Validation has a pretty clear definition. You're basically making sure something works. If it's at the airport, your passport is validated to make sure you are who you say you are. With some jobs, your uni transcripts are validated to ensure that you’ve got the results you needed. However, in the tech world, it’s a term which can be easily used and abused. Sure everyone wants to validate that their great idea is useful and people will use it, but often the unanswered question is, will they pay money for it?
The idea of monetisation is an assumption that is often an afterthought and a case of ‘well if we get enough people onboard using and liking the platform for free, then they’ll be happy to pay for eventually’. Whilst in some cases, this has worked where businesses have been able to provide a basic service for free and then paid business services, this isn’t always the case. It's like running a café for free. You get to have as much coffee as you like, but if you want to have food with that, then you pay. I’d have tons of customers, but I'd be broke very quickly, unless I raised capital, but I won't go into that again.
Many tech startups gather users as their method of validation, which is one measure. You can have a bunch of users that like or love your product, but if they're not going to pay for it, your business isn't going to be around for very long. As always, there's exceptions to the rule on this, but the harsh reality for the majority of tech businesses is that they need paying customers, without which you’ll need to be finding yourself another job.
This is why you need to validate your idea on both a user level and a commercial level. If you can't answer the question, ‘How do you make money with this?’ then don't waste your time and money building it. My first experience in the tech world was like this. My brother had a great idea to make livestock markets more transparent and efficient. It was an awesome logical idea which hadn't been done before. Validation testing showed that farmers wanted a better way to get and compare prices. Meat processors were keen to modernise practices. The problem for me however, remained … How was this going to make money? Having run another business, I was well aware of the need for paying customers. I wouldn't have had the business for six years before selling it, if I hadn’t had great regular customers coming in each day and paying for the products and services we provided.
With this livestock idea, I sat in meeting after meeting being told, “Don't worry. This is how you can eventually charge users for your service.” The grand sweeping statements of yeah, we can do this and that and charge this customer for this and then you'll gather so many users and market data. The valuation of your business will be X. I unfortunately sat there silently, listening to this crap and thinking, ‘This is so stupid,’ these people have no idea. However, I wanted to support my brother in his venture. I stupidly assumed because he knew the industry far better than I did, it would work. In hindsight, I should have said something at the time. That nagging thought in my mind that nobody would want to pay for this, proved to be correct.
Whilst the idea was great and people liked it, it was the sort of platform that should've been done as an internal project for livestock companies or meat processors to create value thorough increased efficiencies, not as a third party project. The cost to implement this with the geographically diverse customers and tailor it for their systems, proved also to be prohibitively expensive.
However, despite this being an expensive lesson, it was worth it because from this I've been able to claw away a lot of the fantasy tech industry crap to ensure anything we do now has a paying customer business base from the very start. I've had countless good ideas before and after this project, but since I couldn't work out how to make money from them, they were all archived into the business ideas folder of my laptop as a reminder. You can have a great idea, but turning it into a business is a whole other thing.
So for your next tech idea, or any business idea, when you're developing your business plan, the most important thing to focus on is who is going to pay for this and how much will they be willing to pay? Once you have this locked down, you’ll be able to see if this is going to be a total waste of time, or an amazing viable business!
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