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Startup Playbook: success through failure

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. Before you actively start looking for co-founders. Before you even think about getting funding. Before you worry about your IP.  

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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. 

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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. 

Before we get into a specific example, take a look at the most popular ways of validating your idea and simultaneously building your brand and, hopefully, credibility. 

Here are the methods that work in no particular order:

Manual outreach that includes cold emails/messages (free)

Most people do it wrong by prioritizing quantity over quality. And in general it is a numbers game: don't get discouraged if you send 100 emails and get one response. What most people do is try to automate the process, so that thousands of emails can be sent. All personalization in this case is lost. A lot of people will either ignore your emails or block you. However, if you spend more time on getting to know the people you are targeting, it will be highly beneficial to you. Say, you send 10 emails instead of 100 and spend the same amount of time on that. If you get 1 person out of 10 to respond, you get equal results quantity-wise. What's more important, however, is to analyse why that person responded and what triggered them in your email. Rinse and repeat and see if that sticks. If the next time 2 people out of 10 respond, you are on to something. It's advisable not to immediately push those people to buy from you. Instead use them wisely: they are a valuable course of information, so aim to interview them (heard of Customer Development?) and turn them into your biggest fans. 

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Google and Microsoft ads (paid)

This is the method that we will be using in this article as an example. It's one of the quickest ways to validate ideas, and is very scalable. Of course, the disadvantage is that it's not free. Moreover, it's rather expensive. However, if time is of the essence, it's definitely the best approach. 

Despite what most people think, Microsoft Ads is a great alternative to Google Ads and can provide a better cost/benefit ratio despite Google being the king in the market. 

Social media ads also belong to this category but we don't have much experience with them, so not going to give any advice. 

Social Media (free)

A general piece of advice here is: do try different social media channels but stick with a couple that work best. For example, if you have a B2B proposition, LinkedIn is the default standard, albeit the one that doesn't necessarily like organic growth of company accounts. It's advised to combine posting on your personal account with the one of your company. This makes the idea of a personal brand very prominent. 

Twitter, Facebook, Instagram are great for B2C but creativity is your biggest asset. What this means is that once you find a place where your users regularly spend time, you have to find a way to stand out. Instead of sending them annoying cold DMs, give them value first. Comment on their posts, re-share their posts and do anything that allows them to notice you (humor also works, but being nasty and provocative might be a slippery slope). 

Organic growth on social media takes time but it's free and if done properly, it allows you to grow an engaged audience, which, for example, is not possible with ads or cold emails. 

Want to know more? Check out the "Social Media 101" module from our free Startup School and learn more about using Mailchimp to get started with newsletters. 

Forums (free)

Just like with social media, forums are a great way to listen to people complain about their problems and support them so that they can open up even more. If it's a forum discussing your competitor, listen very carefully: the pains of their users may inform your value proposition and product features. By blending in, you will get access to a lot of insights that you could have otherwise missed. Listen, ask questions and ask for help, but don't sell anything!

Newsletter (free to get started)

Get a free account with MailChimp and create your first newsletter. Make sure you are actually sending something valuable otherwise people will immediately unsubscribe. And if you are targeting people in Europe, don't forget about GDPR. This basically means that people have to give you explicit consent (they have to click or choose yes to "I want to receive a newsletter") to be put on the newsletter list. 

This means that you can't just get a list of potential users from some database and start spamming them with your newsletter. Newsletters are great for building your audience, validating the problem and even coming up with the first ideas regarding the solution. Use newsletters in combination with ads (ask people to fill in a form and sign up for your newsletter), SEO (at the end of the article tell readers that you also have a newsletter and if they don't want to miss more content, they should sign up) and social media (be creative and give them some value in exchange for their attention). 

Want to know more? Check out the "Mailchimp" module from our free Startup School and learn more about using Mailchimp to get started with newsletters. 

SEO (Search Engine Optimization) (free to get started)

This is a long term game, so don't expect to see any result before 6 months in. So it's definitely not about quickly validating ideas per se, yet elements of SEO do have a great potential to save you a lot of time. 

Google changes its algorithms very often, but the underlying idea stays the same: you must learn how to create valuable content that both your potential users and Google will love. Setting up your website in a way that Google want to promote your content is an important part of SEO, and is usually referred to as technical SEO. 

What you can do in the very beginning of your journey is use the results of your ads as the foundation for your SEO. Keywords that work nicely (finding these takes time but it's an important step) are the foundation of a successful SEO strategy. 

Want to know more? Check out the "Digital Marketing" module from our free Startup School and learn more about SEO. 

Now let's proceed to the actual use case

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. 

Don't miss new articles. Next time we will talk about something equally important and look at all the questions in detail. 

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