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Entrepreneurship Education: Idea Validation

Posted on Friday, Mar 19th 2010

Every Thursday morning, I coach five entrepreneurs with many more listening to the sessions. And like a parrot, I keep asking these entrepreneurs to validate their ideas. I give them a framework with which to do so. I give it to them ahead of time hoping they would use it and come prepared.

And yet an abysmally low number of them do so, making lack of validation of the business idea the single biggest reason for Infant Entrepreneur Mortality (IEM).

It is hugely frustrating.

In our recent discussion on what entrepreneurship programs, business schools, and incubators must teach, the issue came up time and again. So, in this thread, I invite you to discuss what your educational program is doing to teach entrepreneurs how to validate their ideas.

This segment is a part in the series : Entrepreneurship Education

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Ideas are easy. Throughout my career I have seen many people come forward with ideas for products or services. The ability to execute on those ideas is one of the major exercises that means success or failure. Execution requires first validation and then implementation. Validation requires taking a risk of finding out if the idea has merit beyond those that thought of the idea. For some the risk of rejection is enough to stop moving forward. Those that do move forward are rewarded. The reward may or may not be that their idea has merit; the reward is they find out what does or doesn’t work and from there they can refine the idea or begin the journey again.

I would like to see more B-Schools teach that

Rick Drumm Friday, March 19, 2010 at 4:28 AM PT

I personally feel a course in business basics (maybe using books like “Brand You 50″, “You, Inc”, “The E-Myth Revisited”, etc) should be required, mainly because it is likely that for people hoping to earn income in the future, they will have to market themselves as a “service provider”, not as a “job seeker”.

However, it is my personal belief that when “entrepreneurship” is taught by someone who has never had to meet a payroll, or had to market a new product or service, that they can’t truly convey either the perspective, the enthusiasm, and just the general “feeling” of what it is to start a business and bring it to success.

And I agree with the comments from Rick Drum. Ideas are plentiful. Having what it takes to turn an idea into a successful, profit generating business is a much greater challenge and our current world focus on instant gratification and the mindset of being rewarded for attendance rather than results that is so pervasive in all levels of schooling makes it difficult to for most to succeed.

Ilene Davis Friday, March 19, 2010 at 6:58 AM PT

First, to validate an idea for a business I ask how will the business make money while you (the entrepreneur) are sleeping). That’s the aha moment for the entrepreneur. A business only becomes a true business when the ca-ching can be generated while the entrepreneur is doing something else. Yes, the entrepreneur is the one destined to plan, execute, implement, grow and eventually strategize the exit strategy for the business. But the entrepreneur is NOT the business and the business is NOT the entrepreneur. The sooner that one fact is crystal clear in the mind of the new entrepreneur the sooner the business can thrive.

Vicki Donlan Friday, March 19, 2010 at 8:07 AM PT

Most business models fail because people are too emotional about their ideas. Same thing is true for people who pitch me movie ideas. In order to validate a business model, one has to objectively answer three questions:

1. Why would anyone (men, women, boys, girls) buy my product?

Most people fail because they define their niche too small. Niche marketing worked when corporations were not efficient. Since corporations are now efficient, niches no longer work. Successful companies have to develop products that can be used by everyone.

2. Why would anyone (men, women, boys, girls) buy my service?

Again, most companies fail because they do not sell a service to all people. On top of that, some companies sell products and fail to sell service which is long-term ongoing revenue.

3. Where is the enemy?

Many companies fail because they do not see the enemy. I financed a dinner theater in Las Vegas. The cast, show, and food were great and our prices were reasonable. Even with all my experience and research, I did not take into account that nearby hotels would comp their hotel guests with free passes to their shows. We closed in 6 weeks.

To learn more about entrepreneurship and to test your model please visit http://goingfromw2to1099.com

Jeffrey Taylor Friday, March 19, 2010 at 8:52 AM PT

Completely disagree on your point that niche marketing doesn’t work. Niche marketing, based on tight segmentation is one of the most powerful ways to bring any product to market. Geoffrey Moore’s Crossing The Chasm brought this to focus a long time ago with his beachhead concept.

I deal with the topic extensively in my Positioning book as well.

You are way off on this topic.

Sramana Mitra Friday, March 19, 2010 at 8:55 AM PT

The topic of idea validation is vast, for sure.

For my Creativity, Innovation, & Entrepreneurship students I ask them a simple question to get them started down the path of idea validation: “What is the unique value proposition (UVP) of this idea?” What is it about your idea that would convince someone to change their course and either: try it, research it, buy it, invest in it, sell it, etc.? If there isn’t something compelling and interesting about it, don’t pursue it.

Of course, this is not the entirety of idea validation, but it at least gets them to think of the UVP before they spend much more time on the concept.

In my experience with business students, they often spend more time thinking of a name for the product or service than they do on developing the UVP.

As Scott Lenet mentioned on one of your discussion forums last week, students should generate multiple ideas instead of only one. When students fixate on a single idea, they tend to become more and more entrenched in it and even defensive about the likelihood that the idea will succeed. If, instead, they are encouraged to come up with multiple ideas, they learn the value of adaptability and agility in new ventures.

The students in my class complete a “3 for 3″. Simply put, each student has 3 minutes to present 3 new product or service ideas. By intentionally restricting the time to three minutes and by requiring three ideas, they don’t get stuck on “owning” one idea and analyzing it to death.

Thanks again for starting this interesting forum, Sramana.

Bennett Cherry
Associate Professor of Entrepreneurship
California State University San Marcos

Ben Cherry Friday, March 19, 2010 at 9:55 AM PT

I like it, Ben. It is an insightful analysis that if people have only one idea, they get fixated on defending it at any cost. Instead, getting them to focus on the process of coming up with ideas, and validating them, gives them more objectivity.

Sramana Mitra Friday, March 19, 2010 at 10:08 AM PT

As the only credentialed entrepreneurial instructor for the US Federal Contracts (both Defense Conversion & Aerospace), it became evident that more than 90% of the concepts the new entrepreneurs want to proceed upon have to change significantly to produce a profitable bottom line. We work through the implementation phases of the concept, and restructure the business plan before using the first dollar of the business funding/loan/capital. The techniques used to help shift the plan from concept to actual business plan are featured in my book: Seven Step Business Plan, with Foreword by Ken Blanchard.

Sheila Holm Friday, March 19, 2010 at 10:51 AM PT

Great points everyone. Our MBA faculty stress research as part of a formal feasibility analysis. As experienced entrepreneurs we know the temptation to rely on intuition and natural entrepreneurial talent. However, research separates ideas from opportunities.

The reality is that many early stage entrepreneurs do not know to conduct quality research using data that is valid and reliable. Reading and researching are not the same things, so we show students how to find the right data; and how to interpret it qualitatively and quantitatively etc.

We’ve found that once entrepreneurship students embrace research as a money making opportunity, which is really what it is, they begin to take it more seriously and use it in their decision making.

Dr. Matthew G. Kenney Friday, March 19, 2010 at 11:55 AM PT

I’m going to have to borrow Matthew Kenney’s quote and use it in class next week: “once entrepreneurship students embrace research as a money making opportunity…they begin to take it more seriously.”

Ben

Ben Cherry Friday, March 19, 2010 at 1:15 PM PT

My alma mater, Babson College, does a great job in helping entrepreneurs distinguish between IDEAS and OPPORTUNITIES. During the program and afterwards I’ve been made aware of a number of outstanding IDEAS that — for reasons outside the product or service’s inherit merits — didn’t qualify as an OPPORTUNITY. The reason for this is many, but include regulatory constraints, cultural tendencies and other “irrational” forces.

One critical but underappreciated exercise that the school does well is to also test for the entrepreneur’s suitability to garner teammates. The second year entrepreneur intensity track tests for precisely this by requiring candidate leaders to assemble teams of at least three members — which, due to the number of participants in the program, disqualifies pre-ventures who have otherwise proposed a worthwhile concept.

It’s a painful but worthwhile exercise.

Rush Friday, March 19, 2010 at 1:38 PM PT

Enterpreneuership or business idea validation might be thought of the as subject in B-school/ universities. But, how do one considers it successful unless the students really blossom as sucessful entreprenuer, after taking part in such classes.

Some of the current day successful entreprenuer are mostly college drop out. The reason is that even when they have a fall, which is quite common for an entreprenuer due to various external factors, these entreprenuers have the will power to look at alternative option and stand up again, whereas educated entreprenuer will normally tend to look at ‘Opportunity cost’ in the form of alternative employment, this I believe will lead to mortality of the entreprise.

So even after validation of ideas, its not a guaranteed success as one lives in a dynamic world

But again, its an individual ability, passion, innovativeness & leadership qualities to be on his own which leads to building up a successful entreprise.

Guha Rajan Friday, March 19, 2010 at 11:42 PM PT

There are two components to idea validation:
1) Market validation: Is there really a market that my product/service can effectively target?
2) Product validation: Do I have a feasible product/service to offer?

Each can be further expanded:
1) Note: All below questions should be answered in the context of the idea being evaluated.
Who is the target buyer? How do they buy? Why do they buy? What problem are they trying to solve? How do they operate now? How would they operate if they had my product?

The answers to the last two questions should pose an improvement in some area (eg. process effectiveness, cost effectiveness, ease of use, etc.). This is the unique value and it needs to be tangible.

2) Can I deliver this product/service X-effectively (insert cost, time, effort for “X” and answer the question)? How will be better than my competitors’ products/services (this is different from the questions in (1), it refers to the qualities of the product/service)? Why hasn’t anybody else made this before me?

The more realistically the idea-owner can answer these questions, the more they are likely to focus their efforts on a product/service that can be successful.

I would be happy to provide more insight. Please feel free to contact me at ferhan.bulca@intrascope.ca or visit my web site at http://www.intrascope.ca.

Ferhan Bulca Sunday, March 21, 2010 at 9:02 AM PT

At Babson College, our undergraduate students do 3 feasibilty tests on a business idea. The feasibility tests require an assessment of industry competitiveness, market and customer need, and the factors driving these. Students test assumptions by talking directly with suppliers, customers, supply chain participants and others. All of this is done BEFORE a business plan is written.

Candida Brush Sunday, March 21, 2010 at 11:48 AM PT

In my new Business and Life Training Institute
for Entrepreneurs, we teach students to validate their ideas in 2 ways:

1. By surveying the groups of people they
would like to serve (sell products and
services)

2. By creating “pods” – groups of 4 or more
students to give constructive feedback
to one another

These methods, before any investment of money, can help students see when their
ideas match the “needs” of the market
and when they do not. To take these
steps before launching a product or
service goes far to make sure it is
relevant and they can make money
with their idea.

(We are holding our first 3-month
teleseminar in April.)

Oshana Himot, MBA, CHT Sunday, March 21, 2010 at 3:58 PM PT

What an excellent post – I thank you Sramana and everyone else who has commented thus far.

As the leader of an organization for faith-based women in business, I have noticed an interesting tendancy of women during the process of brainstorming business ideas. We are really nice – Too nice at times, so that we “validate” the ideas of others even if we can’t see how it will actually ever work.

“Your idea is great” is the general gist, but at times, I believe this gives false hope that the business will actually be profitable.

I also notice that as entrepreneurs, we readily embrace the creative aspects of the idea and business creation process, but not always the research portion.

Here is a thought – As “idea people,” we should put on a different hat and lenses for 2 weeks with any new idea. “Test it by fire” with research, 2nd, 3rd & 4th opinions, surveying, etc. If an opportunity remains, then it is time to move forward with planning.

Thank you again

Krista Dunk Monday, March 22, 2010 at 10:23 AM PT

Idea validation is a broad term, but let’s assume that the idea to be validated is the basis of a business concept. I recommend starting with the customer and working your way back to the company or idea sponsor and ultimately reconciling with the investor.

The acid test is as follows:
1. Why would a customer buy this offering? What are the benefits or what is the value proposition?
2. Who or what is the target market? Be VERY specific.
3. Is the firm or idea sponsor capable of providing and/or making the offering including access to resources such as people, materials, channels of distribution, partners, and technology?
4. Does the offering fit the firm or idea sponsor’s strategy?
5. Will the offering make money? How much and how soon? Will their be enough runway for the idea to thrive?
6. Will the investor/s sleep at night knowing that a decent ROI is possible?

Finally, for a new idea to “have legs” it needs to make life better. Otherwise, why do it?

John Bradley Jackson
Director of the Center for Entrepreneurship
California State University, Fullerton

John Bradley Jackson Monday, March 22, 2010 at 12:00 PM PT

The question you pose addresses one of the top faults we consistantly see in business plans–the other is bad financials. The aspiring entrepreneur loves their idea but hasn’t written a convincing case that enough people care about their idea. In many cases, we encourage them to talk to a sufficient number of potential customers to get at least preliminary validation of their idea. We also caution them that there is a high likelihood that the starting idea will morph as they gain real market experience. Our bottomline is–do your homework and talk to real customers vs. staying in your idea lab.

Steve Brilling Monday, March 22, 2010 at 12:18 PM PT

Idea Validation is not something you can teach. It is something you do, you have to walk the talk and the key component is to stay away from pre-conceived ideas and pre-defined rules about how things are done. The only thing an incubator or a B-School can provide is support to help you through the process by providing you as much knowledge and feedback as possible. But it should always be clear that the buisness knowledge is just a guide, and can be blinding too if you do not pay attention.
This is why Entrepreneur Commons is providing support through peers, because their prospective is just that, a prospective, and not accumulated knowledge that pretends to be science that should be applied blindly.

Marc Dangeard Tuesday, March 23, 2010 at 12:02 PM PT

I disagree with you completely, Marc. Idea Validation IS something you can teach, and you can teach very well.

Sramana Mitra Tuesday, March 23, 2010 at 2:29 PM PT

Yes the idea needs to be validated and much better if you can with your own money than with investor’s money.
This is possible mainly with IT industry. In traditional industry , I do not think how one can implement an idea.
With your idea if you fail , fail fast and then pick up and try something else.

skillguru Thursday, March 25, 2010 at 1:55 PM PT

So much of the advice provided here is valuable. I have picked out:-
the UVA, unique value proposition of ideas
the need to research ideas to produce opportunities
the view that percieved entrepreneurial expertise is valuless unless applied sucessfully
It is often individual characteristics of will power, resilience, flexibility, ability, pasion, innovation and leadership that succeed over trained business school entrepreneurs.
Richard Branson a famous entrepreneur's motto is "Let's just do it"!

B O'Reilly Thursday, October 21, 2010 at 9:48 AM PT

Good discussion on critical issues for entrepreneurs! I might have nother potential solution for the problem. There is an infant platform to quickly validate ideas before investing further on http://www.sparkbank.com
Thoughts?

danielpjaeger Sunday, October 30, 2011 at 5:11 AM PT