Twelve ways to validate a business by twelve start-ups

Margaret Paton

So you think you have a great idea but not sure how to go about validating your product or service? Well – you’re not unlike anyone else. Here’s how other start-ups-to-established small businesses handled this tricky question.

First-off, it’s important to understand that your idea doesn’t have to be the next Uber or Facebook. And here’s some context; according to the 2015 Start-up Muster Report, 42 per cent of those surveyed were offering an improved product or service that had an existing market and just under a third had a niche product or service in an existing market. The report also found that a quarter of start-ups used incubators or accelerators.

The bottom line is you rarely can validate a product or service while navel gazing. Pitching your idea is all about captivating your audience, says Founder Insights Joe Garza. Your product or service has to solve a real problem in a big market, have a competitive or sustainable advantage and deliver you cash or profit.

Mitch Hills, Mastered Marketing

Having three start-ups on the go is one way to describe Mitch Hills, founder of Mastered Marketing.

One of those ventures is the free-to-download iPhone app AroundAbout listing and recommending eateries and places to drink in Brisbane.

“Validating your product is hugely important. It's what takes your guess to a viable business,” says Hills.

He did it by finding a monetizable plan: “Identify something in the marketplace that is annoying, expensive, time consuming, a pain that is affecting thousands of people regularly. Something that people are eager to pay for.”

Next he creates the “monetizable pain hypothesis” - getting specific about the customer and the market, then defining an initial - but flexible - solution into an elevator pitch. He’ll then talk to 50 potential customers about the solution, analyse the data to decide if the idea is worth pursuing: “is there a big enough market and is there a huge competitor in the market already?”

Hills suggests then designing web wireframes on Sketch (for Apple) to put them in a “functioning, virtual prototype with free platforms like InVision” allowing you to check back with your customers to find the minimum feature set they’re after.

“All of this is cheap and fast and will save you so much time, money and resources if you do this before you invest in your ‘grand idea’ which is really just a guess.”

Edward Hartley, Blue Thumb Art Gallery

Co-founder Hartley says while researching the idea of selling art online in 2011, he’d heard more than $200M of art had sold on UK’s eBay, but already another online art marketplace had set up an Australian website. That site wasn’t a go-er, though.

“They were years ahead of their time,” says Hartley. “We bought their site and just went ahead with it as our test, saving us about a year in development. Our strength was building and designing tech and we’ve rebuilt and refined the site since.”

Blue Thumb represents more than 2,000 Australian artists, lists 30,000 works and its sales have doubled since November last year.

Irwandy Tan, Andatech

Since launching Andatech in 2003 which now develops and sells advanced workplace breathalysers, drug testing kits amongst other health products, Tan has come a long way; he says his “inexperienced self” then used “common sense” to go ahead with a product.

“There was not much thought or novelty in the products we sold. I simply chose what I heard could sell and earn me some profit, but there was no validation to the quality or market need,” he says.

Andatech’s DF Lamp was the first product paced through the full development process involving blind testing to get unbiased feedback from would-be customers.

“Market research had to be done systematically so that the market audience was representative of an ideal market for this lamp. Before we even launched the product, a lot of time and money had already been spent, but this is better than making a bigger loss if the product has not been validated.”

It was worth it as the launch saw the product sell much more than their other unvalidated products.

“One successful product however, did not translate into many consecutive successful products. We still faced issues with introducing new products, as products of different nature have different methods of validation. Simply getting the blind testing public to comment on a product stopped being effective very quickly after,” says Tan.

So while the DF lamp is a strong seller, the company has an extensive product range not necessarily related to lamps, such as the AL-6000 Breathalyser introduced in 2005. A year later, they certified the product to Australian Standards. This meant they had an edge over competitors and, importantly, an entree to attend expos and trade shows. In short a business model they could duplicate.

James Mawson, Handsome Genius

A couple hundred dollars and “mere days” is what it cost James Mawson, of Handsome Genius, a web marketing and copywriting business, to validate a service offering.

“The best method I've used … is to write some direct response copy for it, put it on a landing page with a contact form at the bottom and then buy clicks from Google Adwords. 

“It's good to set the bids a lot lower than what Google suggests, and then adjust them upwards slightly if nobody is clicking. We’re not going for huge volumes here - a trickle is enough.

“Then I wait to see if anyone wants to get in touch,” says Mawson.

“In any market, Adwords requires constant attention. You can get burnt if you ‘set and forget’. And it’s only a minority of customers who are clicking on the ads in the first place.”

In the longer term and in “tough markets”, though, Mawson often spends more than he makes initially, tweaking the campaign until it’s profitable.

“Setting up something like a content marketing campaign, an organic search campaign, or good old-fashioned online networking can bring in a steady stream of customers, one that doesn’t punish you if you to turn your attention to other parts of your business, but these methods take months to implement. That’s far too long to find out that customers aren’t interested in the end.”

Nathan Miller, Smart On Hold

Founding Director Nathan Miller, validated his Smart on Hold business which provides messages on hold for businesses, by finding out what people disliked about existing providers – and doing the exact opposite. He keeps on refining the offering with “eight service guarantees” including up to 10 weekly service calls to ensure quality. That sounds like he keeps validating and honing his service.

“My team and I concentrate on the quality of our service to all of our customers right from the very beginning. With over a decade since starting, we have developed many internal procedures that all staff members are required to follow,” says Miller.

Sean Senvirtne,

More than 500 face-to-face meetings with business owners is how CEO and founder of Sean Senvirtine went about validating his idea in 2012. He targeted those who “displayed a lack of technical expertise or resources to sell online”.  He then launched the business on a small scale.

“This was an economical way to trial and error the service. The business started as a two-page website with 20 (stockkeeping unit) SKUs and a small customer database. The success of this micro model indicated that there was potential to upscale the business.

“We scaled the supplier data base resulting in 25,000 SKUS and 750,000 visitors monthly four years later. This validated that the business was fulfilling a gap for SMEs and Australian consumers.”

The company is the ninth-fastest-growing tech company with 338% growth (Deloitte 2015) and one of Australia’s fastest growing online retailers.

Debbie Pask, Zenful Business

Intuition and logic fuels Debbie Pask’s business decisions: a heart-based intuitive question, then she runs through a checklist to validate the idea.

She’ll ask herself if the idea “excites the hell out of me” then look to the market for indicators.

“Is there a market for mindfulness in business? Yes there is. Google just hired a head of global wellness role. Is there a growing interest in the wellbeing sector? Yes, I hear it’s a $700 billion growing industry. Is coaching a solid career choice? Yes, the second biggest growth area of personal lifestyle needs. Is there a huge problem in our society concerning stress and health related issues? Yes, it’s going through the roof,” she says.

Maya Rana, Creative Method Collective

Maya Rana is now a PR professional, but looking to set up a new venture in an expanded area. She’s in the thick of testing her hypothesis to validate the business consultancy idea, Creative Method Collective.

“In keeping with the Lean Start-Up methodology, I’m working through a series of hypotheses (assumptions) to see if my business idea has real legs before I go launch a consultancy concept there’s no real need for. It’s a time intensive, but rapid process that’s certainly worthwhile,” says Rana.

“I’ve learnt from working with early-stage tech start-ups, you need to go out and meet and speak with people/businesses that you perceive are going to be your end customer.”

Margaret Paton

Former Sunday Age staff journalist, Margaret Paton (formerly Jakovac) has written widely for corporations/government departments and more than 100 online/hard copy mastheads in regional NSW, Sydney, Melbourne and Europe.