Increased Relevancy, Increased Complexity Market Validation Process for Deep Tech
Market Validation – A Critical Component of Investment Readiness
Market validation is a method of learning about a customer problem to inform product development and go to market strategy. The process goes by several names but is most commonly referred to as Customer Discovery.
There are several valuable outcomes of a well-implemented market validation exercise:
- Unique customer or market problem insight that indicates a competitive advantage
- Informs product development and strategy to achieve product-market fit (the degree to which a product satisfies a strong market demand)
- Improves investment readiness and avoids a long and costly company build if there is no market
Investment readiness is typically described as having six key components: Traction, Model, Market, Product, Advantage and Team. A strong market validation process improves investment readiness across all of them. You can demonstrate strong potential for gaining traction by having a product that has been deeply informed by market validation insights. You can demonstrate business model viability through a validation process that elicits willingness to pay and customer access channels. To conduct interviews, your market needs to be well-segmented. This segmentation is an excellent basis for sharing bottom-up market estimates that demonstrate a strong initial customer base. If you deeply understand your customer, competing solutions and the status quo, you are well-placed to clearly define your competitive advantage. And lastly, a team that works through a well-executed market validation process and successfully adapts their thinking as needed throughout the process is a great way to communicate to investors that your team is backable.
Deep Tech & Investment Readiness
Deep tech (as we at WNT define it) is a technology or innovation that is science-anchored, research-based, or leverages intensive and specialist career insights. Deep tech creates defensibility through patents or a technological barrier to entry. Deep tech usually covers sectors like Materials/Chemicals, Biotech/Pharma, Medical Devices, Cleantech, Robotics/Hardware, Computing/Data, and Agritech.
There are investors that specialise in investing into deep tech opportunities, but well-earned stereotypes can hinder deep tech investment attraction (e.g. high commercialisation cost, long time to market stereotype, unknown technical risk). Strong market validation derisks any potential investment and may help overcome some of these limitations.
Deep tech is particularly vulnerable to ‘tech push’, where a product is driven by R&D, and the development is not pulled by market demands. Investors want to know that the company can create deep value - whether deep tech is involved or not is often irrelevant. For example, do farmers care whether actionable data comes off a satellite image or a drone? Do photographers care that their camera lens has a nanofilm coating that improves sharpness?
The two critical components for creating deep value are central to a market validation process:
1. You are solving a clear problem
2. You are creating significant value for your customers
What’s Different About Deep Tech Market Validation?
Conducting market validation is arguably more important for deep tech than other startups. Deep tech often has a long development cycle – iterations based on lessons learned may take longer. Deep tech R&D is often capital intensive – most deep tech startups have less ability to pivot their technology without running out of capital and may have low tech stack agility. Deep tech complexity may increase the burden of educating your market.
Product launch is the most expensive kind of market research that you can do. Given the challenges of deep tech commercialisation, the common startup mantra of ‘just sell something’ often doesn’t work for these opportunities. Market validation for deep tech often starts with customer interviews – they are fast and cheap, and so are ideal when uncertainty remains high.
Going through the market validation process for deep tech opportunities is different from market validation for other startups in a few key ways:
It may be more difficult to access your customer to conduct interviews – consider how you can leverage your networks for friendly introductions. Video conferencing is an acceptable stand-in for in-person interviews when your beachhead customer isn’t geographically accessible
You may face complex or multi-sided customers (e.g. in healthcare, the clinician, hospital, insurer and patient are commonly involved to varying degrees in purchase decisions) – market validation should encompass all influencers, gatekeepers and key decision makers involved in reaching and selling to your target customer
Confidentiality and non-disclosure are important considerations – you may have unfiled IP and want to minimise disclosure to preserve patentability and your interviewees may be conservative in what information they are willing to share with you
Pivots create a natural reflection point for considering your IP strategy – have regular conversations with your patent attorney for advice on how changing technology and strategy impacts your defensibility and freedom to operate
Adapting your solution hypothesis based on market validation insights may mean additional research is required – consider research institutes and university research lab collaborations if you do not already have these relationships
Market validation has increased relevancy for deep tech companies. While the core market validation approach is largely the same, there are some nuances to keep in mind around confidentiality, intellectual property, and product development. A robust and ongoing market validation process is critical to improving the investibility and commercial success of deep tech startups.