Startup validation red flags and green flags

I’m currently in the process of “validating” my new startup Jessop, an app that uses AI to create Standard Operating Procedures (SOPs) for businesses. I put “validation” in quotes because I don’t like the term, but I’ll use it here because that’s what we tend to call it.

Related: Is startup validation bullshit

For me, the process of talking to customers about a new SAAS idea brings back dark memories of past failures, but I hope I’ve learned a few things in attempting this for a few different startups. While I wouldn’t consider many things as ‘validation’ and I challenge the whole idea, there are definitely some things that could be good signs and some things that could be bad signs. I see it all as useful information to help you form a view about the problems potential customers are facing, and how well your idea might solve those problems.

Red flags

“I want to support you” or I’ve been following you for a long time”

When you start something new you might get the attention of friends or followers that want to support you. That’s awesome, but the last thing you want is to give all of your attention to people who don’t legitimately have the problem your product solves. That’s going to give you a whole bunch of bad intel. You might think you’re onto something when you really aren’t. I known I’ve fallen for that in the past.

Another thing I’ve noticed is that if you are like me and you’ve been putting content out for a while, when you launch something new you have people who are interested in getting involved in your projects for a whole bunch of reasons. Some are long time followers and supporters who just want to support you.

That is all great, but it’s a distraction when it comes to actually gaining intel on whether the idea is going to work. You can definitely get enormous value out of supporters and followers for lots of different things, but just because your supporters are saying good things about your new project, or even using it, or even paying for it, I still would not consider that particularly reliable intel on whether the idea has legs.

“This would save me time“

As a startup creator and a busy business owner you intuitively think that because all business owners are time poor, they all would get excited about an idea that saves them time. You hear people say this all the time. I spoke to a business owner today about my new idea Jessop, which is a tool for managing Standard Operating Procedures (SOPs) at work. He said he’d love to check it out because it might save him time. With a few questions I was able to work out why Jessop wasn’t going to help him too much (more on that later). But the red flag was him saying that it would save him time. Because people tend not to sign up for things that only save them time.

Certainly lots of good products save people time, but the reasons for people using them often has little to do with that. Usually they save them doing some kind of work they don’t want to do as much of. Time is hard for people to feel something for, but stress or being bored or being frustrated are emotions and buying decisions are often heavily driven by emotion. Saving time most likely is not enough, so if that’s all you are hearing that may not be a great thing.

Not asking many questions

I’ve had a few calls this week where the person calling was doing more talking than me. This isn’t a great sign if that person is calling to learn more about the product, and may indicate that there are other reasons for the interest. It could be lots of things, maybe they have been following for a while, maybe they just like talking, maybe they are just excited about the project for whatever reason.

But if they really wanted to know if the product was going to solve a problem for them, they would come in hot with a lot of specific questions. People who have unsolved needs, have been trying to solve them unsuccessfully and they are pained by that. They know the exact questions to ask to work out if a new solution will solve a very specific problem for them. If they are talking more than asking, it could be a red flag.

Zero attempt in the past to solve this problem

The first thing I’m doing when I talk to people about how they manage SOPs at work is asking them what they currently do. I’ve found in the past that when founders find out that potential customers are using a free product that they think isn’t as good as their new product, they see this as a good thing.

It’s most likely a bad thing, let me explain.

In my case, a lot of people said they currently use Google Docs. That can only mean one of 4 things.

1. The problem is not big enough for them to pay to solve. This is a very likely explanation and is obviously not good.
2. It is a decent size problem but Google Docs does an adequate job of solving it. This is also very likely and also obviously not very good.
3. Using something else would create other problems for them that don’t exist with the Google Docs solution (perhaps getting staff to use it, yet another system, perhaps costs, perhaps working on different platforms, perhaps being inflexible), after all Google Docs is pretty damn good, I’m a huge fan. Also not good.
4. The least likely (but still possible) explanation is they have searched actively for other solutions and even used some of them, but ultimately they didn’t solve the problems well enough for them.

The most likely explanation is that they are happy with Google Docs, but the right questions will unveil the truth. For people like this I would see it as a red flag that they are not using a paid product to solve this problem right now, unless they fall into category 4 above (very unlikely), and I would avoid them and try to focus on people who are currently using some sort of paid solution to the problem.

“This looks cool” or “This would give me an advantage”

I’ve heard a bit of commentary like “this looks cool” or ‘I’m always looking for an advantage’. This type of speak is very generic and it’s rare to be able to build a business off people who are just generally looking to do things better or generally find something cool.

People get excited about new things for sure but to build a product that sticks, you don’t have to just get people to sign up for it, you have to get them to continue using it. That is a much harder challenge and the last thing you want is to focus all of your attention on people who are excited about using something, but don’t have a legitimate need for it. They will eventually drop off and you will have wasted your time.

It’s much more likely that you can build something from people who have a legitimate problem that your product solves, so focusing your attention on those people early on is critical.

“I’ve thought about doing that“

Forget about anyone who said they’ve thought about doing whatever it is that your product does. That’s actually a really bad thing. If they’ve never even thought about it, it is at least possible (albeit unlikely) that they are ignorant to what’s out there. If they’ve thought about it and they are actively aware of what’s out there but they haven’t solved the problem, it gives you everything you need to know – it’s not a big enough problem for them.

All of that said, it doesn’t mean what you’ve built isn’t solving a big enough problem for someone, it just it doesn’t for people showing these red flags, and early on you don’t want your attention diverted by people who aren’t legitimate prospects.

Green flags

OK so what about green flags? The chances are that whatever you are building already exists in some way already. If you don’t think it does, then you haven’t done enough research, or the idea most likely sucks.

The former is OK. The whole reason for this process is to do some research, so you might find that your efforts to talk to customers early reveal lots of systems that you weren’t aware of. I know for me, when I did my Startup Research Survey for Jessop, I uncovered lots of tools that I wasn’t aware of for helping companies manage SOPs, some of them were surprisingly good.

“I’m currently using X and it’s not great at x“

The best response you can get from people when you talk to them about your product is that they are currently using another product and they don’t like something pretty specific about it. Better still, it’s a paid product, and even better again it’s quite expensive.

If it solves a big problem for people, they will be paying for a solution for it (unless awesome free solutions exist in which case good luck competing with that), and they will be using it often. For people like this, dig into how often they use the product, what they use it for, how much they pay for it, how many people in the company use it and of course what they don’t like about it.

And importantly if what they don’t like about it is a big enough problem for them, they will have most likely tried to solve that problem too, so ask them what they’ve tried to do about it.

This will all give you good intel on how big the problem is for them. Remember there’s no black and white ‘validation’ here, it’s just good intel to help with your knowledge in the early days of building a product.

One warning about this one. They could be someone who just likes to complain about things, or someone who’s got super specific needs that no decent tool would ever meet. Wait is that a red flag inside a green flag? Now this is getting confusing 🤦‍♂️.

“Does this product do x”

With my SOP tool as an example I’d be hoping to see things like “Does it notify staff when an SOP is available”, “Is it good on mobile, my staff don’t use computers”. Specific questions are a sign of someone trying to solve a legitimate problem, and if they are asking if the product does a certain thing, it could be a sign they have an unmet need.

Real frustrations with other tools

If the product solves a real problem for people, they will have tried other options and be frustrated with them. Business people like to solve problems and when they can’t, you can feel the frustration. They’ll complain about the other options they’ve tried and have specific things they don’t like about them. This is a good sign, there could be an opportunity to solves those issues with your product.

Bonus orange flag

“This will save me money“

I’ve got this in here as an orange flag because it is somewhat good that they are paying for a solution already, and if they are paying for something that’s expensive, then who doesn’t want to save money? But it could be a bad sign for a few reasons:

1. Their existing system might be extremely powerful with years of development put into it. It could have linkages into lots of parts of the company and there could be a huge amount of friction to stop using it. That’s going to make it hard to sell them anything new.
2. It’s a business after all, we want to make money not be the cheapest solution in a race to the bottom. Chasing after a solution that only saves people money might be building a company that doesn’t make enough for itself.
3. They might not be the best customer. Ideally you don’t really want customers who are super focused on saving money. You want ones that don’t mind paying, and are in a position to pay for a solution to their problem.

Red, Green or Orange

Whether it’s red, green or orange, it’s never black or white. There is no survey or question you can ask people that will tell you whether the idea is good. There are way too many variables, so see this all as just information to use in the early days of an idea.

You might find it really hard to find lots of green flags throughout the process. It’s hard to come up with products that solve real problems. If all you are seeing is red flags it’s definitely not a great sign, but it also might not be the end of the road. It might be an issue with product – audience fit, you might just have to try a bit harder to find the right customers, or it might give you the info you need to make a tweak to the idea.

If you are interested in more content like this, jump on my weekly emails where I email every Friday around the topics of startups, content marketing and entrepreneurship.

Photo from Unsplash