So you have a product, you have a market and you have a sense of where your revenue will come from… but you’re not 100% sure… or maybe you’re not even 50% sure! What should you do next? There are two schools of thought here:
- “Spray and pray” – fire large quantities of marketing and sales messaging in the general direction of your prospects and hope someone will say yes
- “Go with what you know” – sell to the companies that are in your network and comfort zone because you can get through the door easily, and hope that the mountain of gold doesn’t actually lie just around the next headland
However, you may have identified some potential shortcomings with the above approaches… Fear not, there is another way!
Segments and Hypotheses
To succeed in market validation you really need to carve your market into segments, and test your message with each segment in a measurable way to see where the greatest appetite exists. In order to validate a market you will first need a hypothesis. As a founder, it’s likely that this is something that you’ve have had in mind or suspected since you set your business up. An example of this could be as follows:
- I think Financial Services companies need this because they currently do everything manually with spreadsheets and analysts
- This work is manual, expensive and error prone
- If I can prove my solution is faster and better then I can charge customers 50%+ of their current cost, and save them from the inevitable errors and time invested in manual processing
- Banks, insurers, challengers and consultancies all have these problems, but each is subtly different, so will need different messaging
Once you have your hypothesis and an understanding of your segments, you can write your validation plan. By documenting your validation plan in a few pages, you can confirm who you are approaching and why, what you expect to happen, and what you will do afterwards based on what you’ve learned.
7 Steps to Validating a Market
Once you’ve completed the above it’s time to get stuck into the validation itself. Here’s a step by step guide:
- Define 4 or 5 segments, with ~20 accounts per segment. When we are doing a channel validation in the enterprise segment the following are usually a good bet: 1) Analysts and though-leaders, 2) UX and Strategy Consultancies, 3) System Integrators, 4) Tech platforms to which you can integrate
- Create a hypothesis per segment, half a page for each, that defines a) what you suspect they want, b) what you are pitching to them, and c) how they might want to buy
- Build an audience of ~100 accounts with 2 contacts per account across your chosen segments
- Approach all validation conversations as a consultation – your objectives in approaching these companies and contacts are to share your hypothesis, understand what they do now, who they use, and if/where there are any gaps – many “validation calls” end up as pipeline deals because they start as a consultative conversation
- Create your own “Sales Pod” based on who in your team, close friends/family and extended business and investor networks can quickly and easily connect you with your audience above, or companies that look like these – the warmer the intros, the better the conversations, the more meaningful the feedback, the more likely you will turn the conversations into deals.
- Complete your validation within 2 months so that you create a sense of urgency – you need to finish this work quickly so you can double down, or re-calibrate if necessary
- Wrap up your findings in a short report – this report will be really useful later on in briefing sales and marketing teams, and for demonstrating to investors that you have done your homework and that you know where the opportunities exist and where they don’t
Next Steps – Post Validation
The clearest outcome from a validation is the identification of 1 or 2 segments that are ready to buy, and you can then focus your ongoing efforts on the deals you have generated in these segments, and your sales and marketing resources to generating and progressing more sales cycles.
However, other important insights come from a validation, such as identification of segments that:
- Don’t want to buy – qualify these out, and consider de-prioritising inbound leads from these segments
- Are not ready yet – put these into a nurture process, and revisit them in 6 to 12 months
- Use a competitor – as your product develops, you may be able to re-target these prospects and displace this competitor
- Have a technology blocker – this can inform you integration and partner strategy. Take note, and reengage when you have that partnership or that new localisation in place!
Remember, Validation is an iterative process. You should always be testing, learning, recalibrating. Once you have validated your direct market, validate your channel. Once you have validated your channel, validate a new geographical market.
The more you use this process, the more you will understand the market; where your product fits best, and where you can generate the best returns on your sales and marketing investments.