top of page
Search

Idea Validation Fuels Startup Success, Not Fundraising: Here's Why

Updated: Nov 3, 2023


Quibi is a perfect example of an unvalidated idea.

Idea validation research is what separates startup success from startup failure.


That's not an opinion, but a fact testified by the onslaught of business failures that afflict founders every single day.


Even when heavily funded, unvalidated startup ideas consistently fail.


Truly, no amount of money can make a weak idea succeed. Don't believe me?


Consider the case of Quibi, the most spectacular startup collapse of the past decade.


Quibi: The Poster Child for the Value of Idea Validation


Imagine raising $1.75 Billion ahead of your startup’s official launch.


On top of the $1.75B, your team is led by Jeffrey Katzenberger and Meg Whitman.


These A-players previously led legendary companies like Paramount Pictures, Disney and eBay.


Creating a unicorn company with this cash and talent would be a slam dunk, right?


WRONG.


These rock stars raised that amount of capital prior to launching a mini-series streaming company called Quibi in April of 2020 and had a Titanic-like collapse shortly thereafter.

By October of 2020, the Quibi team burned through $1.4B of their capital and reached only 30% of their user goals. Just two months later, Katzenberger and Whitman were forced to sell the company’s assets to Roku for just $100M.


Despite a track record of massive media success, Katzenberger reflected on the root cause of Quibi’s failure by saying:

“[The] idea wasn’t strong enough to justify a standalone streaming service.”


Idea Validation: Way More Important Than Seed Funding


What’s the takeaway from Quibi’s downfall?


No matter how outstanding your work history is, business ideas sink or swim based on the quality of a founding team’s pre-launch idea validation research.


Failure to validate an idea is a common killer of startups, yet most founders continue to believe that raising capital will solve all their startup’s problems.


Quibi proves this belief wrong.


No amount of funding can make an unwanted product or service succeed. You can discern how desirable your product or service is before going to market by running idea validation research.


Founders who want to raise capital before validating their startup idea continually shoot themselves in the foot by skipping this step when developing their business.


As a result, their lack of product-market fit undermines both their business success and fundraising appeal.


Justin Kan, the original founder of Twitch, underlined this reality in a tweet back in 2021:


Justin Kan tweet that implies validation research is more important than funding.

On top of this, investors usually invest in teams just as much as they invest in ideas.


99% of founders don’t have the superstar credentials of Jeffrey Katzenberger or Meg Whitman on their team either.


That fact makes your odds of raising money borderline impossible if you don’t have proof of traction or a feasible pathway to product-market fit for your startup idea.


At the end of the day, traction is the key force that drives business success and fundraising success.


If two industry titans couldn’t make an unvalidated idea gain traction with $1.75B in capital, why should an investor even throw $1 behind an unknown founder with an untested idea?


Newsflash: Smart investors won’t put capital behind a startup when the key players and concepts behind a company are unknown and untested. It’s basically like setting their money on fire.


How do you prove traction to an investor if you don’t have a product yet? Run excellent market research and an idea validation study prior to building your product.

No Product, No Problem: The Foundation for Excellent Idea Validation Research


Most aspiring founders think their product, service or store must be live before they can understand their chances of business success.


Most aspiring founders are wrong and need to think again.


Building first is a mistake because it often causes founders to heavily invest in their own solution before they discover how their market experiences problems within their space.


The common outcome? Founders build something in the hopes of proving themselves right rather than providing value to their target customers.


This is a recipe for failure. It's better to build with others in mind because those other people are the ones who will either pay you or ignore you.


To avoid failure, founders must become obsessed with their target market first and only start building once they have a pulse on their key customers' current problems.


It's not only our research staff who operates according to this belief.


Jeff Bezos made this customer obsession the driving philosophy behind Amazon's development.

Idea validation research is fueled by an obsession with your customers.

So, how do you become obsessed along the road to building your company?


Only explore business opportunities within the fields that align with your primary professional skills or core personal passions.


Without the right skills, you won’t be able to execute on a viable opportunity. Lack of skills can be overcome with the right co-founder or business partner.


Lack of passion is nearly impossible to overcome in the long run.


Without enough passion, you’ll burn out or become bored before you reach whatever business goal you’re pursuing. If there isn’t deep passion for an opportunity during its earliest days, it’s better to explore other options.


Have enough skills and passion to build within an industry?


Great, now it’s time to talk with active members of your target market. These discussions should follow the path of open exploration rather than sales practice.


You are having a conversation and trying to learn rather than close deals.


This conversation-based form of market research is called customer discovery.


We've written a supporting article on why customer discovery allowed Alfred Sloan and GM to unthrone Henry Ford and his philosophy of "if I asked people what they wanted, they'd say a faster horse" when the US was the world's largest manufacturer of automobiles in the 20th century.


You can check that article out here.


Not all customer discovery projects follow the same routes toward success.


For example, B2B founders often begin their customer discovery path within their own professional network.


From there, founders can see if the headaches within their immediate network are shared by industry peers at related conferences, meet-ups, or masterminds.


B2C founders often start by talking to friends who currently buy the same class of goods or services.


After those discussions, they might engage people at storefronts , online groups or discussion forums related to their consumer audience.


In both cases, the questions center on what’s driving purchases, loyalty, friction and discontent among active market members when they interact with the dominant solutions in their space.

This is the foundation of customer discovery, and it’s more effective to run discovery without a product or service in your back pocket.


Why is it better to run discovery without a product or service?


If you’ve already spent significant money or time on your own solution, you run the risk of interpreting audience experiences and potential needs according to how they confirm what you’ve already built.


This risk feeds into a founder’s own bias on what to build rather than building something their target market customers authentically want or need.


Instead of serving founder bias, useful customer discovery will indicate legitimate areas of need and frustration that are shared across a significant number of your target market customers.

Once you identify common themes of need and frustration within the discovery data on your target market, it’s time to explore ideas that can profitably serve that audience.


At this point, your business idea should include core hypotheses that address three key questions:

  • What features should I build first?

  • How can I market to the right people?

  • What’s the right price to sell my products/services?

Proper idea validation work prior to launch clarifies if anyone besides you (and your loved ones) likes your business idea.


The key signs of enthusiasm for a business idea rest upon whether strangers will exchange their money or monetizable attention for access to your product or service.

If these other people exist, careful idea validation research will uncover their key characteristics and highlight why they like your business idea. We've written a guide on how to develop an intelligent approach to your customer discovery efforts. With that approach, you can even uncover a ballpark figure on the initial pricing model for your products and services.


Proper pricing will help convince customers to buy from you for the first time and keep them buying for years to come.


In 2023, software like Figma, Carrd, and Typeform give you all the tools you need to mock-up a product or service and gather insights at scale on how monetizable your business idea is to your target customers.


There is no reason for you to spend massive amounts of your own resources or raise billions of dollars in outside funding in order to launch your startup. Here's our overview of customer discovery tools that can make your DIY idea validation research 10x more effective.


Most investors won’t fund an unvalidated idea and most founders who launch unvalidated business ideas end up regretting it.

The Data Is Clear: Founders Wish They Validated Their Ideas


Sadly, most founders don’t do their research before spending countless hours and dollars on an unvalidated business idea.


The general neglect of business validation is reflected in the U.S. Bureau of Labor Statistics research on long-term business outcomes.


Within their first year in business, 1 in 5 new companies fail.


Within five years, almost 50% of businesses fail.


Over ten years, that failure rate rises above 65%.


Guess what? These figures are even worse for startup founders.


90% of all startups fail and 75% of all VC-backed startups fail.


Want to know what these founders say after their companies fail?


In their 2022 report on startup failure, Skynova–an online invoicing software company–gathered feedback from around 500 founders whose companies didn’t make it to 2023.

Founders recommend better pre-launch idea validation research.

Reflecting on what they wish they’d done differently, founders had 3 dominant recommendations:

  • 58% would have done more research prior to launch.

  • 58% wanted a stronger business plan.

  • 50% wished their marketing was better.

All three of these recommendations can be solved through strong idea validation research. That research is most effective when it's done prior to launch.

Conclusion: Don’t Want to Fail Like The Rest? Run Idea Validation Research.


In 2023, with all the AI and no-code tools available for product design and landing page development, there is no reason why founders can’t run a startup validation test prior to fundraising or launch.


While modeling a product or service prelaunch is easier than ever, it’s not as simple to develop an effective research plan for a full-scale validation project.


This is especially true if you’re a solo founder or your co-founders have never run idea research before.


At Venture Validator (VV), our validation research process ensures that you’ll get all the insights you need on features, marketing and pricing from highly qualified members of your target market.


The quality of our research process and professionalism was captured by this recent client’s reference:



If you’d like to discuss your idea validation needs, you can share details on your startup and book a call on my research calendar here: https://calendly.com/zach-vv/discovery


217 views0 comments

Comentarios


bottom of page