How To Do Market Validation?

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Alright, by now, you have a clear hypothesis of which market might be a good fit for your solution. Next, we recommend you test that market by outsourcing business development efforts on the ground until you reach market-product fit. Also, to figure out how to do market validation.

If you feel that you have strong triggers behind your expansion, such as many customers coming organically from that market, you may want to skip this step. However, most foreign businesses prefer to do some testing before investing aggressively in the new market in our experience.

When speaking of business development services designed to help you do market validation, we are referring to the following services:

Market research

hiring a service provider to study customer behavior, run interviews and focus groups, or provide a comprehensive overview of demographics and customer behavior in your target market. Unfortunately, there is a lack of standardization of such services in emerging markets. Some of our partners charge as high as +$100,000, others as low as $2000 per report.

Spotify's case study on how to do market validation

The one main takeaway was understanding how different Asia is from the rest of the world… Whereas in the US you’ve got 50 states, but it is essentially the same culture and language, you come to Asia, and even in just one country like India, for example, it’s almost like having 28 different countries within one because you have such different cultures, such different languages, everything.” Sunita Kaur – Spotify’s Managing Director for Asia

Business Matchmaking

Some service providers offer what we call "business matchmaking," a service designed to arrange meetings with strategic partners, suppliers, importers, potential investors, clients, wholesale buyers, government officials, and whoever else might be relevant to your business. On average arranging, a meeting with a strategic partner will cost you anything between $300 to $1000. But, it depends on the market and seniority of the person you want to meet.

In-market representation

If you want to be more aggressive with your tests, you may outsource your sales force altogether through a service provider on the ground. That's a preferred choice for much larger brands, as it helps them to validate assumptions quickly. The advantages are that you do not need to deal with:

Training on your own

The service provider will invest equal efforts in preparing the new team on the ground.

Labour laws in each market

Some countries have very pro-employee laws making it hard to hire temporary workers. Letting go of people can be quite complicated. For example, requiring a local HR manager, contracts in two languages, and income taxes across markets.

Payroll

The service provider will handle all that.

Dealing with recruiters

Expensive and often unnecessary as the service provider will have better access to relevant talent.

Typically such services are charged upfront and have an element of commission. At the same time, most foreign businesses prefer to pay simply commissions and have a very low-risk option. But in our experience, all good service providers would ask for payment upfront. The costs vary, but it's reasonable to estimate that about $10,000 will be sufficient for an average scale project.

Lead generation

For companies that want to have a tighter grip on their sales narrative and business development, hiring a service provider to identify prospects and build pipelines is the preferred choice. Do consider that many service providers have delivered such services multiple times. Making them sit on a large pile of verified databases that you can quickly unlock.

An example of how to do market validation

Before moving forward to the next phase, consider the following strategy to figure out how to do market validation to your advantage.

Imagine hiring a service provider that can help you with all services listed above to execute the following strategy:

  1. Conduct market research to identify local competition, market dynamics, and ideal customer profiles for your business.
  2. Learning from the research. Organize a virtual event where a government official/local thought leader will be invited to speak on a topic related to your business's problem, e.g., the importance of digitalization SaaS, fundraising in the market X, etc.
  3. The service provider prepares a list of verified target prospects via a lead generation service for your approval.
  4. Once you prioritize the leads, you are most interested in. The service provider starts inviting them to attend your event.
  5. Several keynote presentations occur. Followed by a series of pre-arranged business meetings through a business matching service where you will have the opportunity to pitch your solution less directly.
  6. Based on your learnings and early traction. You can outsource business development efforts through in-market representation service until you hit the necessary traction to consider expanding aggressively to the market.

"Find the cheapest way to validate your international proof points in a new market." Rob Moffat, a partner at Balderton Capital

Key takeaways

Don't invest a lot of resources until you are certain you have a strong market-product fit.

  • Consider outsourcing lead generation, market research, in-market representation, and business matching.
  • Be strategic on how you use local service providers. Markets in Asia are focused on relationships. Invest early in getting to know key decision makers.
  • Study other similar organizations to find out how to validate market demand

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This article was developed as a part of a series of articles on the topic of how startups expand globally. The series will roughly go in this order:

*1: Factors to consider before going global
*2: International expansion strategy framework
*3: Research and build market hypothesis: Define / Refine your market and target audience key hypothesis
*4: Validation: Test key assumptions by outsourcing business development efforts on the ground
*5: Double down: Consider setting up a foreign representative office
*6: Market-product fit: Hire first people on the ground
*7: Global trade compliance: Company formation and licenses
*8: Global recruitment strategy: Focus on recruiting great talent, then secure an office space
*9: Repeat: Add all learnings to your playbook and focus on the next market
*10: Where do companies go wrong when expanding to Asia? Tips on how to avoid international expansion failures.

Subscribe to our newsletter to receive each post. If you are interested in learning how to put these frameworks into action on a detailed level, consider contacting our team at Greenhouse here.

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