I’m moderating a panel at this Friday’s UCLA Anderson School Entrepreneur’s conference (www.uclamba.com/eac/2008) titled, Idea Validation: How do entrepreneurs validate an idea before investing time and capital. I thought I’d jot down a few preliminary thoughts on the subject here and then see which direction the panelists decide to take it.

Idea Validation is an important milestone because not only can it give you, the entrepreneur, the confidence to quit your job and mortgage your house to start the company, but it can also give your idea the credibility to go out and raise funds and build a team. The problem is that many entrepreneurs often spend a small fortune of capital and time – sometimes even years – before they get to the point of validation (or an equally important milestone, invalidation).

So how do you validate quickly? Here are some thoughts:

1. Build a business that addresses a problem you know personally. If you’re building something that works for you, it’s only a small leap of faith to believe that it would work for others. In my last business, Insider Pages, we built a solution to a problem that I had suffered when trying to remodel our recently-purchased house. I couldn’t find good, trustworthy contractors without going through the time consuming process of asking our new neighbors for recommendations. We then took that process and prototyped it over the internet so that anyone could quickly get trustworthy recommendations for contractors or any other type of service provider. The fact it solved a problem I knew personally was proof enough for me and others that we had a valid idea.

2. Show metrics and trends that support your idea. The metrics will depend on the type of business you are building. If it’s a social network, it may be a metric that shows engagement like repeat visits or popularity, like invitations to new friends; if it’s an online advertising business, it may be click-through rates; if it’s a dating business, the key metrics may be new profiles and verified matches. The point is that you need to determine the one or two key metrics for your business and do everything you can to show early progress against those metrics. You don’t necessarily need to gather a lot of data. Just showing a strong early trend is often enough to give you the validation you need.

3. Get friends and “experts” to give you honest feedback. Pick some people you trust, preferably with knowledge in the space, and a willingness to give honest feedback to your ideas. Then share your ideas with them. Let them challenge you and poke holes. Allow yourself to tweak your ideas based on their feedback. I tend to run my ideas by a battery of harsh critics in order to refine my thoughts and often to throw out ideas that I had originally thought were brilliant. I’ve found that if I can’t get my mother to understand an idea, then inevitably, it’s a bad one.

4. Look for other business analogs that have successfully solved similar problems. When I was testing the original idea for Insider Pages, specifically whether there was value in online reviews for service providers, I was able to point to the success of product-focused review sites like Epinions. Poke around to find approaches similar to the one you are considering, even if they exist in completely different markets. It will always help your elevator pitch to say that something like “we are the Epinions for services” or “we are the [insert known company name] for [the problem you are solving].”

These are just a few ideas. I look forward to hearing what the panelists have to say.

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