VALIDATION Stage

One of the most uncomfortable tasks an entrepreneur must quickly address is how will they make money? It seems like an obvious question but understanding exactly what you are selling, to whom, how you reach them, and what it costs to reach them and then support after the sale is one of the most important things you'll need to explore. Once you have started to probe these questions it will be easier to create your financial templates where you model projections and revenue.Questions you should understand: 1. What am I selling?2. How much does it cost to make?3. How much does it cost to sell? (your time, marketing, licenses, 'store front', online, intermediary fees, etc)4. Do you pass the cost of selling and creating your product 100% onto the customer?5. What methods or channels do I use to sell?6. Who do you sell to?7. How often do they buy?8. How do they buy? (small purchases, special occasions, bulk)9. Do I offer discounts or other promotions?10. How do you reach my customers and make them aware?11. How do you support or re engage them after a sale?

Several months ago you created a budget to track expenses and income. Initially your expenses and income are blended with your business because the business isn't a full fledged entity yet or it's simply a pass through to your personal income. This card asks you to revisit all your expenses and start to list out any current or future expenses directly related to the business. Keep track of those in a spreadsheet. Keep receipts in a digital file. These may be tax deductible but also help you understand the costs of the business outside of your personal costs and expenses. You don't need to purchase a fancy system to track. At this stage a simple log will do.

One you have taken several passes at expenses and how you make money you can look at creating a simple financial statement called a P&L (Profit and Loss statement). These can get quite complicated showing the evolution of your business across many periods of time. However, to begin, keep it simple. Ultimately you've got revenue coming in and you've got money going out during a given period of time (a month for instance). The difference between the revenue in and expenses out indicates whether you are profitable or if you have losses. Losing money isn't the idea, but startups often run at a deficit for several years. Don't panic if you see some negatives early on.A simple approach is to open a spreadsheet. List all your costs and expenses. List out all sources of revenue from your sales, grants, loans, investment, interest income etc. Total all expenses. Total all revenue sources. Subtract the two totals. You can update your P&L weekly, monthly, quarterly and yearly. Once you get more sophisticated you'll start using tools to keep your P&L current. You'll also use other financial statements to understand the health of your business.Once you've spent some time with your P&L have it reviewed by someone who has more experience and you can further refine it.

As you narrow down to creating a thing called your Value Proposition, you need to spend time understanding the problem you are solving. Too often entrepreneurs want to rush straight to the thing they are creating. They are interested in the solution, however, deeply understanding a problem makes the solution much more powerful and lasting. No matter what you are proposing to create or do, you are solving a problem that isn't currently solved. Create a problem statementA problem statement should describe an undesirable gap between the current-state level of performance and the desired future-state level of performance. A problem statement should include absolute or relative measures of the problem that quantify that gap, but should not include possible causes or solutions. You might describe symptoms, size and scope, the consequences of not addressing it, supporting data that the problem is real.To learn more about your problem and adjacent problems you should be out talking with as many people as you can in order to test if this problem really matters to anyone else other than you.Focusing on the problem can be uncomfortable so you'll be tempted to move quickly to solutions. You will revisit this statement often as you learn more about your potential customer and you start to develop a solution.

Knowing who your target customer is goes beyond just typical demographics such as age, income, location, etc. The most powerful products, services and brands attract early customers who have a 'hair on fire' problem that your solution solves. These ideal customers are moved by passion and an emotional connection to what you are doing. They believe in it and they believe in your mission. They will be evangelists and champions of your product or service and help you grow. Great! But how do you know who they are and how do you find them? In the resource links there are some examples of templates to help you understand the traits of your customer so you can create ways to make them aware you exist and attract them to your product or service - aka marketing. The great thing about ideal customers is they are ready to buy or purchase from you, so often you only need to make them aware.

As new entrepreneurs we have assumptions about our customer, their problems, how to solve the problems, how to reach the customer, how they buy, when they buy, etc. We often assume that once we create something people will just gravitate to it and exchange money. This is a major flaw of our thinking, but it can be fixed with a technique. A way to understand your assumptions is to brainstorm as many things as you can about your customer, their problems and how they'll use your solution. Sometimes it helps to brainstorm with a partner and in several sessions. You might think of an assumption while out for a walk, or in the car, or washing dishes. Uncovering what you are assuming to be true vs. what you KNOW to be true based on fact and data is critical. You might have 10 or 20 or 73 assumptions. There is no right amount, and you will discover more as you get better.Write them on a sticky note. Keep them short. Example: Customer will use an app, customer will pay with credit card, customer doesn't need post-sale support, etc.Once you've brainstormed take all your assumptions organize according the dimensions of 100% known -> 0% know on the X axis. On the Y axis organize them to 100% . It is critical to understand vs. not critical at all. See the graph in the resource guide so help you better visualize this. The end result should be assumptions all over the board but organized in a way that identifies the riskiest assumptions. These are where you need to put time and focus in order to make your business viable. See the video for a deeper explanation.

In order to gather data about your assumptions you need to run small and fast experiments. To run an experiment you create a statement about what you assume to be true, then you establish some kind of metric to measure. Design the experiment and then run it. No matter which direction it goes, you learn! Each time it is run you'll learn more about your customer, their problem, your solution. Example: Say you wanted to sell clothes online. You might create an experiment to test if people will sign up for your line of clothing. Your goal is to find 20 people who will sign up for your website updates. Your metric is 20 people and you talk to as many as you can. How do know who might sign up? You created an empathy map so you know their personas, what challenges they have, and what emotions they have. From that you might understand where they hang out and therefore how to reach them. Source as many as you can. Try to get them to sign up. Note the reasons why they do. Note reasons why they won't. Run the experiment for say 5 days. Then pause. Examine your results. Decide if you need to run it longer, change the experiment or if you have enough data to decide if your customer is genuinely interested in your product/service. The results only help you decide if you can move that assumption to a different place on the board. You may need more experiments or slightly different experiments as you think about what you learn with each customer interaction.

An MVP is called a Minimum Viable Product. It's simply the smallest and easiest prototype you can create in order to learn more about your customer, their problem or if your solution will meet their needs. MVPs are not scaled down versions of your final solution. They might not even look like a final solution you have in mind. They simply exist as a means to test and learn and dispel assumptions. With each experiment you run, you'll likely want to create some kind of MVP in order to test the behavior of your test subject.

Entrepreneurs often worry about competition. It is important but often not as important as you moving quickly, iterating and actively making progress day after day. If you are thinking about competitors make a list of who you might think is DIRECTLY competing with your business. Who is indirectly competing against you?The next question is understanding what you are going to do about it? Early on, just being aware is important and as a result you may change your value proposition a bit to even better serve your customer, but don't get into the habit of being 'Me Too' always trying to match your competition feature by feature or function by function.

As a new business we need to research the market to understand our customer, channels, competition and how we'll respond. You may be searching for data and statistics to substantiate your position and use in your spreadsheets. Key things to keep in mind are:1. Don't buy or pay for statistical or market data2. Reports, white papers, webinars, podcasts that certain companies produce may be misleading � they have their own bias. You can use them but be cautious.3. If you download free reports, look for the sources cited at the bottom on the page or near the end of the document. Often these links can lead to source data which is more valuable4. Look for government data such as BLS, NIH, CDC, SBA a. Government data can be a little older, but it's trustworthy5. If you are a student, you may have access to sources such as Nielsen and Nexis. Check with your teachers, librarians and even the public library6. Look for local data at your chambers of commerce, trade organizations, and municipal offices.7. You can look for surveys, customer panels, and other group data. Sometimes you can find amazing things simply searching on Google, so long as you are mindful of the source and that it is reputable. !!! The big caution is as you gather data about your market, don't hide behind the computer screen. Get out and talk with potential customers as often as possible. There is no substitute for primary research where you are in front of people and testing what they say vs. what they do.

The Business Model Canvas is a tool to help you visualize and summarize your business model. It is only a model and the intent is that it will prompt you to explore areas you need to understand better and it will help summarize your findings. It is not a complete replacement of a business plan, rather it is a supplement to it because business plans are lengthy and more challenging to keep updated. The key idea is that the BMC keeps you moving forward and gathering data. It's not meant to stay on a shelf and gather dust. The work is never fully complete.

Creating your value proposition and being able to not only describe it but demonstrate is critical. Taking nearly everything you have done up to this point you'll need it to articulate your value propositions. Ask what value do you provide?Functional Value: saves time, simplifies, makes money, reduces risk, organizes, integrates, informs, reduces effortEmotional Value: creates nostalgia, fun/entertaining, reduces stress/anxiety, wellness, therapeutic, well designed/aesthetics, attractiveness, rewardsLife Changing Value: Self-actualization, motivation, hope, affiliation/belonging.Social impact: Creates value beyond the customer, self transcendent.

For your business to survive and thrive you will need customers who not only buy from you once, but who return and refer others to your value proposition. When we think about customers, we think about those who are exchanging money for the thing we do. You may not be fully ready to accept money or fulfill the value proposition. However you can still get customers who will sign up for your product or service. Maybe they are willing to be on a wait list or pre-order list. Maybe they will actually buy a sample or buy an MVP you created during one of your experiments. See if you can actually connect with an ideal customer who is willing to buy your imperfect or early stage solution? You'll want to take care to note of the pricing, objections, feedback and other behaviors that prospective customers might exhibit. When you do make that early sale, you might find there are others similar to this first customer and then you can sell more and learn more! Once you start getting some early sales integrate that learning into the customer personas and canvas you might have developed. You are going to need these insights to understand something known as your 'total addressable market' and your service available market.

On your journey you'll need help and there will be times where you'll feel stuck. That's a perfect time to reach out to others who might be able to help. Create a list for yourself of people who are an email, phone call or coffee meeting away. These can be technical help, business help, emotional help, creative support or maybe they are just great connectors to others. There are also business centers and agencies that offer free assistance (see links below). Really anyone and anything. Make a list of their names, contact information and what help they might be able to provide. As you get out and network this list will grow and change. You may find you outgrow certain providers of help. That's ok. Be grateful and thankful for them helping you along the way.

Depending on your business type you may need licenses, government approval, certificates, permits, bonding, and credentials to be able to legally operate. If you are not 100% sure you will be in full compliance with local, state and federal regulations, then you should seek input from an attorney, trade organization, chamber of commerce and insurance agent.

This step is all about taking pause and considering your progress. Has this journey been easier or more difficult than you anticipated? Has it been fulfilling? Are you tracking towards your goals? Have you learned and grown such that you are set up for the next steps? Do you want to continue forward? There is nothing wrong with deciding this isn't a path forward, but before you make a decision one way or another, speak with several trusted resources and partners to provide perspective and support. Again either decision is perfectly fine. Entrepreneurship is a journey and each idea we have may not be a business that we want and that the market needs.

There will be a great deal of work to launch your business and you might want to bring on team members. Understand where you need the most help and if you want team members to be partners or co-founders with you or if you would rather them being an employee. The type of business relationship you need will factor into compensation and other rules that will need to be followed. Finding the right partners and employees is not easy. Know what you need and what they need and want. Now is the time to be direct with them. Spend time interviewing them and don't make a hasty decision you'll later need to unwind. If possible give them a trial period to see how it goes. Just be 100% transparent and be sure they are amenable to the trial period. You should set and agree to specific, measurable, time bounded, and realistic goals.

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