Start-up Entrepreneurs' Blog

Part 2:How to reach customers and get the market validation investors demand?

December 3, 2009

How do you satisfy investor’s desire for early market validation? Surveys, focus groups, interviews, testimonials and blogs can provide an early indication of the customer acceptance.

MINING THE INTERNET TO GAUGE CUSTOMER ACCEPTANCE

Start-ups can conduct on-line surveys and focus groups using services from Survey Monkey, Zoomerang, and Survey Gizmo – to name just a few.  Don’t expect a great return on the number of surveys sent out. Product and seller ratings on Amazon are around 10%.  Likewise, blogging about the topic and using analytics and comments, as well as using keyword searches are a similar means of gauging the potential customer base.

WHEN FREE ISN’T GOOD ENOUGH

Some start-ups have gone the route of offering a free newsletter to demonstrate market validation. There are only a small number of subscribers who can be converted from free to paying customers. In the mind of the investor, they are often calculating the conversion rate between free and paying, and determining your potential revenue.    For example, I heard a start-up present an online service to an angel investor group and touted that 250 people a week were signing up as free subscribers. The angel investors’ next questions were how many subscribers did they need to attract advertisers to the website and how long did investors have to provide funding before they were self-supporting. To put this into perspective, this start-up was attracting 13,000 subscribers per year and most investors know that online services need to attract hundreds of thousands and even millions of subscribers before advertising is a viable business model.

One professional writer and speaker told me that you need to deliver your best information and advice in these newsletters because prospects will believe that if they become paying customers, even better information and advice will be provided.  In his opinion, holding back on the best information in newsletters is a mistake.

LET FUTURE CUSTOMERS BE YOUR REFERENCES TODAY

Interviews with key executives and decision makers are valuable, especially with those who could potentially use and buy your products. They can provide you with insight into how they would use your product and they can be references for your product concept to investors as well.  

DON’T BELIEVE EVERYTHING YOU READ

I’ve seen established companies put out press releases announcing the availability of a product in the near future.  They do this prior to even starting the development program, where the product is just a figment of a planning team’s imagination. They use the response rate as one gauge for whether they should commit funding to the program.  With online databases, news, and social networks, generating a press release is an inexpensive means of getting feedback.

 FIND FIRST CUSTOMERS WHO WILL ENDORSE YOUR PRODUCT

As a general rule on testimonials, it’s important to find first customers that are willing to provide endorsements or act as references for your product.  Also, your product can be endorsed by experts who are not paying customers. One start-up had demonstration software available and took it to several university and government laboratories, as well as to a few industry experts for evaluation. The evaluators were willing to provide validation of the product to investors.

Investors want some gauge of customer acceptance.  While there is a big gap between what prospects want and what they will pay for, having some tangible measure of customer base is a needed.  When the product isn’t available yet, prospects are more likely to give positive feedback because they know they don’t have to commit to paying immediately. While these are false positives about your product, there are still valuable insights to be gained.  In these troubled financial times, investors act as though they are all from Missouri, the SHOW-ME state.

Filed under: Start Up Funding

Tags: building customers, sart-up strategies, start ups, starting new business, startup funding