8.4 What is Market Validation?

8.4 What is Market Validation?

Market validation is the process of determining if there's a need for your product in your target market. Validating your business idea can enable you to reasonably predict whether people will buy your product or service, and whether your business will be profitable.

It's important to validate your idea early in the entrepreneurial process to ensure you don't waste time and resources creating a product that isn't a good fit. Securing market validation can also instill confidence among investors, crowdfunders, and banks that are considering funding your startup.

By going through the process of validating your business idea, you can gain a deeper understanding of how your product does or doesn't meet your target customers' pain points. The insights you gain can help you create an offering that not only addresses your market segment's needs, but earns you your first paying customers.

Here are five steps to determine the market validity of your venture.

5 Steps To Determine Market Validation

1. Write Down Goals, Assumptions, and Hypotheses

Writing down the goals of your business is the first step in market validation. The process of articulating your vision can illuminate any assumptions you have and provide an end goal.

Ask yourself:

• What's the value of my product?
• Who's the target audience, and what assumptions have I made about them?
• What differentiates my product from existing ones?

What hypotheses do I have about my product, pricing, and business model?

Answering these questions can help you communicate the value and differentiating factors of your product, and illuminate assumptions and hypotheses you've made that are yet to be tested and verified.

2. Assess Market Size and Share

Before moving forward with your venture, estimate the size of your target market and the share of it you could potentially capture. By doing so, you can gauge your business's potential and justify its launch.

In the online course Entrepreneurship Essentials, Harvard Business School Professor William Sahlman uses mattress retailer Casper to illustrate this idea. In 2014, Casper's founders assessed the market size for their product by comparing its differentiating factors against the larger market. For Casper, these differentiating factors included its online

business model, 100-day return window, and the viscoelastic foam material used in its mattresses.