Tag Archives: validation

What is Validation?

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What constitutes validation is one of the first, essential questions we ask in our work with entrepreneurs using the Business Canvas Model (BMC). We also discuss value proposition, targeting customers, and product/market fit. However, validation for all of the components in the Canvas is never really defined.

Validation is the ultimate goal of the process using the BMC. Through validation we are looking to determine the sufficient number of paying customers that creates a market adequate enough to create a business opportunity.

Entrepreneurs do not have the luxury of knowing how many paying customers they have when beginning to pursue an opportunity. Many teachers of entrepreneurship, including Steve Blank and those at the Innovation Corp program at the National Science Foundation, claim that an entrepreneur needs to talk to at least 100 customers in order to reduce the uncertainty surrounding a startup. In fact, the more confirmation achieved, the less the uncertainty. The specific number of 100 is likely derived from qualitative studies performed by social scientists who claim that a population of 100 in a survey makes for a valid survey. In reality, most entrepreneurs find that after talking to about ten customers, the results tend to be the same. So, what constitutes a sufficient number of interviews?

In the past, I have stated that entrepreneurs should interview as many people as necessary to confirm the valid, the uncertainty of the market to a comfortable level. Of course, that omits the concept of confirmation bias. Entrepreneurs need to be mindful to avoid thinking: “My invention is great, so I’ll do anything to make the numbers believable.” Do not fall prey to your own lies, damn lies and statistics.

In research methodology, validity is the soundness of the design of each test and methodology used. Validity shows that the findings/results truly represent the phenomenon claiming to be measured. We cannot talk about validity without discussing reliability. Can the test be repeated or replicated with another population and obtain similar results? Is the test inherently repeatable?

Entrepreneurial validity means using good methods to test hypothesis obtaining data with observable facts that can be measured and are relevant. In addition, the test results must end up with a binary result. The test either passes or fails. There is no “close enough” response. As Yoda says, “Do or do not. There is no try.”

During hypothesis testing, an entrepreneur must “draw the line in the sand.” Ask whether your metric provides you with a level of success that gives rise to doubling down and taking the next action step? Can you tell the difference between complete failure and overwhelming success? Where does your opportunity fall?

What happens if you land close to the line in the sand but do not pass over? There are two possible scenarios: One would come from the norms of your industry. In other words, understanding how your competitors view this metric would provide the necessary knowledge to take action. The second should come from the business model. How many positive responses are required in order to be successful?

Now that you understand what validity is and why it’s important, make sure that you understand exactly how to test for validity. Testing for validity must correspond to the extent to which a concept, conclusion or measurement is well-founded and corresponds accurately to the real world.

 

Start with the Business Model Canvas – Not Yet

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We at the Oregon State University Advantage Accelerator are big believers in the Business Model Canvas methodology. We use the Canvas, we also use software for the Canvas, and we make our clients read the books by Steve Blank and Alex Ostervalder. However, the fact is that Canvas may put a technology entrepreneur at a disadvantage before he or she gets out of the lab.

Our clients at the University tend to be in the early stages of their development. Most of our researchers are doing cutting edge research. The entire set of potential opportunities for these clients have not yet been examined. Under normal circumstances, using the Canvas, clients would start with one or two potential target markets then try to validate the opportunity.

I suggest that this may not be the best way to begin. One of the tools, we use at our Accelerator is the opportunity matrix. The founder or Principal Investigator (PI), my co-director, mentor(s), intern(s), and I brainstorm on the possibilities of applications and industries in which this innovation can be productized. We also look at the numerous variables that could affect market entry. This tool was originated by the strategist Igor Ansoff and there are many versions found online.

The matrix provides focus and guides decision making prior to a long course of validating tests as required by Canvas methodology. Along the y-axis, we list the potential products and/or industries in that the innovation may be successful. Along the x-axis, we list variables such as size of market, ease of entry, competitive response and so on. The list of variables can be quite large and is on my version. The purpose is to determine through online research, phone calls with industry experts, which industry or market should be the top areas of concentration, which then becomes the business focus. This leads to a much clearer start on the Canvas.

The technology also needs to be checked for the opportunity as well. We have a great spreadsheet that checks on the viability of commercialization for the technology. It is similar to the opportunity matrix in that the various markets or projects are listed on the y-axis and a number of strategic questions about commercialization of technology are listed with weighting scores along the x-axis. This is another easy way to envision the technology side of the opportunity. Send me a note and I will send you either matrix.

These pre-cursors to the validating steps in Canvas will shorten the steps from hypothesis to validation testing.

It is highly likely that an entrepreneur will save time and money by doing the secondary research up front. This also creates a more focused entrepreneur who can easily begin the primary research work on Canvas.

There are a number of other activities that we take our clients through before beginning to work on Canvas. But overall, in the early assessment stages, we are seeking feasibility. Is the technology feasible within the means of customer wants? Does the business proposition make sense both in terms of its ability to succeed and financial viability?

Overall the big questions in this stage are:

  • Do I have a technology that has potential applications in the commercial market?
  • Are there customers and a market of sufficient size to make the concept for this technology viable?
  • Based on estimates of sales and expenses, do the capital and other resource requirements to start make sense? And;
  • Can you create an appropriate start-up or management team to execute the concept?

Just like in the Canvas, the answer to all the above questions is not that you believe the response, but rather, I know my response is true and here is why.

This early work provides sufficient data to understand the industry, examine an early value chain and process flow, understand your potential first and/or second market, organize yourself for validation of market(s) and get an early justification of pricing.

As I stated above, the secondary research requirements will enhance the primary research efforts required by Canvas. Go in smarter and ask better questions in order to obtain better results.

The Last Mile

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Fitness experts and athletes know that when they are lifting weights, the number of sets and repetitions within each set vary according to weight. On normal days their weightlifting tends to be three sets of 10 to 15 repetitions. Good athletes understand that the first eight of ten or thirteen of fifteen reps do not make the muscle grow. It is always the last two or three reps that causes the growth. They put all of that work up front, just for the last few reps.

If you have ever pumped a bicycle tire then you understand that after during the first ten pumps, the tire still looks flat, like nothing has changed. The same is true for the athlete. Work too hard in the gym and their muscles react and feel fatigued. That reaction is called over training. Over pump a tire and it explodes.

The same is true with entrepreneurs. It takes a significant amount of work upfront to understand customers, markets, and value chains in order to ultimately lead to a business model. Validating and testing customers as well as building prototypes is just preparation to get to the starting line. What about that last lift to finish? That’s just one more repetition to get to a first sale. And it is that last “rep” that is the hardest.

The same is true in all sports: Running a yard short of goal doesn’t make a touchdown, hitting the goalpost doesn’t score a goal, landing a golf ball an inch from the cup doesn’t matter at all. Nothing matters until a score is made.

Sports are games of inches, preparation, and work, and so is a startup. Entrepreneurs need all that preparation in order to travel that last inch and beyond.