Business Validation vs Idea Validation

Written: Dec 18, 2023

On more than one occasion, I’ve repeated the mantra to groups of young entrepreneurs that ideas are worth nothing - execution is everything. I’ve also evolved that notion where ‘products are the execution of an idea, not the idea itself’. What is meant by execution you ask? Execution in the context that I use it, is the packaging, marketing and selling of an idea to a specific target audience that derives value. At the earliest stages of a new venture, the focus is crafting an idea through a feedback loop that helps understand what key problems/opportunities can be solved through the idea and who benefits the most from having implemented the idea. That all happens in discovery. That work, as valuable as it is and as necessary as it is, does not answer questions around execution.

At some point in venture creation, entrepreneurs need to transition from ‘people like my idea’, to people will buy my solution. Here’s an example where this transition failed from my own experience. Well into having established my first company (edCetra Training), we were working with a 3rd party, helping them build courses for policing agencies. They came to us and asked if we wanted to do a joint venture as all of their clients (police agencies) had said they would love to have and need a customer service course for their non-uniformed employees. According to them, all of their customers wanted it. Prior to this joint venture opportunity, we were simply a vendor to this 3rd party and they paid us time and material to build. It was now an opportunity for us to invest our own capital into building a product where we were the developers and they were the subject matter experts. We agreed on the joint venture and spent months developing new online courses specifically for police agencies. Once complete, the 3rd party went to their customers and showed them the courses. They loved them… but no one bought them. What happened?

The failure in the joint venture was we mistook ‘interest’ for commitment. We hadn’t de-risked the execution of the idea by gauging commitment. So what are the ways in which entrepreneurs can begin to validate a business prior to building out a solution? At the end of the day that is one of the most intimidating chasms entrepreneurs face. How do I sell thin air? Well, for one you do need some collateral because you will need people to trust you and trust that you can deliver. Here’s where we see people talk about POC’s (Proof of Concept) or MVP’s (Minimal Viable Product). Both of these are important, but they aren’t necessarily required up front to validate a business. POC’s are used to see if something is technically feasible and are more for internal teams to see if an idea can be technically executed. MVP’s are base products that have key functionality built out that early adopters of products can begin to use, pay for and provide feedback on what else the product needs to provide maximum value.

Possibly the best bang for buck that early ventures should consider are High-Definition Mockups and Clickable Prototypes. These are non-working assets, but can be strung together to mimic how software will look and act to the end user. They are perfect for demos, creating marketing collateral, and building trust with prospects. Let me say this as bluntly as I can: Do not move past this step until you have some level of financial commitment from your target audience on purchasing. Of course, if you don’t know the technical feasibility of something, building POC’s can help, but POC’s are really for internal trust and are not necessary to sell either.

The next question and one that I get often is: “What do I do if a prospect indicates that they want the solution and are asking when they can start testing it?” This is perhaps the most intimidating stage of building out a new venture because you don’t have anything to sell, yet you’ve generated interest, and now it feels like everything will collapse unless you can deliver something. Here are two ideas to help you through this:

1. Sell your solution as a service: Service companies sell thin air all the time. They don’t have a product. They tend to build custom products. And yes, they have previous customers who can vouch for them, but how did they get their first customer? This is a great opportunity to have someone else to pay for your development costs to build a product. Consider accepting lower margins in exchange for getting funding. This is where those high def mockups and clickable prototypes come in. Use those to set up the ‘scope’ of what you are going to build. Come to an agreement and be specific about what you are going to deliver. Limit that scope to what you have built out as a clickable prototype. Getting a client to sign on to this tells you that people are willing to pay to solve the problem/opportunity you’re focused on.
   
   

2. Get LOI’s (Letters of Intent) for purchase that clearly state that a company will issue a purchase order upon delivery of your product. Specify the cost and terms of what a future contract will be. The LOI should serve as a risk mitigation strategy for your prospect that they won’t have to pay anything unless you deliver the specific for what is set out in the LOI. Again, here is where your high-definition mockups and clickable prototype come in. They provide the specifics about what you are going to deliver.

Crossing over from validating an idea to validating a business is one of the hardest stages for early ventures. If you build before you can de-risk the execution side of a business, the time and cost of failure is substantial. On a personal front, I have made that mistake on more than one occasion. It is easy to get swept up in your own convictions.