Snehal Patel is an Entrepreneurs' Organization (EO) member in Silicon Valley and was founder and CEO of Sokikom. In building and exiting two companies and winning more Small Business Innovation Research (SBIR) grants from the US Department of Education than any other math program, Snehal learned the importance of ensuring that a business idea is monetizable before pursuing it. We asked him to share what he learned:

As a serial entrepreneur, I've built and exited two companies?--?most recently an online multiplayer social learning game to improve students' math skills and before that, a math tutoring company that was the top-performing franchisee for Mathnasium. Since the recent acquisition of my second company, I've had the opportunity to unwind, recharge and reflect on what I've learned from those experiences.

In both cases, I was fortunate to enjoy a variety of successes, including building and working with a world-class team, developing award-winning products, raising money from noteworthy investors, giving a Tedx talk and being invited to the White House--twice.

However, the most gratifying outcome is knowing that our math program was used in over 60,000 classrooms in all 50 US states and 120 countries. We enabled hundreds of thousands of elementary school kids to collectively solve more than a quarter of a billion math problems and improve their math skills. That feels great!

But it wasn't all rainbows and unicorns: I encountered serious challenges, some resulting from mistakes that could've been avoided. In hindsight, these mistakes are valuable lessons. Three of them involved validating our business idea and making sure it was monetizable.

Design for the customer

For example, in the early stages, our team was laser-focused on developing the most engaging and effective elementary math game in the world--so captivating that even students who hated math would want to play. Simultaneously, we knew the program had to be more effective at increasing math achievement levels than traditional textbook curricula.

I even applied the elements of Decision Theory: Given the poor state of math education (the Environment), I thought that if we could achieve this (the Decision), the market-- schools--would gladly pay for it (the Expected Outcome).

But I was wrong.

Even though we practiced lean startup principles and agile software development, we hyper-focused on one group--elementary students--which turned out to be a significant error. Why? Because they were our product's end-user, not its paying customer.

Don't waste valuable time

We spent nearly four years developing and optimizing the student experience before generating any revenue. While the process took longer because our SBIR grant stipulated a methodical, research-based approach, it makes me cringe to think how much valuable time we spent before making our first sale.

In that time, we conducted more than 100 student usability tests, mostly in classrooms, which led to a product that improved math achievement and that elementary students loved. However, we didn't make any sales during our development period, as I was concerned about selling a premature, imperfect product. That decision cost us dearly.

Precisely identify your target market

We eventually discovered that the target market for our product wasn't elementary students or teachers or even school principals. Who was it? The actual purchasers of our product were curriculum leaders in school districts. We consequently learned that their needs were very different from those of the students we had been designing for, and in many cases, directly conflicted with features we spent years developing.

For example, we meticulously developed an exploration-based student interface that encouraged inquiry and allowed students to learn at their own level. However, most schools use a standard curriculum adopted by their school districts, and their teaching directives conflicted with much of our system's design. Furthermore, school district curriculum budgets used to pay for products like ours had specific requirements regarding curriculum standards, sequence, testing and grading, among others.

Eventually, we met these requirements and generated millions of dollars from sales to school districts. We also developed additional features that addressed our buyers' needs and, ultimately, came up with an entirely new product that we haven't yet launched.

Hindsight is 20/20

However, the way we went about it was expensive, wasteful and slowed us down tremendously. Had I steered our team to validate the customers' needs earlier, we would have known who the real buyer was and correctly assessed their specific needs from the start. As a result, our product would have been different, and we wouldn't have spent valuable resources testing unfounded business models and strategies.

From this experience, I've formulated the following tips to ensure a business idea is monetizable:

  1. Make market validation your obsession from the start. Validate whether you're solving a monetizable or unmonetizable need before you start working on it. Users may love your product, but if they're not willing to pay for it, it's imperative to find out who your buyer is and develop it to their specifications.
  2. Focus on how the customer--not only the user--responds to the product. This is an area where you have to be brutally honest and become consumed with understanding why. Don't be too arrogant to listen and learn from the market response. Talk to as many prospective customers as you can--if they're not interested in buying your product, find out why and ask how you could add value so they would be. It's important to be equally as enthusiastic, if not more, in discovering your customers' needs and reactions as you are about designing your product. Your success depends on it.
  3. It's never too early to sell. When possible, offer your product for pre-sale before it's finalized and commercially available, which will validate the market need. I was overly concerned with perfection before selling, which ended up costing us dearly. Bill Gates pre-sold copies of Altair BASIC software before it was produced, and Elon Musk offered pre-ordering for upcoming Tesla models. Why not imitate their successful strategy?

While my product was sold to school districts--a unique genre of customer--these tips will apply to any startup that may be making assumptions about its target customers, helping to save time and money that might otherwise be lost in the pursuit of unmonetizable business ideas.