2 min read Five Steps to Identifying Market Validation (and the one key criteria that counts).
Angel investors look for market validation in a startup before investing. Fundamentally, this means that the entrepreneur has found a market with a need.
But how to validate a market segment? There are 5 key criteria that Investors will look for, and one key that provides the “acid test”, indicating you have found one.
Identify the Target Market
Write out a specific definition of your target market segment and how it fits in the overall market. Set up a list of objectives you want to learn from the research.
Build the Question Set
Using an online or email survey to ask no more than five questions. In an interview, up to ten questions capture a good amount of information. Match each question to your objectives.
Test the Question Set
Send the question set to five friends. Ask them to fill it out and then give you feedback on the wording. You can also check their responses to see if it addresses your question.
Roll up the responses and see if the results answer your objectives.
Conduct the Interviews/Surveys
In an email survey, you will receive most of the responses you’re going to get in about 2 to 3 days. After that, the responses drop off dramatically.
In the survey, you may want to ask if you can contact them for further questioning. This may give you additional contacts to interview.
Analyze the Data
Review the raw data yourself. It’s surprising how often the same set of data can generate completely different results from different reviewers.
While surveys and interviews can help validate the market, the one criteria that counts more than anything else is:
“Will the customer buy the product/service?”
Generating revenue, even at a small scale, says a great deal about your market’s need for the product. This is important because when investors review deals, one of the first questions that come up is “Do they have revenue?” If the answer is “yes” then you’re in the “to be considered” category.
Read more from the TEN Capital Network: https://tencapital.group/education/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: firstname.lastname@example.org