Customer
Development &
Market Validation

By understanding and refining your target customer and target market, you can help ensure your product is solving a real problem, and determine the profile of the customer willing to pay for it.

Overview

The primary goal at this stage is to better understand and refine who your target customer and target market is.  

This will help guide how your product should look, behave, and what value it should bring, helping you avoid wasting time and money going in the wrong direction, or pursuing something that might not turn into a viable business.

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Milestones

Define your customer persona and their problems in the form of an ICP. Your ICP originally should be very focused on a narrow niche. You will be able to expand this focus in future but it’s best to start narrower first. 

At the idea stage you vaguely defined who is your potential customer, their needs and problems. Now you need to come up with a strategy of how you can validate if this is accurate.

To do this, you must first define a strategy of how to:

  • Find customers who match your ideal Customer Profile
  • Plan how to engage with them
  • Get feedback from them

Focus your engagement to learn as much as possible about the problem from their perspective. Have the customer talk freely about everything that he/she has a problem with and about their ideas for potential solutions to their problems. You will likely discover details and aspects you hadn’t thought about.

Make sure to ask them how much they might be willing to pay such a solution and what it costs them if they don’t solve the problem. Come up with a set of open ended, non-leading questions for your discussions with them.

Using different tools and approaches (such as surveys, focus groups, user feedback sessions), you can perform validation of your Ideal Customer Profile.

Continue iterating until you have a clear ICP with validated needs, problems, interests, etc. It may require multiple workshops or discussions with those potential ICPs. 

As you work with potential customers, be on the look out for ones that could be early adopters and real paying customers of your SaaS product. These customers will become loyal and provide feedback and hopefully help spread the word about your product. Every customer counts at this stage.

They need to be flexible and willing to spend time dealing with bugs, not having a fully built out product, etc. Figure out how to incentivize them, to keep them engaged and interested to help out. Some ideas to motivate them include limited time free membership, early access to new features, listing them as featured users, giving them gamification points in the system, etc 

Once you have validated your ICP and received enough market validation, this is the time to start thinking about Go to Market strategies. A SaaS business has a different go to market strategy than other types of businesses. You can start with the template we provide here.

Once you have your Go to Market strategy completed, you should start considering or refining your financial model. A SaaS business has a different financial model than other types of businesses. You can start with the template we provide here. 

Once you have your financial model completed, you should start considering or refining your SaaS Investor Presentation / Pitch Deck. You can use the SaaS pitch deck presentation template we provide here. Please don’t get caught up in creating many extra slides, these are the core slides an investor cares about. 

Start thinking about the team members you need to make this SaaS startup successful, what equity you might give them, how they will be compensated for their efforts, and what role they will play. You can start with our recommended team structure template here, based upon your current stage.

Warnings

When you conduct customer and market validation, don’t let your bias impact it

As the founder, you will naturally be biased in the way you perform validation of the market and customers, how you communicate with your focus group, and how you form your questions and hypotheses. Try to ask questions in an unbiased, non-leading, open-ended way.

Don’t seek investors without proven market validation

Don’t start searching for investors until you are done with Market/Customer Validation and have established a well-defined ICP (Ideal Customer Profile), along with sufficient proof confirming your ICP, customer needs and problems, including confirmation they are willing to pay for the product/service. One of the first questions you will get from investors is “How do you know customers will buy the product/service?”

Don’t overinvest in the material you plan to show to potential Customers for Market Validation

Be prepared to refine it based on feedback you receive. It must be high-level, acceptable looking and very easy to comprehend by your ICP.

Don’t focus your Customer/Market Validation material on the features

Focus on on the needs and problems of your ICP and how you can help solve their problems

Don’t over-invest in the quality or user friendliness of your solution

Most likely, a large portion of your work will need to be adjusted based upon customer/market feedback.

Don’t get too emotionally tied to your idea

If customers and the market tell you they don’t find it worthwhile to pay for your solution, you should either adjust your idea or redefine your ICP.

Don’t be afraid of pivoting

Embrace the fact you’ll be pivoting a lot. Educated and data-driven pivoting is most point at the stage. You may need to pivot your idea, niche, target customer.

Don’t get trapped by your initial assumptions

It’s tempting to assume things about your idea, product or customers. All assumptions need to be validated with your potential customer profile. Your potential customers can help validate those assumptions. Don’t provide them with leading questions.

Don’t assume people will get your idea

Your solution and the benefits it may provide might not be obvious to your target customer if you don’t communicate it well. Avoid asking Yes/No types of questions. Build your questions in a way that eliminates your bias as much as possible. Focus on open discussions to get a better sense of the problem and needs.

Don’t get paralyzed with analysis

Focus on iterating enough to provide some level of confidence in your research. Get to the point you feel confident you got useful feedback from actual potential customers.

Required Expertise

  • Basics of marketing research 
  • Basics of customer development and business development
  • Basics of interviewing potential customer profiles
  • Basics of crafting ICPs (Ideal Customer Profiles)
  • Financial advisor to help model potential pricing strategies, along with cost and revenue projections
  • Product development

How do I know I can move to the next stage?

  • You have a good understanding and validation of your ICP
  • You created some traction among your ICP and they have a decent understanding of the problem/need and how your solution solves the problem.  
  • You have an understanding of how much people are interested to pay for this solution.  
  • You have some potential customers who expressed a willingness to become early adopters.  
  • You have an initial Go-To-Market strategy for your startup.
  • You have a draft financial model.
  • You have a draft Investor Presentation / Pitch Deck.

Timeline

We recommend to spend at least one month on this step, however, depending on the complexity of the startup, it could take a few months to a year of time.

Do not stress yourself out about getting it done too quickly, as not putting enough effort here could waste years of time and lots of money.

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