I’ve listened to so many signals I thought would validate my business, but they turned out to actually mislead me or take me in the wrong direction. So, let’s talk about validating a business and just how challenging that is.
Remember, there’s no real validation. You can’t prove a theory is valid; you can only assume it’s likely valid if it hasn’t been invalidated. That moment of proving a theory false is just one counter-example away. And since we can never know everything, there’s a chance we’re missing something.
So we search.
We look for signals for validation all the time. We need reasons to keep pushing, motivation to keep spending days staring at our screens, building something that has never been built just like that before. And often, particularly when we’re starting a new thing, we are dangerously biased toward what signals we look at in the first place.
Experience this article as a podcast or as a newsletter:
The biggest validation trap is pre-emptively filtering out the good and ingesting only the bad. We might call this the Cinderella fallacy, after her sorting out the beans for her horrible family. When we’re trying to recognize a pattern, our efforts often serve our founder ego, not the reality of building a business that stands a chance.
What we often select for is confirmation.
But we should look for its opposite. Instead of looking for validation, we should be actively searching for reasons why something might be wrong. And we should really do the work. If we can’t find good enough reasons to invalidate even after we tried, then we might be on to something with our idea.
But unfortunately, that’s not how our minds work.
Entrepreneurs tend to be optimistic, so we often assume things will work out because of some inherent quality in the idea or, worse, ourselves as the founder. But that’s not always true. I’d wager it’s false most of the time. Let’s look at some examples of what might seem like validation but aren’t.
Freemium Users
One big example is when businesses offer a free plan — the freemium business model. People can sign up and use the service for free until they reach a certain limit, usually low enough to get started but quickly reached when things start working out for the user. Then, they have to pay. We might think that people signing up for the free plan means our product works and people want to use it. And that’s true: they use it. But this doesn’t really validate our business. At most, it validates that the product works as intended.
But a free user who never converts to paid is a de-facto expense to your business.
Freemium plans need a good amount of conversion and retention to be true validation. If users don’t pay, there’s no revenue. And no matter how useful your product is, something has to pay your expenses. Over time, a freemium business with lots of free users but no paying customers indicates that there’s a big problem with your business model. Because at that point, you might as well call it a charity.
I talked to Asia Orangio earlier this week. The podcast episode with her will be out in a few weeks, too. She told me that freemium businesses often struggle because their onboarding and time-to-value are underwhelming. If you need to wow your free users into paying and your efforts are lackluster, you won’t convert enough of them to be profitable.
Sometimes people don’t see the value they need to become paying customers. It might be because the product or its features don’t meet their expectations. Or, maybe you’re solving a problem they don’t want to spend money on.
Just having users doesn’t mean your business is successful. If you have many users but no customers, you might have a validation problem. Your business might not make sense, and people don’t need it or want to budget for it.
The Wrong Voices
There are other types of validation that can be misleading. One example is getting a little bit too much support from your founder peer group. Founders are usually supportive, encouraging, and compassionate. They may use products made by other founders just because they like them, not because the product is good. When they become your early customers, you might think it’s validation, but it’s not always true.
Sometimes we buy from each other just to support each other’s work, but that doesn’t mean anyone outside our founder circle needs the product or wants to pay for it. Be careful when selling to communities or audiences tied to your founder peers. You want to make sure you’re not just selling to hopeful people with some disposable income trying to keep you afloat.
Indie hackers often fall into this trap when their friends and fellow indie entrepreneurs become early adopters. This can actually invalidate the product for other audiences because you’re not listening to their voices and opinions. The key here is that validation should come from listening to the right people.
Listen to the Wallets
Just like in the freemium world, listen to your paying customers instead of your free users, your friends, or well-meaning peers. Paying customers have made a commitment, and their feedback is far more valuable for growing your business than anyone else’s.
Focus on listening to people who represent the majority of your customer base — or maybe even the majority of your revenue. Even if someone suggests adding a feature for them to sign up, they aren’t your customer unless they’re spending money on your product. Your true customers are those who face the challenge your product solves and have reason enough to spend a part of their budget on what you already have. Don’t let hopeful prospects design your roadmap.
This doesn’t mean you shouldn’t consider other ideas, but commitment to your product is the key to validation. Validation comes when someone opens their wallet or shares their credit card information. Asia Orangio told me that this is the best way to know if a business will be profitable. Her experience helping hundreds of consulting clients go to market shows that nothing else can predict profitability just as reliably as a focus on the needs and desires of paying customers.
The only way to know who you should talk to about future features, integrations, or pricing models —any business question you might have— is by finding those who are paying for your product. So, focus on understanding and serving them well.
And that’s as close as you can get to actually validating your business idea.
I think that your point of making it freemium could help you reach more people; I think the key is to define limits in the free plan.
I would also love to see the technical evolution of your product. I am registered in the freemium version. ☺️