Meeting with founders and hearing pitches almost daily, I get to hear the word “validation” a lot. Founders know validation is a important signal to an investor that they’re on to something, and third parties are behind them.
Seasoned founders know validation is a spectrum.
There are several times of validation. Let’s take a look.
The first is idea validation.
This means when you talk the idea around, people like it. There are lots of programs for founders designed to help validate an idea. That’s great, and it’s important work, but idea validation isn’t investable. Even a great idea doesn’t make money until a great team executes it. Too many pitches are proud of their idea valuation achievements when really, it’s not time to talk about that with investors yet.
Next is marketing validation.
Usually, a media company or twenty will cover the launch of the idea–maybe several will. If the idea is surprising or controversial enough (think about all the marijuana startups), it might get covered a lot. If there is research behind the idea, that might also be covered a lot. Marketing validation is valuable for a startup. It can flush out customers and kickstart sales in a great way. Inbound links can boost your new web site’s rankings and how easily it’s found in Google. But it’s not investable. It’s good, but it’s not investment grade.
The good stuff starts with customer validation.
This is when customers will sign up for, and use, your product–even if it’s a rough MVP. Customer validation is where it starts to look investable or not. For example, I was talking with a founder of a healthtech app yesterday that’s super proud–and she should be–of the 11 hospitals signed up for the system. Signing up paying customers, and the rate at which you do it, is critical validation for any investable business. These are numbers you want to share with folks that may be your partners in the growth of the firm.
Product validation is a process you can’t begin too soon.
Finally, product validation is the holy grail of a successful startup. It’s never “done”–it’s a continual dance with your customers to validate your current product, fix issues that need fixing, and plow forward into their dreams about the future you’re building for them.
A founder I spoke with yesterday has over 2000 customers signed up for his SaaS product, yet less than 10% of them use it daily, even though it supposedly solves a critical pain in a fraction of the time of the next best alternative. He has some customer validation, but you might say product validation looks weak, at least on the surface.
Following these kinds of metrics, and knowing which type of validation you’re getting, are critical for founders building sustainable, investable software companies. Any other types of validation you consider critical?