What to do When Investors Say No to Your Product Idea

Kirsten Schierholt

Kirsten Schierholt
Marketing Operations Analyst at ProductPlan

Imagine this scenario. You’re a product manager working for a software startup, and you’ve come up with an idea for a new app. Your executive team likes the idea so much that they present it to the company’s investors. The investors are so enthusiastic about the app’s potential that they greenlight all of the funding your team will need to develop it.

Question: Who validated your product idea? Was it you when you came up with it? Was it your execs, who took the idea to the investors? Or was it the investors themselves, who agreed to put their own firm’s money behind it?

Answer: None of the above. Only the market can validate a product idea.

You can confirm the market validation of your product idea only by presenting it to your target customers. Those customers are the only people capable of determining that you have a worthwhile product—either by buying it or by telling you they’d buy the product when it became available.

The flipside of this point, of course, is that when investors turn down funding your product, that doesn’t invalidate your idea. Nor does it mean your idea isn’t worthy. And it certainly doesn’t mean that if you were able to find some other way to get it built, your product would necessarily fail in the market.

So in this post, we’re going to start from this hypothetical place. You pitched your product idea to investors, and they said no. What should you do now?

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Investor Rejection Doesn’t End Your Ability to Validate Your Product Idea

Ryan Caldbeck, the founder of the financial-technology company CircleUp, offers this suggestion about what to do first when an investor says no to your product idea:

Politely ask for feedback and guidance

Caldbeck points out that, in a way, investors who say no are helping you. They don’t want to leave you in limbo, wondering whether or not they liked your idea. His advice is to be polite, thank them for their attention, and ask if they’d be willing to explain why they said no.

Listening to these investors tell you why they declined could help you discover flaws in your idea that you missed. It can also help you improve your pitch for the next investors you plan to approach.

But as we’re going to explain next, there are several ways to validate your product idea other than asking investors for money.

Interview your potential customers

As ProductPlan’s co-founder Jim Semick says, most of the thoughts you write down during your product brainstorming are assumptions. Your ideas about what your user persona wants and needs from your product? That’s an estimated guess. Your opinions about which industry to target first, because it has the greatest need for your product? Another assumption.

The only way to learn if these assumptions are correct is to talk with the people you believe are most likely to buy the product you’re thinking about building.

Jim suggests scheduling as many interviews with these potential buyers as you can. He also recommends talking with industry analysts, consultants, and other people with expertise in the industry. You can also test your ideas inexpensively today by creating landing pages and running low-cost online ads to see how much interest they generate.

One thing all of these suggestions have in common is that implementing them doesn’t require millions of dollars in funding.

Validate your interview subjects (or at least categorize them strategically)

As Jim points out, liking your product idea is not the same thing as buying the product. The implications of this distinction are essential in your market validation research.

When you ask people about your product idea, you need to make sure you’re asking the right types of people the right questions. For example, if your idea is a B2B product, you’ll want to interview your end-user personas to learn about their problems and needs. But if those users don’t have the authority to buy your product without executive approval, then their interest matters only to the extent that they can persuade their execs to purchase it.

You will want to categorize your interview subjects in terms of the types of data you can collect from them. When you interview prospective end-users, you’ll want to learn the challenges they face today so you can develop your product to meet those challenges.

But when you speak with the buyer personas—assuming they’re different from the end-users—you’ll want to focus on other types of information. You’ll want to learn, for example, the average size of their departments’ budgets and their decision-making processes for selecting new products.

Learn Your Customer Acquisition Costs Before You Start Building

The acquisition cost of a new customer must be far lower than that customer’s lifetime value. This rule applies even if you have plenty of investor funding. But if you’re going to bootstrap your product development, using whatever limited funds you can find, this is even more important.

Before Jim and co-founder, Greg Goodman began writing any code for the company’s product roadmap software, they conducted the market validation tests we described above. They set up a landing page describing the roadmap app, where they offered access to an early version of the product to anyone who entered their email address. Then they bought online ads to send traffic to the page.

The founders used this tactic not only to help validate their product idea but also to learn the average cost to acquire a new customer through online ads.

The two gained a goldmine of business intelligence—including a good estimate of customer acquisition cost—all for a $1,000 investment to build the landing page and run ads on Google AdWords and LinkedIn.

A Real-World Example: Two Talk-Radio Programs

Comedian Adam Carrolla has built one of the most successful podcasts in the world. He launched his show without any investor funding or broadcast help from a major radio station.

To put this in product management terms, Carolla built a minimum valuable product on his own, launched it to his target market, and let the audience tell him if it was worthy.

Let’s contrast this with a story of a failed radio station. Air America, an outlet for liberal talk radio, launched in 2004. The station had millions of dollars in backing from investors. It received plenty of positive news coverage when it went live. Its lineup of on-air personalities included some of the biggest progressive names in media: Al Franken, Janeane Garofalo, Rachel Maddow.

Due to low ratings and many other problems, Air America went off the air in 2010.

Even though investors and industry insiders had all “validated” the idea for this station, the audience disagreed. And the audience’s vote was the only one that mattered.

What can this example teach you about validating your product idea?

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The Takeaway:

Investors Can’t Validate Your Idea—Only the Market Can

Investor funding, like any other type of input into product development, represents only an opinion—an unvalidated opinion.

You might get turned down by 20 venture capital firms and still have a viable product idea. Or, you could receive a huge check from a VC firm, build your product, and find your target market doesn’t want it.

Bottom line: Investors can neither validate nor invalidate your product idea.

If you’ve failed to secure investor funding, you have many other options to validate the idea and get it built. Follow the suggestions above, as well as the ones we’ve written in the articles below.

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