Startup Playbook

Validating a product without having the product

How to validate a product without wasting time and money : I did it with 4 hours of work and 2,000 eur in expenses. 

Who is this article for? Anybody who is thinking of starting their business and is concerned with getting funding and hiring developers. Don’t. Forget about this. The first thing you have to do is figure out if you are going to be able to make money with the product. Before you start looking for funding. Before you start hiring developers. 

Get yourself a nice mug of coffee or tea and let’s save you months or even years of time and thousands of euros. I wish someone did that for me years ago. Oh well, you learn from mistakes. 

Let’s say that you have a skill that you think others might find useful or an idea of a product that you think will change people’s lives. You can use that skill or idea to create a product (e-book, an online course, a database, a guide, an app, etc.). But what do you actually do first? Many business incubators and startup books will tell you that you need to create an MVP (Minimum Viable Product) and do Customer Development with potential customers. It’s all nice and dandy but what if you don’t have months to do that? And yes, proper Customer Development will take months, and it’s considered to be a norm in the B2B sector. However, if you are a rookie entrepreneur, starting with B2B is not wise (take it from someone who did it) because it is so much harder than B2C. 

Looking to apply for EU Funding? Check out the article on writing a successful application here

I strongly advise that you start with a small B2C product if this is your first time in entrepreneurship. Let’s take a look at how it is possible to quickly validate or invalidate a product before even building it. You will need some money but it’s not comparable to what you will waste if you build a product without validating it first. 

Initial analysis

Let’s say that I have a skill in writing funding applications. Over the years I have written plenty and have gotten quite a few of them awarded. I feel like I have enough knowledge and expertise to be able to share it and monetise my skill. 

I remember that when I first got started, it was a nightmare to approach application writing. It took me several months to write a simple application which now doesn’t take me more than a week. 

How do you learn this skill? Only by writing many applications. Unfortunately, there’s not a lot of useful information available online to guide entrepreneurs. You usually see only general information or offers from companies that write these applications for you. 

Ok, so far so good. It looks like this skill might arise interest. Let’s check it out and see if people are actually willing to pay for that. 

I start by creating a small guide on writing funding applications. Here it is.

It is useful in itself as it gives a high level overview of the process, but the main purpose of the guide is to find out if there’s any interest in an in-depth product that covers some of the most important parts of the application process. 

While writing the content I used Writesonic, an AI content generator, in order to write the first draft. Usually this software is quite good, but this time it generated something quite useless. This indirectly confirmed my hypothesis that there is not enough information about writing funding applications out there, as AI generates results based on the data that it gets fed. If there’s not enough data, the results are not good either. 

Then I took a couple of hours to re-write the guide. I made sure that I inserted several calls to actions throughout the article. 

Here’s an example:

How to find suitable grants?
The first step towards finding a grant is to conduct a thorough research and assessment of what’s out there. Your research can help you find suitable grant opportunities that might otherwise have gone overlooked. It can also help you identify grant opportunities that are right for your specific project. You can conduct a grant assessment by hand (Hello, Google), or you can buy access to a curated and updatable database. From our experience, the latter is too expensive but it does save you plenty of time in the beginning. We chose to go our own way and over the years have collected quite a nice selection of national and European grant opportunities. We might be convinced to turn our database into a mini product for startup founders like you. If enough people are interested, we will do it. Express your interest here

See what I did here? If you click on the link at the end of the paragraph, you will see a short questionnaire that I created using Tally Forms. It basically asks the person if they are interested and if they are willing to pay for the product. 

I inserted 4 of those into the guide as it is the amount of mini-products that I wanted to test. Creating this questionnaire didn’t take me more than 30 minutes. 

Tools I used:

Time I spent:
  • quick online research of the competition (30 minutes)
  • writing the guide (2 hours)
  • creating visual content and publishing the guide (30 minutes)
  • creating a questionnaire (30 minutes)
  • setting up a Google Ads Campaign (30 minutes)

Total: 4 hours

Money I spent:
  • Writesonic: trial version
  • Tally Forms: free tier
  • Canva: free tier
  • Tilda: free tier
  • Google Ads: 2,000 eur

Total: 2,000 eur

I let the ad run for 3 weeks (simply because I forgot about it), because this experiment was part of the long-term article promotion so no harm, no foul. You, of course, don't need to run it for this long.

Here is the data that I received:

Out of 866 people who clicked on the ad, 27 filled in the questionnaire. And 6 of those people said that they are ready to pay for the products. What does that mean? 

Let’s do some math: I spent 2,000 eur to get 6 leads who are ready to pay, which makes the CAC (customer acquisition cost) equal to around 330 eur. 

Taking only this data into account, I would need to sell the product for more than that to make a profit. Would someone pay 400 eur for my product? Well, I haven’t tested that but I can easily do that by sending emails to the 6 that said that they were willing to pay. My guess is that I won’t like the answer. 

So, what does that mean? That I just wasted 2,000 eur for nothing? Not exactly. 

At this point I haven’t yet analysed the other part of the equation: what is it going to cost me to create the products and maintain them?

What can I do to increase the LTV (life-time value) of a customer? I can use a newsletter to sell other products of mine. This way I save on Google Ads, thus decreasing my CAC for that other product. 

Let’s quickly calculate the workload: 

  • content creation: one full-time week to create all 4 products
  • product maintenance: an hour a week to update the database, whereas other products don’t need any maintenance

Other considerations:

  • is this my main product that I want to make money with? Or is is just one of the products that my customers will buy from me?
  • Do I get anything other than financial gain from building these products? Can I re-use the products for other target audiences?
  • How do I feel about spending one whole week on building this product? Does it make me excited or not?
  • What are the long-term gains? Can this product help me with brand awareness or SEO? 
NB: It’s not uncommon for CAC to be higher than the product cost. Does that sound ridiculous? Who would want to create a product and lose money while selling it? 

Remember what CAC stands for? Customer acquisition cost. And this step is just one of many that follow with retention being a very important metric. If a startup manages to retain the same customer for a long period of time, then it’s possible to upsell (a customers buys another product after they bought the first one) or, what’s a very common practice these days, use a subscription model (which means users pay a certain amount every month/year to have access to a product)

What I didn’t measure or take into account:

  • I got 27 email addresses of potential users/customers that I can use to verify other things with (of course, after I get their consent) or give them a big discount on any other of my products should I decide that creating this one is not feasible. 
  • I (probably) got some signups for the startup school and/or startup game coming from the ad as there was a call to action to do so at the end of the article.
  • I got more than 800 people to visit my website and that, of course, improves the overall statistics (should that be needed for something).

So, is 2000 eur a big price to pay to in/validate a product idea? Absolutely not, because I saved a lot of time and a lot more money because I in/validated the idea in time. I didn’t actually build any product (yes, in this case I would not need any developers, but imagine that I needed them). 

Am I satisfied with the results? Yes, I am. 

Will I build the product? Most probably yes, because it is not my main product so I can afford to lose money on it. 

Would I build it if it were my only product? Not yet. I would definitely do a bit more testing. I’m pretty sure I can significantly lower the CAC if I use Microsoft Ads, social media and my newsletter. Social media would definitely increase my time effort but decrease the monetary effort. 

The reason that this product does not exist yet (or is not massively known if it does exist) is exactly because it seems that the unit economics is negative (i.e costs are too high). This immediately lights a bulb in my head and an array of opportunities start dancing around it. 

Thanks for reading and if you feel like you need a more in-depth description of the process or individual help with a specific case, reach out to us and we will do what we can. 

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