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How To Validate Your Business Idea By Testing A Hypothesis

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Re: How To Validate Your Business Idea By Testing A Hypothesis

#21

Post by gchokov »

mason55 wrote: post #20
davidroetzel wrote: post #14

This kind of advice pops up on HN from time to time and while I believe it to be valuable, I guess it is at least incomplete. Here are two stories from my failed ventures to augment this advice: 1) Years ago I started a small side-business with a few colleagues. It was a web-based service for a very specific group of clients. Best of all: The idea had already been validated. We had our first paying customer before we…

> Also, liking a product/idea is not the same as being willing (or able) to pay for it. A great thing to do is when you're validating products you ask the prospect how much they'll pay. Then say "Ok, so if I put a contract in front of you that says you'll pay $x if I deliver this product you will sign it?" You'll find out very quickly whether someone is just being nice or whether they are serious.

It's one thing to say how much you will pay, and different to pull out your wallet and actually pay.

Re: How To Validate Your Business Idea By Testing A Hypothesis

#22

Post by DanielBMarkham »

davidroetzel wrote: post #14

This kind of advice pops up on HN from time to time and while I believe it to be valuable, I guess it is at least incomplete. Here are two stories from my failed ventures to augment this advice: 1) Years ago I started a small side-business with a few colleagues. It was a web-based service for a very specific group of clients. Best of all: The idea had already been validated. We had our first paying customer before we…

Yeah.

1) You are not looking for somebody to "like" your idea. You're looking for something to build a machine around. That usually means "I'm ready to write the check"

2) You are not validating the market, you are validating the machine. As you point out, it's possible to run into a few folks that have checkbooks. Doesn't mean you can find any more of them. The "machine" part is "I go out on the street corner every day and run into 5 new people that will give me money" This is something that can scale. To build that, of course, you have to talk to those first 5 people.

For what it's worth, the web is a sucky place to try to get anything done. Everybody is on and they're all trying to automate everything. While the landing page/email thing is great, probably much more useful to physically interact with as many people as possible.

Re: How To Validate Your Business Idea By Testing A Hypothesis

#23

Post by vdaniuk »

gchokov wrote: post #9
vdaniuk wrote: post #6

Earlier quoted context omitted.

"There are no rules for good photographs, there are just good photographs". I disagree with this and think that it is a self-defeating, irrational attitude. Sure, validation is not a silver bullet. However, lots of startups make it or break due to luck and no-one(yet) can't eliminate randomness in a stochastic(debatable) system like technology entrepreneurship ecosystem. Validation helps to decrease the chance of fai…

It's funny that I mentioned randomness in my second comment as well :) I tend to agree with you to some extent, even about the quote for the comment. But, startups as an example fails to me, because as we all know, most of the startups fail anyway. p.s. there are rules for good photographs but following the rules can only put you on bar with other people. Learns the rules so that you can break them. Learn to validate…

Hm, I have an interesting thought. If "rules" is a consensus about best practices it is a standard model of the particular domain. Conditions of narrative manipulation and tragedy of the commons apply.

With that in mind, one should break the rules only if they have a high degree of confidence in their ability to discover a model that is better than standard model or understanding that the entire modelling approach is tainted. However, Dunning-Kruger effect hypothesis states that less competent are irrationally sure of themselves and vice versa. Are we in a situation where most actors on the market are trying to break the rules to their own detriment?

Re: How To Validate Your Business Idea By Testing A Hypothesis

#24

Post by smegmalife »

davidroetzel wrote: post #14

This kind of advice pops up on HN from time to time and while I believe it to be valuable, I guess it is at least incomplete. Here are two stories from my failed ventures to augment this advice: 1) Years ago I started a small side-business with a few colleagues. It was a web-based service for a very specific group of clients. Best of all: The idea had already been validated. We had our first paying customer before we…

>Lesson learned: Newsletter- or Beta-signups from your landing page is NOT the same as validation for you idea.

Sure, Beta and Newsletter signups are not full validation for your ideas. But the reality is that you'll never get full validation.

For those who are looking to take the plunge and quit their job, or are deciding which project to work on, a simple test like this can be used as a proxy for demand.

Just because people click sign up on your landing page doesn't mean your product will succeed. But it is infinitely more indicative than just guessing.

If you're going to do a startup, you're going to shoot and miss several times before you succeed. I've been there before. But having Beta signups at least shows you're aiming in the right direction.

Re: How To Validate Your Business Idea By Testing A Hypothesis

#25

Post by wpietri »

mason55 wrote: post #20
davidroetzel wrote: post #14

This kind of advice pops up on HN from time to time and while I believe it to be valuable, I guess it is at least incomplete. Here are two stories from my failed ventures to augment this advice: 1) Years ago I started a small side-business with a few colleagues. It was a web-based service for a very specific group of clients. Best of all: The idea had already been validated. We had our first paying customer before we…

> Also, liking a product/idea is not the same as being willing (or able) to pay for it. A great thing to do is when you're validating products you ask the prospect how much they'll pay. Then say "Ok, so if I put a contract in front of you that says you'll pay $x if I deliver this product you will sign it?" You'll find out very quickly whether someone is just being nice or whether they are serious.

Indeed, rather than just asking if they'll sign a contract, you can pull out a Letter of Intent [1] and ask them to actually sign it. You can explain that they're not legally binding if you need to keep people from freaking out. But there's something about signing an official-looking document that a) makes people take it seriously, and b) makes people more likely to really sign up when you come back to them.

Depending on context, you can also ask for a credit card number and then not charge it. People are very careful about giving out credit card info, so them giving it to you is a great sign that they're really serious.

[1] http://en.wikipedia.org/wiki/Letter_of_intent

Re: How To Validate Your Business Idea By Testing A Hypothesis

#26

Post by wpietri »

davidroetzel wrote: post #14

This kind of advice pops up on HN from time to time and while I believe it to be valuable, I guess it is at least incomplete. Here are two stories from my failed ventures to augment this advice: 1) Years ago I started a small side-business with a few colleagues. It was a web-based service for a very specific group of clients. Best of all: The idea had already been validated. We had our first paying customer before we…

Definitely true. The landing-page thing is the IT equivalent of "is it plugged in?" If you can't get anybody to give you an email address, then you'll never get them to give you money. But just because people are interested doesn't mean they'll pay.

In both these cases, I would have taken them as signs that I had some unarticulated, untested hypothesis in my head, and that I'd have to do user interviews to figure out what the issue was. People are weird, and business is extra-weird. Debugging a value chain is often way harder than debugging software.

Re: How To Validate Your Business Idea By Testing A Hypothesis

#27

Post by jjoonathan »

dammitcoetzee wrote: post #19

How is the scientific method not used for this always? The scientific method and way of thinking is probably the most useful thing you can ever master. Science allows you to set up a question and then set up an experiment in such a way that you cannot lie to yourself about the result. For example, let's ask the question: Is my business doing well? A layman's approach will almost certainly be evaluated on a subjective…

> This way of thinking is invaluable.

Is it the way of thinking or the things you assumed the business already had that were invaluable? You assumed

* The existence of a large enough steady stream of paying customers to quickly gather statistics on. "Steady" is especially atypical in many environments.

* Enough runway that you can afford to tackle issues one-by-one (i.e. using a control) rather than scrambling and guessing at what is going to work. If users come in "bursts" due to marketing campaigns or whatever then this issue is compounded because each burst can cost a significant fraction of your runway.

* The business is at steady state (e.g. you aren't planning a "grab the market" phase that runs at a loss and then a "make money" phase that leverages the brand recognition, network effects, etc that you've built)

Re: How To Validate Your Business Idea By Testing A Hypothesis

#28

Post by dunmalg »

vdaniuk wrote: post #6
gchokov wrote: post #3

While I do see the value of validation, this is not a silver bullet. People try to simplify things, find patterns, but this cannot always work. There are so many reasons why I would not want to validate things: - Sometimes, people will not tell you what they want, because often they do not know what they want, until you show it to them. Someone smarter than me said this before. - People judge from their experience. Y…

"There are no rules for good photographs, there are just good photographs". I disagree with this and think that it is a self-defeating, irrational attitude. Sure, validation is not a silver bullet. However, lots of startups make it or break due to luck and no-one(yet) can't eliminate randomness in a stochastic(debatable) system like technology entrepreneurship ecosystem. Validation helps to decrease the chance of fai…

>"There are no rules for good photographs, there are just good photographs". I disagree with this and think that it is a self-defeating, irrational attitude.

Yeah, I think he's misinterpreting what his photographer friend means. There are TONS of rules for good photographs, everything from technical ("sufficient lighting") all the way up to art theory ("rule of thirds"). The guy's point was probably that any subject, at any time, can possibly be photographed in a way the conforms to the requirements of an artistically pleasing image. Trying to fit that notion to the idea that entrepreneurs should just leap for the stars without checking to see if their figurative lens cap is off is not really very sound.

Re: How To Validate Your Business Idea By Testing A Hypothesis

#29

Post by WhitneyLand »

Look at it from reverse - of all the big/successful startups out there how many used any formality or rigor in validating their ideas?

Even if they did validate early on what made them successful often changed drastically based on what was known when the company was started.

In otherwords, what percentage of the time does this payoff?

Re: How To Validate Your Business Idea By Testing A Hypothesis

#30

Post by enraged_camel »

gchokov wrote: post #21
mason55 wrote: post #20

Earlier quoted context omitted.

> Also, liking a product/idea is not the same as being willing (or able) to pay for it. A great thing to do is when you're validating products you ask the prospect how much they'll pay. Then say "Ok, so if I put a contract in front of you that says you'll pay $x if I deliver this product you will sign it?" You'll find out very quickly whether someone is just being nice or whether they are serious.

It's one thing to say how much you will pay, and different to pull out your wallet and actually pay.

Yes, but asking someone how much they would pay for it takes them almost all the way, mentally, to actually paying for it. You're basically asking them to make a verbal and very informal commitment, but that's enough to make most people think about it seriously (as opposed to saying "omg I love it!!!" just to be nice).
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