a makeshift product pretending to be the real thing.

Just to clarify again: this does not mean we are deceiving customers! They are going to get the exact service for which they are paying for, nothing less. However, we are selling something we do not really own or built.

An example might help: a film sound service testing the value proposition for a brand new advanced recording technique have two options. Either to get a loan and buy £100k worth of equipment, or to rent it from another supplier, and sell it to their customers barely covering the costs. The advantage of the second option is that if their customers won’t respond positively, they would have just wasted a few hundred pounds instead of having a £100k to pay back to the bank.

So this test is about borrowing or renting something needed for a business idea before investing big money to buy it. Businesses like HSS hire or Appear Here are largely serving these kind of needs: before rushing to buy a tool or sign a contract for renting a prime commercial space for a shop, they allow entrepreneurs to “pretend to own” something or “re-label” it, postponing a sizeable investment until they have enough validation for the value proposition.

One more time, this is not intended to be made for scaling, and not even to make a profit. Instead it’s a learning exercise, it helps validate a value proposition, de-risk the new business idea and get plenty of insights to put together a meaningful financial plan.

Also this test requires a landing page with an order form able to accept customers payments, and advertising campaigns to drive traffic.

• Use this test to: validate a value proposition for a new product or business idea, get insights for a financial plan, get traction either to convince investors or to decide to take the plunge.
• When to use: you have a competitive value proposition already validated with customers in cheaper ways, and you want to try the real thing.
• Time and resources required to set up: it depends on the actual costs for renting or re-labeling the service/product. One thing is sure here: expect to spend money, potentially in the thousands.
• Evidence level: very high. Customers are buying, leaving you feedbacks. It’s like you are really live with your business idea.

Sell Actual MVP in Test Markets

By now, you might have realised that you have many options for testing the market before building the actual product you have in mind. So there are no excuses for falling into the build trap!

These last two tests are the most resource intensive ones, and they require founders to build the actual product and launch it on the market. This means that a potentially considerable amount of cash is going to be invested.

The concept of a Minimum Viable Product, or MVP, is one of the key principles of the Lean Startup methodology. It dictates to build a product to get customers commitment with a number of features reduced to minimum.

Most successful startups started with a MVP. Twitter, for example, started as a way for broadcast SMS among a group of people, and there were no @replies, #hashtags or retweets. Fin-tech startups like Monzo or Tide launched early versions of their app-only banks using prepaid card or not allowing customers to set standing orders.

A MVP is a minimalistic exercise to provide target customers with the right set of features that will make the product credible, competitive, loved and bought.

In order to minimise the risk, this test requires to launch the actual product in a selected market where there is the highest concentration of early adopters. For example, the food delivery service Deliveroo launched first in Chelsea, where the concentration of early adopters was higher. After having validated the concept and the value chain and achieved considerable traction, they have collected so much credibility to raise funds to expand broadly from investors.

• Use this test to: launch the actual product in the market with the highest concentration of early adopters, learn and fine tune operations and value proposition, and gather credibility to expand  in adjacent markets later.
• When to use: you have a competitive value proposition already validated with customers in cheaper ways, and you have funds to build and launch the real thing.
• Time and resources required to set up: it depends on the actual costs of building and launching the service. One thing is sure here: expect to spend thousands of pounds and consider to work on this full time.
• Evidence level: quite high. Customers are buying, leaving you feedbacks. It’s like you are really live with your business idea, but in a sort of “safe” market.

Sell Actual MVP Broadly

As above, the concept of a Minimum Viable Product, or MVP, dictates to build an actual product to get customers commitment with a number of features reduced to minimum. A MVP is a minimalistic exercise to provide target customers with the right set of features that will make the product credible, competitive, loved and bought.

The only difference from the previous test is that you are not only targeting the market with the highest concentration of early adopters, but you are expanding to adjacent ones. This is not really a test anymore, but an actual business starting to grow.

For example, when Uber started to test the market to deliver their value proposition of simplifying cab hailing, they launched in 2010 in a single location, San Francisco, targeting the high-end of the market (professionals using black limo type cars) that they had identified as their early adopters (read more about how they did it).

This allowed them to iterate and validate the proposition and to be credible in front of investors, show traction, and raise additional funds to expand broadly. So far Uber has raised at least the staggering amount of $24B in investment.

• Use this test to: expand your business.
• When to use: you have successfully launched in a test market and you have funds to expand.
• Time and resources required to set up: it really depends on the actual costs of expanding the business. I’d bet you are working full time on the business already, and probably hired someone to help.