In our previous article, we talked about the reasons that lead someone to build a product, we highlighted the importance of identifying needs that are a common to a larger group of people and we started introducing the different types of needs. Today we gonna deep-dive into validated and unvalidated needs and help you identify who needs your product.
An unvalidated need is a hypothesis that a particular need may be common to a group of people. Such a hypothesis is based on observations (perceived demand) or on explicit statements (explicit demand). Unvalidated needs are usually present in new or re-segmented markets.
1-) Perceived demand is based on external observations (yours or an analyst’s) of how people behave or of a market’s dynamics. In this case, a group isn’t aware of their needs and must be activated to validate them.
- When observing a group of people performing a job or a task, you may identify a particular unfulfilled need and stumble upon a market as in the case of Tinder. The app was launched in 2012 by IAC (match.com, ask.com, dictionary.com) as a response to the old and outdated dating sites targeted at Gen Xers. In contrast to its predecessors, Tinder was the first dating app targeted at Millennials, and it revolutionized the online dating market by incorporating into its user experience four behaviours that were already widespread among Millennials: being location-based and mobile-only, using gaming logic (swiping profiles like a deck of cards), minimizing user effort and maximizing outcomes (by swiping left for no, swiping right for yes instead of having to go through another user’s entire profile). Tinder validated its target market needs and ignited growth by sending one of its executives, Whitney Wolfe, on a US road-trip to visit sororities and ask members to install and use the app.
- You can also develop a product by perceiving a market gap or extrapolating a group’s needs to another group. That’s what Dropbox and Mailchimp did. Dropbox offered cloud storage to consumer clients, something previously offered to enterprise clients only, and Mailchimp tapped into a whole new market of small companies and independent professionals by offering an easy-to-use email marketing application, something that was previously only used by large companies or marketing agencies.
2-) Explicit demand: another common trigger to building a product is when you hear people expressing their discontent with a problem and the lack of good solutions for it. You can do this in many ways such as listening to the complaints of a group of people with common characteristics (e.g. working mothers, weekend tennis players, office managers), by following discussions on blogs or social networks or if you already have a product, by gathering feedback from customers expressing a need your product doesn’t satisfy. In this case, a need expresses itself more clearly than that for perceived demand, because people are aware and are expressing their needs. Nevertheless, it is still important to validate that the need is common to a large enough group of people, and not just noise. You’ll normally find three types of needs in the case of explicit demand:
- People who are aware they have a problem, but are unaware of a solution for it.
- People who are aware they have a problem or need, and are using an alternative solution that wasn’t conceived for solving such a problem.
- People who are aware of their problem and can clearly express what type of solution they need, but have no alternative solution and are willing to pay you to build it (a rare sweet spot of a ready and untapped market).
Creating a product for a validated need is easier than for an unvalidated one. Validated needs are normally found in established markets, with clear supply and demand dynamics (i.e. value, cost, price, utility), and more often than not, multiple players, meaning competition. What we normally see in this case is a player that identifies an unvalidated need, validates it, launches a first version of its product and attracts new entrants, quickly increasing competition. So why should you build a product for a validated need in an established market?
1-) There is a need, but the current solutions are not good enough. You believe you can offer a better solution than what currently exists – better can mean a lot of things, but generally refers to the tradeoff between price and functionality. In this case, the driver for creating a product is outperforming an established benchmark.
- Slack was launched to solve a well-known business need, improving communication between teams. To offer a better solution than its competitors, Slack expanded the idea of communication beyond teams to the apps they use, giving teams the ability to integrate Slack with their current workspace by offering integrations with external apps. The app is also a great repository of data, from files (some call it a Dropbox killer) to all data shared via the message board and the integrations. Furthermore, Slack created a seamless service (available across multiple platforms) and a much more enjoyable user experience (responsive design, customization, fun emojis, vivid colors, etc). All together, these features made the app the “fastest growing business application in history.”
2-) There’s a need; there are good established solutions; but there’s so much money to be made. In this case your driver is entering a large or highly competitive market where no incumbent has a dominant position yet. Your driver for creating a product is outgrowing the incumbents in a (sometimes bloody) battle for market share. In this case pricing and product distribution play a more important role than product functionalities, often leading to a commoditized market with decreasing margins. You have to have deep pockets!
- A clear example is the current battle between food delivery services such as Deliveroo, Foodora and Uber Eats. Although there’s very little differentiation in terms of functionality and the availability of restaurants between the platforms, VC firms keep pouring millions of dollars to sustain customer acquisition and outgrow competition in a clear battle to see who will be the last man standing.
3-) There are also cases in which the need is clear or validated, but there are no market dynamics, because there are no current, potentially profitable, viable solutions due to technological or financial constraints (e.g. a cure for cancer).
Check out our next article to learn how to validate a need identified via observations. To get notified when our next article is out, please sign up to our newsletter.