How to Validate SaaS Business Ideas - Practical Steps

Imagine you've got an incredible idea for a new product. But before you jump in, you need to make sure it's something your customers want, that you can build it, and that it will be profitable. Addressing risks and uncertainties in your platform goes beyond mere mitigation—it's an opportunity for strategic growth and resilience. By proactively identifying and managing potential challenges, you position your platform for long-term success.

In the last blog post, I mentioned that when testing your business idea, you need to break it down into smaller chunks of testable hypotheses. These hypotheses should cover three types of risk. This is where understanding desirability, feasibility, and viability comes into play.

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  For desirability, think about how Slack validated the idea by inviting small groups of users to test their communication tool. 

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  Next, we'll talk about feasibility. The founder of Warby Parker tested the concept of selling glasses online by offering home try-ons.

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  And finally, viability: Pebble used Kickstarter to gauge if people would pay for a smartwatch before it was even developed.

This article will explore:

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  Practical techniques to validate these crucial aspects, featuring real-world examples from successful companies.

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  the cost of an MVP.

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  validation risk.

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  pricing experiments.

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  CLV vs CAC.

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  and many more practical tips and brilliant ideas for business validation.

Key Takeaways

• Break down risks into desirability, feasibility, and viability: Successful validation requires addressing three core risks.

• Leverage real-world techniques to validate each risk: Use practical methods to test your hypotheses.

• Iterative validation is key to minimising risks and maximising success: Adopt a "test early and often" mindset.

Desirability Risk: Is There a Demand for Your Product?

Desirability testing determines whether there’s genuine interest in your product among your target audience. Without confirming this, you risk investing in a solution no one truly wants. 

Here are actionable strategies to validate desirability

Customer Feedback and Prototypes

Start by engaging directly with potential users through interviews and surveys. Dropbox is a perfect example; they used a simple explainer video to pitch their concept before building a functional product. This approach generated interest and signups, proving demand for their solution.

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  Similarly, Instagram pivoted from a check-in app called Bourbon to a photo-sharing platform after user feedback revealed the latter’s popularity. This focus on user insights became the foundation of their success.

Landing Pages to Gauge Interest

Creating a landing page that describes your product and includes a call-to-action (e.g., signups or pre-orders) can provide valuable data. This method allows you to measure interest and gather insights from potential customers.

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  For example, Buffer tested their idea with a minimal landing page, confirming demand for their social media scheduling tool before investing in full development.

Leverage Trends and Social Media Listening

Tools like Google Trends or social media analytics can reveal whether people are discussing similar problems or solutions. This helps assess if your idea resonates within the market.

Feasibility Risk: Can You Build and Deliver Your Product?

Feasibility focuses on your ability to execute the idea. It’s not enough for the product to be desirable—you need to ensure it’s technically and operationally achievable.

Start Small

Take Zappos as an example. To validate feasibility, they started by manually fulfilling orders from local stores, demonstrating they could deliver without initially investing in an inventory system.

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  Similarly, Airbnb’s founders personally managed bookings and hosted guests to understand the logistics and customer service challenges they’d face at scale. These insights were instrumental in shaping their platform.

Minimum Viable Product (MVP)

Another effective way to test feasibility is by creating a minimum viable product (MVP). An MVP allows you to build a simplified version of your product with just enough features to satisfy early adopters. This approach helps you validate the core functionality and gather user feedback without the cost and effort of developing a fully-featured product.

Are you curious about the cost of building an MVP and whether it's achievable within a $10,000 budget? Don’t miss our article on this topic. Click here to discover practical and effective strategies to launch your MVP journey.

Validate Supply Chains and Scalability

For products requiring third-party integrations, such as SaaS platforms, you need to ensure these integrations work seamlessly. Conducting technical feasibility studies and running small-scale tests can help you identify potential roadblocks and address them early.

Lastly, consider the scalability of your solution. It’s crucial to think about whether your current processes and technology stack can handle growth.

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  Spotify, for example, had to ensure their streaming infrastructure could handle millions of users before scaling globally. They ran extensive tests and gradually increased their user base to optimize performance under load.

Viability Risk: Will Your Product Be Profitable?

Viability assesses whether your product can generate sustainable revenue. This is about making sure you can generate enough revenue to sustain your business. To test this, you can use a mock sale. For instance, you might create a high-fidelity prototype of your product and attempt to sell it online. Check how many people click to purchase and gather feedback on pricing. This helps you understand whether your pricing strategy will work in the real market.

Viability risk addresses the financial health and sustainability of your business model. Ensuring you can make a profit is crucial for long-term success.

Take Groupon, for example. They initially tested their business model by offering a simple "deal of the day" service and manually tracking interest and purchases. This approach validated their ability to generate revenue and gave them insight into customer behavior and pricing preferences.

To effectively test viability, consider the following approaches:

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  Pre-orders and crowdfunding: Platforms like Kickstarter or Indiegogo allow you to test whether people are willing to pay for your product before you fully develop it. This not only provides validation but also early revenue to fund development. Pebble, the smartwatch company, successfully used Kickstarter to validate demand and raise funds, which played a crucial role in their initial growth.

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  Pricing experiments: Run tests with different pricing tiers to see what customers are willing to pay. This can be done through landing pages, emails, or within your MVP. For example, LinkedIn introduced its premium subscription by experimenting with various pricing models and features to find the optimal balance that maximized revenue and user adoption.

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  Cost structure analysis: Ensure you have a clear understanding of your costs and how they scale with your business. This includes development, customer acquisition, operations, and support. For instance, Uber's viability depended heavily on understanding the cost of scaling their ride-sharing platform, including driver incentives, marketing, and regulatory compliance.

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  Revenue streams: Identify and validate multiple revenue streams if possible. This diversification can help ensure business viability. Slack offers both free and paid versions of its product, with paid versions providing additional features and services to drive revenue.

Conclusion

By systematically testing desirability, feasibility, and viability, you minimize risks and maximize the chances of success for your product. Whether it’s gauging demand with a landing page, testing operational capability with an MVP, or validating revenue potential through pre-orders, these strategies equip you to build a robust and scalable business.

Are you ready to bring your product idea to life? ~ Start small, test thoroughly, and let data guide your decisions.

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