The $20B Idea Validation Framework

90% of start-ups fail, and the primary reason being they can’t reach product-market fit, essentially meaning that not enough customers demand their product.

The root cause of this issue often boils down to insufficient research and feedback prior to launching a new venture.?

Someone I know was extremely excited about launching their new venture, which was a decorative home product.

They became deeply attached to their idea, to the extent of quitting their full-time job to pursue it. Their first step involved conducting market research, where they sought feedback from friends (Mistake #1). Encouragingly, their friends all expressed demand for the idea.

With this market validation in hand, they proceeded to develop and launch their product while establishing the necessary marketing channels. However, upon launch, every sale felt like an uphill battle, and the products failed to gain traction on their own.?

A year and a half later, they made the difficult decision to shut down their venture due to inadequate sales.

All of this could have been avoided with more comprehensive research at the beginning. In today's article, we delve into a 7-step framework designed to foster the development and validation of ideas.

This framework is inspired from Kevin Ryan, the founder of Alley Corp, an exceptionally successful venture studio. Their impressive track record includes achievements such as Business Insider (acquired), Mongo (publicly traded), Gilt Group (acquired), and more.

It's fair to conclude that we can all learn some valuable insights from their experiences.

His approach follows this methodology:

“Read about it. Think about it. Talk to people.”

Idea validation framework?

The example above highlights the significance of validating your ideas. However, the issue lies in the fact that many founders lack a structured framework to follow and often rely on their emotional connection to an idea (I've also fallen into this trap!).

Save the below framework for constructing business ideas.?

Step 1: Industry Research

In the journey to develop a successful business idea, this initial step holds profound significance. Deeply understanding the industry you intend to enter is not a mere formality; it's imperative. This understanding empowers you to make well-informed and calculated decisions, significantly enhancing your chance for success.

Conducting comprehensive industry research involves both micro and macro perspectives. Micro research delves into specific industry trends, providing insights into its dynamics. Macro research, on the other hand, examines global trends that influence the industry, painting a broader landscape.

To maximise the effectiveness of your research, adopt a "first principles" approach. Break down information to its fundamental components, questioning assumptions. This method uncovers the underlying truths of the industry.

For the best practices on first principle thinking, read my article here.

While conducting your research, you must develop a long-term thesis about the industry, ideally over a 10 year horizon. This extended horizon allows you to anticipate shifts and prepare your business idea to thrive over time.

Diversify your information sources to gain a comprehensive understanding. These sources may include market reports, news and media outlets, relevant books, industry annual reports, data from Google Trends, social media insights, and more.

Example (Massage Therapy Industry):?

As an illustrative example, let's consider the Massage Therapy Industry.

On a micro level, the US industry exhibits robust growth, with a Compound Annual Growth Rate (CAGR) of approximately 8%. Projections indicate a remarkable 20% increase in masseuse jobs in the United States by 2031.

Macro trends in the massage industry reveal compelling insights:

• The wellness trend remains strong, with massages offering a solution to stress-reduction and pain-relief. Given the rising frequency of mental health challenges and obesity, the demand for services promoting well-being is expected to persist.
• Notably, there's a progressive increase in male clientele seeking massages, highlighting a shift in societal acceptance and a growing market segment.
• Despite anticipated fluctuations in consumer spending in the near term, the 10-year outlook indicates rising expenditure within personal care.
• With the rising demand for masseuse jobs, there is a shortage of qualified staff in the US. Currently, there are more than 17,000 unfilled open positions for masseuses in the US.
• Technological advancements and automation present opportunities to enhance accessibility and service delivery.

Key Questions to Answer:

• What shifts are anticipated in this market over the next decade, and what factors are driving these changes?
• What are the primary opportunities and threats confronting the industry?

Step 2: Outline Problem/Pain point

Having gained insight into the industry's dynamics, the pivotal next step is selecting the problem you intend to solve. Devoting time and care to this step is imperative because choosing the right problem is perhaps the most critical in the ideation process, as it lays the foundation for your entire business.

Your research in Step 1 is critical in guiding your choice of problem and pain point. Understanding the macro and micro shifts within the industry, along with its opportunities and threats, allows you to uncover the biggest challenges.

Once you've pinpointed a problem area, it's crucial to formulate a thesis backed by substantial data. This evidence-based approach adds credibility to your chosen problem. Similarly to step 1, thinking from "first principles"? and the "5 Whys" technique can be highly effective in determining the root causes of the identified problem.

As you progress through this idea validation process, remain open to adapting your problem based on feedback, particularly from industry experts and potential customers. Sometimes, what you perceive as the problem may differ significantly from their perspectives.

Example (Massage Therapy Industry):?

A big problem in the massage industry is high job openings with a lack of staff to fill roles, coupled with the increasing cost of labour in the US. Leveraging technology presents an opportunity to address these challenges effectively.

Evidence:

• A 20% increase in masseuse jobs is expected by 2031 [US Labour Bureau of Labour Statistics].
• There are 17,000 unfilled positions for massouses across the US [Kevin Ryan]
• 90% of the businesses will adopt Robotics by 2030 [MIT]
• Labour costs increased 4.8% on a year-on-year basis [Reuters]

Key Questions to Answer:

• What are the most significant problems confronting the industry, and what are the underlying reasons for their existence?
• What compelling evidence supports the identification of these problems??
• What assumptions are you making? And what if they are incorrect?

Step 3: Outline Solution

Once you have a defined problem, the next crucial phase involves developing a viable solution. This step is paramount as the solution you devise forms the core of your business proposition.?

Creating a solution begins with brainstorming and ideation. You and your team should generate a range of potential solutions to the identified problem. Think outside the box, explore various approaches, and consider both conventional and unconventional methods.

Evaluate each solution against essential criteria, including feasibility, scalability, cost-effectiveness, and alignment with industry trends. As with the problem, remain open to adapting your solution based on feedback, particularly from industry experts and potential customers.?

Incorporate technological advancements, innovative business models, and automation, where applicable, to develop a solution that not only mitigates the problem but also differentiates you in the market.

Example (Massage Therapy Industry with Robotics)

Continuing with the example from the Massage Therapy Industry, one solution to address the shortage of masseuses and rising labour costs involves the strategic implementation of robotics in the massage service sector.?

By automating specific massage procedures, this solution aims to meet the growing demand for services while managing costs efficiently.

Key Questions to Answer:

• What innovative solutions can effectively solve the identified problem?
• Why is your proposition the best solution?
• Is your venture competitive in the market?

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Step 4: Speak with Industry Experts

Engaging with industry experts is a crucial step in the idea validation framework. Kevin Ryan’s Alley Corp speaks to 100’s of industry experts to validate their ideas before executing on a venture. These experts possess invaluable insights, deep-rooted knowledge, and a profound understanding of the industry's intricacies. By consulting with them, you gain access to a wealth of information that can refine your approach, uncover hidden challenges, and enhance your solution's viability.

Identify and connect with experts who have a proven track record and substantial experience in the target industry. This can involve reaching out to professionals, thought leaders, academics, consultants, or individuals who have held influential positions within the industry.

Conduct structured interviews, surveys, or focus group discussions with these experts to gain their perspectives on the identified problem and your proposed solution. Be open to constructive criticism and differing viewpoints. Experts may challenge assumptions, offer alternative angles, or provide nuanced perspectives that can guide you in refining your approach. Actively listen to their feedback and take notes to capture their insights accurately.

Example (Massage Therapy Industry with Robotics):?

In the context of the Massage Therapy Industry's robotics solution, speaking with industry experts involves connecting with seasoned professionals in massage therapy, healthcare, and technology integration.?

Key Questions to Answer:

• Who are the relevant industry experts with the knowledge and experience necessary to provide insights on the identified problem and potential solution?
• What specific questions or topics should you address during your conversations with industry experts?
• How can you integrate the expertise and feedback obtained from industry experts into the overall validation process to strengthen your venture's foundation?

Step 5: Speak with Potential Customers & Test

Similarly to industry experts, Alley Corp spends extensive time speaking with potential customers to validate ideas. Engaging with potential customers is a pivotal step in the idea validation framework as it offers insights and feedback from the individuals or organisations that your solution aims to serve.?

Identify and segment your potential customer base. Depending on your target market, this could involve individual consumers, businesses, or specific industries. Create a strategy for reaching out to these potential customers.

Conduct interviews or user testing sessions to gather feedback and data. Pose questions that explore their current challenges, unmet needs, and opinions on your proposed solution. Share your solution concept and gather their reactions, suggestions, and concerns.

For the best practices when collecting customer feedback, read my article here.

Another great way to validate your idea is through running tests to gauge potential customer interest, here are 3 test ideas:

• Create a landing page and collect emails
• Use social media to post your product and measure engagement?
• Run some adverts on Meta, Google, or Tiktok and track conversions

With all of these tests, tracking metrics that measure interest are critical.

Be receptive to criticism and open to refining your concept based on customer feedback. Pay attention to recurring themes, pain points, or positive responses, as they can guide you in making necessary adjustments.

Example (Massage Therapy Industry with Robotics):

In the context of the Massage Therapy Industry's robotics solution, speaking with potential customers involves reaching out to massage therapy clients, spa owners, and healthcare providers. Potential clients can provide feedback on their preferences regarding massage therapy, the appeal of robotic-assisted massages, and any reservations they may have.

Additionally, to gauge if this is a product that customers would want, running tests through ads, landing pages, and social media provide valuable information.

Key Questions to Answer:

• Who are your potential customers, and how can you reach out to them effectively?
• What specific questions or topics should you address during your interactions with potential customers to gain insights into their needs and preferences?
• How can you use the insights obtained from potential customers to refine your solution and tailor it to their expectations and requirements?

Step 6: Question your Assumptions

The process of questioning your assumptions is fundamental to ensuring the validity and viability of your solution. One of the best tools to question assumptions is socratic thinking, as it encourages critical examination and challenges the underlying beliefs and assumptions that form the basis of your idea. By subjecting your assumptions to rigorous scrutiny, you uncover potential blind spots, biases, or misconceptions that might lead to flawed decisions.

Begin by identifying and listing the assumptions upon which your idea and solution are built. Assumptions can pertain to market demand, user behaviour, technology feasibility, cost projections, and more.

For the best practices of socratic questioning, read my article here.

Systematically question each assumption by asking open-ended questions. Challenge the validity, relevance, and accuracy of each assumption. Consider the "Five Whys" technique, which involves repeatedly asking "why" to dig deeper into the root causes and justifications of your assumptions.

Seek diverse perspectives and engage in constructive debates with team members, mentors, experts, or customers. Encourage them to challenge your assumptions and provide alternative viewpoints.

Utilise data, research, and evidence to support or challenge your assumptions. Where data is lacking, consider conducting experiments, surveys, or additional research to validate critical assumptions.

Be prepared to revise or modify your assumptions based on new insights or evidence. Embrace uncertainty and be open to adjusting your course as needed.

Example (Massage Therapy Industry):?

In the context of the Massage Therapy Industry with robotics, a critical assumption might be that clients would prefer robotic massages for their convenience and cost-effectiveness. To question this assumption:

Assumption: Clients prefer robotic massages for convenience.?

Questions to Ask:

• Why do clients seek massage therapy, and what specific benefits do they expect from human therapists?
• Are there situations or conditions where clients might prefer human therapists over robotic systems?
• What evidence or data supports the assumption that clients prioritise convenience in massage therapy?
• Are there potential drawbacks or concerns associated with robotic massages that clients might have?

Key Questions to Answer:

• What are the key assumptions underlying your idea or solution?
• How can you systematically question and challenge these assumptions using Socratic thinking?
• How will you adjust your approach or idea based on the insights gained from questioning your assumptions?

Step 7: Put Together a Thesis

Once Alley Corp has undertaken the idea validation process, they curate a business case which is presented to the team, and they collectively decide whether to execute the venture or not. Creating a comprehensive thesis serves as the blueprint for your business, consolidating all the insights gained from research, problem identification, solution design, expert and customer feedback, and assumption questioning.?

A well-structured thesis provides clarity, persuasiveness, and a compelling rationale for why your idea is worth pursuing. It is recommended that a thesis can either be presented in a deck or memo format (Alley Corp’s decks are over 50 pages long).

Begin by structuring your thesis, iIncluding essential sections such as an executive summary, problem statement, solution overview, market analysis, competitive landscape, financial projections, and implementation strategy.

If you would like a comprehensive document to fill out, send me a message on LinkedIn, and I’ll share one.

Example (Massage Therapy Industry):?

In the context of the Massage Therapy Industry with robotics, the thesis could be structured as follows:

• Executive Summary: Brief overview of the problem, solution, market, and financial projections.
• Problem Statement: Highlighting the shortage of masseuses, rising labour costs, and the need for automation.
• Solution Overview: Detailed explanation of the robotic massage system, its benefits, and potential cost savings.
• Market Analysis: Data on the growth of the massage industry, increasing demand for wellness services, and potential competitors.
• Validation Evidence: Expert opinions endorsing the solution, feedback from massage therapists and clients who tested the technology.
• Financial Projections: Revenue forecasts based on market size and pricing strategy, cost estimates, and return on investment.
• Implementation Strategy: Phases of development, testing, and deployment, with a timeline and resource allocation.
• Risk Assessment: Identification of risks like technological challenges or market adoption hurdles, along with risk mitigation plans.

Key Questions to Answer:

• How will you structure your thesis or presentation to convey your idea effectively?
• What key elements should be included in each section of your thesis?
• How will you decide whether to execute the venture or not?

Conclusion

To transform innovative ideas into successful ventures, the path is rarely linear, and the journey demands adaptability and rigorous scrutiny. While there may be no one-size-fits-all idea validation framework, I hope the process we've explored offers a foundation that you can customise to suit your unique journey.

One of the most vital takeaways from this framework is the significance of questioning your ideas. Too often, we become too attached to an idea, blinding us to potential pitfalls or more promising avenues. Embracing the Socratic spirit of inquiry and constantly asking "why" can be the difference between an ordinary idea and a groundbreaking one.

I'd like to give my gratitude to Kevin Ryan for generously sharing Alley Corp's idea validation process during the My First Million Podcast. It's essential to recognise that the framework outlined here draws inspiration from their approach, and while it may not mirror their exact process, it serves as a valuable reference for aspiring entrepreneurs.

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