If you want to have paying customers, and increase your chances of funding you must, “Sell it before you build it.”
That was the title of my recent talk at 9Milelabs, a Seattle-based accelerator that provides mentors and other resources to startup companies looking to get off the ground. The key message of the talk was this: by interviewing 100s of prospects in your proposed market, you can segment the target market, identify must-have versus nice-to-have features, and secure buyers for your product before you’ve written a single line of code.
This process is called “Market Validation.” We adopted market validation while building GoToMeeting, AppFolio, and now SecureDocs, a virtual data room used for both startup fundraising and mature companies going through M&A or IPO.
Most people think of GoToMeeting as the 800 pound gorilla of web meeting solutions. When we launched GoToMeeting, success was a long shot. There were 100+ other collaboration solutions already on the market from companies like Webex, Microsoft, IBM, and Lotus. As a new entrant, the small guy, market validation provided a roadmap on how to compete with the big guys.
Here are some specific examples of how GoToMeeting benefitted from market validation: By segmenting a specific part of the market (SMB), we were able to do away with 80% of product “requirements,” the majority of which were only applicable to enterprise companies. Instead of planning based on what we thought we knew about the web-collaboration space, we actually talked to hundreds of people- all potential customers- and in the end decreased the work we needed to do by months. SMBs didn’t care about 87 different features. They only cared about 3 things: Ease of use, price point, and sharing their screens as quickly as possible. Instead of 87 features, we focused on a download that was 200K or less, a UI with an oversized play button, and an all-you-can-meet pricing strategy. We also validated the business model to make sure that the proposed price point would allow us to acquire customers both online and through sales.
By spending the time up front, we avoided wasting time building a product the market didn’t want and we had customers willing to pay for the product when it was done. Take these lessons and apply them to your business. Get out there and validate!
For added incentive, consider this: early-stage companies with paying customers are much more unique and attractive to VCs, who review hundreds of “promising” companies every year. Sell it before you build it and you are much more likely to be rewarded in your business and fundraising efforts!
About the author:
Albert Oaten is a serial entrepreneur, investor, and VP of Market Development at SecureDocs, Inc., a partner of 9Mile Labs, offering free virtual data rooms to all 9Mile Lab companies raising their first round of funding.