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Market Validation is Your Route to Success

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All Seedcamp companies can use SecureDocs at no cost for up to 6 months as part of the Seedcamp Founders’ Pack while raising their first institutional round of funding Series A. 

Market Validation is Your Route to Success

At a recent Seedcamp Academy Day we focused on the importance of market validation to reduce risk, shorten your time to market and secure paying customers as soon as you launch. We called in an expert, Albert Oaten, VP of SecureDocs, who provided detailed insight on how they applied market validation for GoToMeeting, and now SecureDocs. “Most people think of GoToMeeting as the 800 pound gorilla of web meeting solutions. When we launched GoToMeeting, success was a long shot. There were 70+ other collaboration solutions already on the market from companies like Webex, Microsoft, IBM, and Lotus. As a new entrant, the small guy, market validation provided a roadmap on how to compete with the big guys.”

expertcity

expertcity, the original name of the company behind GoToMeeting with 30 employees in 1999. Today, GoTo products employ 2,000, and generate over $500MM in annual revenue.

The key insight of market validation is to “Sell it before you Build it.”  Or, as Albert said, “Don’t spend a year building your ark, and then hope the animals jump aboard.  Instead, make sure the rain is falling hard and the animals want to buy tickets to your ark before you build it.”

The aim of the Seedcamp session was simple: identify one or two ways in which startups could apply market validation to their current product in order to decrease time to revenue and increase chances of success.

 

Lesson 1: What is the Problem and Who is the Customer?

Using Market Validation, the GoToMeeting team interviewed 100’s of potential customers and were able to identify an unmet market need for a specific segment of the market. Market validation revealed that it wasn’t just enterprise clients that wanted collaboration in the form of online meetings. SMBs wanted a web collaboration solution too, but they didn’t want the high variable cost, nor did they want all the features and complexity.  Instead, they wanted flat-fee pricing and a simple way to start collaborating as quickly as possible.  Instead of variable per-use pricing, GoToMeeting launched with an “all-you-can-meet” pricing model that was flat: $49.  Instead of 20 features like polling, video, and file transfer, GoToMeeting focused on two key features: a small download, about 1/15 the size of competitors, that could work over dialup, and included a free conference bridge to eliminate variable audio minute costs.  In addition, market validation revealed that customers were comfortable buying the product online.  Today, Citrix Online makes over $500MM a year, and its success was due in large part to market validation.

GatheredAroundJimComronComputerSalesWow copy

Early days at SecureDocs prior to spinoff from its umbrella company. Albert Oaten, in the centre, reacts to engineering work presented.

Similarly, with SecureDocs, market validation revealed that most startups can’t afford the benefits of traditional virtual data room providers like Merrill, Intralinks, and RRDonnelley for their fundraising efforts.  (Early days at SecureDocs prior to spinoff from its umbrella company.  Albert Oaten, in the center, reacts to engineering work presented.)

Customers thought the software was difficult to use, expensive, and hated the variable costs.  Instead of charging $1 per-page upload fees and tens of thousands of dollars for a 3-month virtual data room subscription, SecureDocs entered the market at a price point that was 80% less.

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Rafael Saavedra, CTO, Will Reynolds, CEO, of SecureDocs. Rafael was the engineering lead for GoToMeeting, and Will was an early GoToMeeting sales rep. Relationships are potentially the most valuable long term benefit from doing a startup.

At $2400/year flat-fee for unlimited documents and unlimited users (no per-page upload charges), SecureDocs provided a price point that allowed startups (and large companies) a data room repository to store and update all their due diligence documents so that they eliminate the 2-4 week fire drill for Series A fundraising due diligence to M&A exit.

In addition, by using Securedocs for audits, legal communication, HR document storage, trade secret protection, etc… startups could protect their valuation by preventing information leaks from investors and employees.

Today, SecureDocs Virtual Data Room has many happy customers, including startups (Series A – to mature startup companies like New Relic and Sonos), public companies (small to Fortune 500), investment banks, and law firms, many of  whom have switched from the traditional players.

Lesson 2: Don’t be afraid to go after the big players or competition

founders

Everyone works at a startup, including Klaus Schauser, founder of GoToMeeting and Appfolio, and Jon Walker, co Founder of AppFolio, seen here building chairs and tables for the original company behind SecureDocs prior to spinoff.

At both GoToMeeting and SecureDocs, there were over 70 competitors that were bigger, better-known, and with more resources.

Competitive environments are not a bad thing, as it validates a market, but you don’t want to fight a battleship head on with a speed boat. The key is to find a part of the market that plays to the strengths of your speedboat and exposes the weaknesses of the battleship. Focus your limited resources on a segment that competitors don’t service well. If done properly, you increase your chances of winning, even against a bigger competitor.

customers

Customer feedback and ongoing validation is never done. Engineers listen to customers talk about their businesses and how our products can help them achieve their goals .

Market validation done well requires 100’s of interviews, but the benefit is the elimination of many feature “requirements,” reducing development time by months.

In addition, your market validation process should create a ready pool of paying customers when you are done.

Not only can you get to launch faster, you can get to revenue faster, differentiating you significantly from other startups pitching to VC’s.

Lesson 3: Look for False Positives

Unlike a normal sales process, market validation should strive to uncover weaknesses in your hypothesis.  In a sales process, if a customer says “yes,” the typical response is “Wahooo!!!”.  During market validation for SecureDocs, Albert and team introduced the customer to free solutions like Dropbox and asked them to articulate why SecureDocs would still be worth paying for.  They were able to ensure that prospects were buying SecureDocs for logical reasons, not ones based on ignorance, which isn’t a long-term strategy.

Albert voiceovers

Albert Oaten, VP of Market Development for SecureDocs, works on videos and voice over work for umbrella company AppFolio prior to SecureDocs spinofConclusion

1. Sell it before you build it: speak to 100’s of prospects to identify your market segment and product requirements for that segment.

2. You can beat them: The established companies are not bullet-proof so find out if there is a customer segment not well-served by the current players and then validate that market segment.

3.  If you build it, will they buy it at a price that covers your cost of customer acquisition?  If customers are willing to pay $5 for your product, but the acquisition requires a salesperson for $100K a year, you don’t have a business model.

4. Don’t write code until you know the problem, the market segment, and have customers willing to buy your service when you are done.  The reward is faster time to market, and when you are done, you will have paying customers.  Asking for funding when you have customers and a revenue stream makes you a much more unique and interesting investment option to VCs.

Don’t forget! Applications for Seedcamp Week London close on August 17th so make sure you apply before the deadline ends.

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Albert Oaten, VP of Market Development for SecureDocs, wears a different “hat” doing market development for umbrella company AppFolio prior to SecureDocs spinoff.

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