How to Validate Your Startup Idea Before Development?

Let’s imagine you have come up with a brilliant idea for a niche marketplace. Let it be a marketplace where home chefs are available for hire by users who want high-quality home-cooked meals. But is this a profitable idea with scale potential? How to validate a startup idea before investing money into an actual software development? 

This chef marketplace idea falls within a niche service vertical marketplace, which is a growing trend right now. However, simply relying on trends or the greatness of an idea is not enough. According to Paul Graham, a co-founder of Y Combinator:

“Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas. That m.o. is doubly dangerous: it doesn’t merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them.”

Thankfully, ways how to validate a startup idea are plenty. They range from hands-on practitioners’ guides to those coming from business school environments, from product-focused to those analyzing the broader market environment. We’ll outline these and indicate their use cases, as there is never a one-size-fits-all recipe for how to validate a startup idea.

Failory’s 4-Step Framework on How to Validate a Startup Idea

Failory is a content platform focused on interviewing founders of successful and failed startups alike. Below, you can see their findings on potential startup failures. According to them, 34% of startups fail due to a lack of product-market fit. Similarly to how Paul Graham talked about numerous cases of founders building the products nobody wants (and he actually recounted his own experience in that), the first thing you do as a startup founder should be making sure that your idea resonates with the market. When you outsource your project to a professional development agency, they always make idea validation the first point of their Startup Services.

So, Failory proposes to focus on pre-sales. They indicate that this way you omit common problems on the path to how to validate a startup idea. Common problems include vanity metrics or false positives. Customer interviews and waitlists are also good ideas, but you will have to factor in the “Niceness Gap”. Generally speaking, when you talk with a customer about a product being built, hypothetical scenarios, or ask them to sign up to support you – people sign up out of niceness, especially when it costs them nothing. So, maybe out of 100 interviewed users, it will be only 5 to 10 who will actually buy it. 

Other validation methods that rely on social media engagement, leading questions in questionnaires, and interviewing your friend and family circles can provide false results.

Let’s immediately apply it to our niche marketplace example with chefs for restaurant-quality home-cooked meals. Before you invest in this marketplace, follow the steps on the path to how to validate a startup idea.

Step 1: Setting pre-sales goals

How many pre-sales will signal to you that your idea is valid? And what is the time limit for that? Here you can set goals using the SMART goal-setting framework. SMART stands for specific, measurable, achievable, relevant, and time-bound. 

• From practical experience, the goals for consumer products can be between 5 to 30 pre-sales or 100 to 500 waitlisted customers. 
• For SaaS products, this number can be between 2 to 5 pre-sales. 
• Importantly, those pre-sales cannot come from your circle of family or friends. You need to focus on real “cold” customers who are convinced enough to pay for your product that does not exist yet.

In the case of our scenario of a niche service marketplace, let’s set 30 pre-sales at a price of $15 within 30 days. The pre-sales will be conducted through a landing page. 

Step 2: Building a Minimum Viable Offer

This step will include building the landing page itself. While there are many free tools, it might be a better idea to hire a designer. A professional will ensure your offer comes across well and relays all the essential points of your business idea. You might want to include an explainer video for your offer. In addition, you should consider:

• Creating sample chefs’ profiles;
• Describing key features;
• Placing a well-defined CTA button;
• Including testimonials of “early” users;
• And mention the essential information. This can be safety for the client’s address and personal information, the planned launch date, and some FAQs, including the refund policy.

Step 3: Launching the Pre-sales Campaign

When we think about conversion rates of between 2% to 3%, we’ll need to achieve traffic of 1,200 users. The budget varies depending on the channels you choose. For instance, choosing an ad campaign on Meta can cost between $0.2 and $0.97 cost-per-click. The niche service marketplace will likely be priced at the lower spectrum of $0.3. Therefore, the budget for the campaign can be roughly put at $360. 

Step 4: Analyzing the results

• Case A: achieving the target. So, hitting 30 presales or above would constitute “green and go” for development. You might still want to analyze secondary analytics received during the process. Or you still might want to run a couple more experiments. Just to see if you can hit a bigger target audience. After all, this experimentation is often low-cost and provides much-needed securities when going for a bigger investment into development.
• Case B: Almost achieving the target. What should you do if you hit anywhere between 20 to 29 pre-sales? Well, 30 is the lowest benchmark, so hitting even 29 will not really provide enough confidence level. You might want to tweak and refine your idea and run the test again. For instance, maybe you focused on the problem: “avoid crowded and loud places and save time”. Instead, you can set up an experiment for a more positive message: “enjoy the meals prepared by chefs in the peace and quiet of your cozy home”
• Case C: almost failing. Hitting fewer than 20 pre-sales requires rethinking the target audience. What if, instead of targeting corporate folk, you had focused on home-based well-off influencers? Or maybe focusing on creators for whom a home-cooked high-quality meal to free up their time without compromises.
• Case D: Failing. Lastly, when you’ve only a few or even none pre-sales, you need a bigger pivot. Maybe instead of a marketplace with home-chefs, you’d want to switch to a delivery from local restaurants with discounts. Or you might want to provide a platform for homecooks doing anything from baked goods to charcuterie boards. 

What if you cannot come up with a pre-sales offer for your business idea?

Obviously, when you ask yourself how to validate a startup idea, you should prefer to work with a validation tool that relies on actual purchase commitment. This ensures that you can make decisions based on solid data. Waitlists and customer interviews are also valid methods, but they are non-committal, so your decisions rely on the promise. 

Due to having no purchase intent, your ballpark figures have to be higher. The Niceness Gap is often between 5% to 10%. To adjust the target, you can use a weighted formula:

(Optimistic scenario + Pessimistic Scenario + 4 * Most-likely scenario) / 6

So, (10 + 5 + 4 * 7) / 6 = 7.17% – is the percent of users who actually have a purchase intent out of all who signed up.

• So, in order for results to compare with 30 pre-sales, you have to waitlist or sign up 419 users. 
• To achieve these sign-ups, you have to factor in the conversion rate of 3% which puts you at needing 13,966 incoming users. 
• You still pay $0.3 cost-per-click in your ad campaign. So, this bumps up the experimentation cost to $4,190.

Not every startup can afford such experiments compared to just $360 for the pre-sales scenario. What they often end up doing is lowering the numbers and opting for partial validation, increasing the risk of investment. 

When to use waitlists?

Some businesses, like SaaS or high-ticket consumer ones, may not need that many pre-sales. For them, even 3 to 5 committed clients or around 70 waitlisted ones would validate the idea. In general, the narrower your niche and the higher the value, the fewer users are required for idea validation.

Moreover, what to do if you are building a social media platform, ad-based business like a news aggregator, or other? After all, some business models monetize the engagement rather than selling anything, actually. These are the cases that can be validated through waitlists and targeting micro-interactions, testing the ‘shareability’ of the MVO, and such. 

F.O.C.U.S. for How to Validate a Startup Idea

When you ask yourself how to validate a startup idea if you have not well-developed pain points, address emerging trends, or set in a quite specific environment, F.O.C.U.S. is the best route to take. Imagine business ideas in VR-based therapy, remote-first family apps, or medical solutions. In these cases, when you think about how to validate a startup idea, you would want to conduct focus groups first. It will help you clearly define a problem and also assess its scale before you try to validate it with pre-sales. There are two ways of using this technique: one when you integrate it into MVP development, while the other is doing it before any development takes place. Both are useful and valid depending on your project.

Using When Embedded into MVP development

This validation methodology can also be fit into stages of MVP development, such as discovery, moodboarding, and pre-launch. 

• For instance, during the discovery stage, you gather focus groups to dive deeper into their experience of the pain point you’ve identified for your startup. You try to step into the user’s shoes and see the problem through their eyes, identify the unmet needs, determine emotional factors, discuss contexts, and, most importantly, challenge your own assumptions.
• Then, once you are doing moodboards, low-fidelity prototypes, and demos, you can bounce those against focus groups and gather feedback. You need to focus on which elements create resonance and which confuse users. 
• Finally, once your MVP is built, before releasing it to the broader audience, you can test it with your focus groups. It will provide final polish, validate emotional appeal, test user journeys, and such.

Use this method when, for instance, you do not need much investment and your project is relatively affordable. In addition, a Product Owner can often utilize it not only for validating your idea, but also for increasing the value of your solution.

Using when Preceeds MVP development

Another path of applying this F.O.C.U.S. technique is simply conducting these three steps before the MVP development. You move from Understanding the problem to Validating the mockup, and, then, do Testing the product (which can be a high-fidelity prototype). If your project is highly specialized and requires multiple rounds of funding, then the second scenario of developing a high-fidelity clickable prototype fits better.

Porter’s Five Forces, PEST, and SWOT for How to Validate a Startup Idea

These methods are traditionally known as part of any business degree. 

Porter’s Five Forces can help you identify whether the niche is attractive for entry. This is always a part of development when it comes to industries with strict regulations, established legacy organizations, or heavy competition. They can be healthcare, fintech, or applications for supply chain management.

PEST also focuses on the environment with emphasis on political, economic, social, and technological factors. Basically, this technique analyzes legislation, market trends, cultural shifts, and advanced technologies. This is vital for projects in the government sector, climate tech space, or high-tech projects that heavily rely on AI/ML and such.

Finally, SWOT – Strengths, Weaknesses, Opportunities, and Threats – views your startup idea within the context of a previously researched environment.  From one of the previous techniques, you determine the biggest opportunities and threats, and analyze how your business idea capitalizes on one and mitigates the other. In terms of how to validate a startup idea, this can be a finishing touch in determining the scalability of your idea.

Final Words on How to Validate a Startup Idea

When you go about how to validate a startup idea, you have numerous tools at your disposal. One of the most effective techniques, often used in lean MVP development, uses pre-sales experiments to affordably validate market demand. You can also use interviews and waitlists, but then you will have to balance data validity against the costs of experimentation. 

F.O.C.U.S. technique is indispensable when it comes to highly specialized application development such as healthcare, specialized SaaS applications, or software for professionals. 

Finally, Porter’s Five Forces, PEST, and SWOT also have their use cases where the environment is highly regulated, extremely competitive, or heavily impacted by emerging technologies. 

FAQ: How to Validate Your Startup Idea Before Development?