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Definition

market validation

Market validation is a series of actions that an entrepreneur carries out early in the product development life cycle to verify there is a need for a new product, product feature or service. The approach an entrepreneur uses to validate a potential market depends upon what product or service is being designed and how soon it needs to get to market. Questions to be asked at the beginning of the process include: 

  • Does the market for this product or service already exist?
  • What problem will this product or service help solve?
  • What strategies will be used to find customers for this product or service?

During market validation, the business owner investigates how well an idea resonates with potential customers by asking for direct feedback from the target market. This step is often carried out through surveys and questionnaires, but it can also be carried out through informal 1-1 conversations. 

Why market validation is important

Many startups fail because someone has a brilliant idea for a new feature, product or service but there is no genuine customer need. An important goal of market validation is to verify the TAM, SAM, SOM (Total Available Market, Serviceable Available Market and Serviceable Obtainable Market).

  • TAM is the total market demand for a product or service.
  • SAM is the customer segment that is within geographical reach
  • SOM is the customer segment within geographical reach that are likely to become customers.

Market validation plan

An effective market validation plan includes mechanisms for getting direct feedback from the target market base before a minimum viable product (MVP) is developed. The purpose is to give entrepreneurs the confidence they need to proceed with an idea by gathering qualitative data the provides stakeholders with a clear understanding of the potential market and customer base.

To be most effective, the plan should also includes follow-up surveys, interviews and questionnaires once the MVP becomes available. The data gathered during this phase can help the entrepreneur address potential concerns about customer retention, as well as acquisition. A common question asked in market validation surveys post-MVP is: "How disappointed would you be if this product, product feature or service suddenly disappeared?"

This was last updated in September 2019

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