Rethinking market validation
Why the smartest companies ignore the usual market proof and win big
McDonald’s once wanted to boost milkshake sales, so they did what every top-tier consulting firm would recommend. They spoke to customers who already loved their milkshakes to understand what would make them buy more. Millions were spent on research, yet sales barely moved.
Then Clay Christensen, legendary business professor from Harvard, decided to take a closer look. His team began by observing customers to see what they wore, how they behaved, and when they made purchases. The most striking pattern was that more than half of milkshake sales happened before 8:30 a.m.
So they started speaking to these morning customers, only to uncover something unexpected. The “job to be done” by the milkshake was not about taste or indulgence, but about keeping people occupied on their commute while staving off hunger until their next meal at 10 a.m. If a milkshake was not available, customers would grab a doughnut, a bagel, or even a Snickers bar.
All along, McDonald’s had defined their total addressable market (TAM) by adding up sales from direct milkshake competitors like Wendy’s and Burger King. They only considered competitors from their own perspective. In reality, the TAM was seven times larger. For customers, the competition included every portable, filling, and somewhat entertaining breakfast option.
A different but equally interesting perspective comes from Jack, speaking at JPM and in past earnings calls for Block. Given Block’s reputation as one of the cooler and more innovative companies in the S&P 500, it attracts a lot of attention from retail investors and the public. Instead of chasing the usual “scale fast” mantra, Jack focused inward on how the ecosystem of innovations within Block interacted.
To Block, real value comes not just from reaching more people, but from strengthening the connections among them. Engagement alone often misses the point. Block has been building a network where every transaction reinforces the community and amplifies the system’s overall strength. One example is how vendors using Square often have customers who pay them through Cash App. This hyperlocal loop of usage is growing, scaling outward from pockets of high density.
One customer tweeted : “It’s the best hardware and software integration outside of Apple. We are so happily ingrained with Square in our business it’s insane. More and more people in our 5mm and up revenue range are looking for a full stack solution.”
Market validation takes many forms. You might be a startup founder in a co-working space with an unfinished prototype and $5,000 left in savings. Or you could be a Fortune 500 CEO in a skyscraper conference room, weighing whether to approve a $200 million expansion into Europe. Though the stakes may be worlds apart, the question is the same:
Will the market actually care?
And that is the essence of market validation. It means proving that a market exists, that customers truly want what you are offering, and that the opportunity is large enough to justify the risk. Get it right, and you build with confidence. Get it wrong, and you waste years and millions building something nobody buys.
Traditionally, people try to validate their ideas through market research. But if you are a new product builder and your first “research” is asking friends and family, they will usually be kind. The real truth emerges when you start speaking to paying customers. There is also a huge difference in depth and insight between talking to 20 people and talking to 2,000.
When I started Mestrae, I spent time at train stations and malls talking to women in heels. They immediately connected with the pain points. Women in flats, on the other hand, couldn’t care less. In pitch sessions, not all male funders related to the problem. One even said he preferred women in heels over converting them to flats. The women funders quickly jumped in to explain the use cases. For me, the validation part was straightforward. I didn’t have to convince anyone why interchangeable heels made sense.
Price harmonization, however, became a struggle. A middle-class price of $80 to $150 in the US became an upper-class purchase in Malaysia, even though interchangeable heels are typically a middle-class need. That pushed us to sell globally earlier than planned. But globalizing a young startup without healthy cash flow brought heavy operational burdens in inventories, logistics, and distribution. The market was there. Operations were the bottleneck.
Different sizes of business approach market validation for different reasons, but the stakes are always high. For startups, it’s about survival. A few weeks of customer interviews, landing page tests, or pre-sales can save months of wasted development. For large enterprises, even a 1% misread of demand can cost hundreds of millions. Investors insist on it because traction beats a pitch deck every time.
Most teams, whether in scrappy startups or Fortune 500 boardrooms, follow the same familiar playbook. First comes problem validation: is the pain real and urgent? A startup might spend two weeks interviewing 20 niche users, while an enterprise might run a 5,000-person survey. Next is solution validation: does your idea actually resonate? That could mean a clickable Figma for a startup or a controlled pilot in one regional unit for an enterprise. Finally comes the all-too-familiar TAM, SAM, SOM exercise, which maps the total addressable market, the slice you can serve, and the slice you can realistically capture.
But like Professor Clay and Jack, Nintendo also broke the mold.
In the mid-2000s, instead of framing the Wii as just another gaming console, they focused on who wasn’t playing yet but could be drawn in. The result was unexpected: a device accessible enough for both children and grandparents. Retirement homes soon discovered the Wii’s secret power. As one NPR report noted, older adults who longed for the excitement of 1970s arcade games were drawn to the simple joy of playing together.
Nintendo learned that “fun” wasn’t driven by flashy graphics. It was about movement, interaction, and inclusivity. That insight redefined their product roadmap, drove motion-sensing innovation, and unlocked a whole new market of casual players, opening a blue ocean inside a red ocean industry.
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Many memorable market stories didn’t follow the usual playbook. Netflix’s CEO Reed Hastings once said their biggest competitor was sleep. Normally, subscriber count would serve as market validation. Netflix reframed the mindset from “How many people want to rent DVDs or stream movies?” to “How much discretionary time do people spend on entertainment?” By expanding the competitor set to include TV, games, YouTube, and even sleep, they shifted focus from subscriber growth to time spent. That single pivot guided product decisions like auto-play and binge-friendly releases.
A common way to validate a market is by testing willingness to pay. Pre-orders are the classic example. Larger companies usually handle pricing harmonization with methodical, data-driven analysis. Non-typical companies like Tesla however, flip the frame. While most automakers estimate EV market size by asking how many people want to buy an electric car, Tesla started by identifying where they could physically support adoption first. They mapped charging infrastructure gaps block by block, in cities and along intercity routes. By building superchargers strategically and keeping them exclusive to Tesla owners at launch, they fueled demand and loyalty simultaneously. Once the network was robust, they opened it to other EVs, helping mature the global supply chain in ways traditional automakers had not.
I’ve worked with both small startups and global giants. The scrappy founder will call me at 10 p.m. saying, “I need to know if this idea can sell to a thousand people before the rent’s due.” We’ll test 50 target customers, find the right price, and figure out which social platform they actually use. All in two weeks if we have to, or six if we’re lucky.
Startups move differently. The goal is to get results fast, by any means necessary.
- Tinder spotted that college students had the densest dating networks. Instead of targeting “everyone looking to date,” they reframed their TAM as “socially connected communities that can spread us fastest,” pitching sororities and fraternities in person and manually onboarding 15k users before going viral.
- Airbnb co-founder Brian Chesky ignored the broad lodging market entirely at first. He validated demand one city at a time by going door-to-door, taking professional photos of listings, and even sleeping on hosts’ couches.
- Stripe’s founders skipped industry-wide SMB payment studies. At YC meetups, they installed their payments software on the spot, turning conversations into customers instantly.
- Alibaba’s Jack Ma not only measured market size, he created it. His teams visited factories across China, converting a skeptical, offline manufacturing base into the backbone of e-commerce
The MBB-style project is a different world. Every role has its lane, and market validation becomes a cross-functional orchestra. Instead of asking, “Where are my customers?” the question becomes, “Which countries will we enter, in what order, and at what risk?” These aren’t run-and-gun experiments. They’re methodical, data-heavy strategies designed for boardrooms, not bootstrappers.
Consulting firms typically label these projects as New Market Entry, Growth Strategy, Go-to-Market, or Commercial Due Diligence. The scope is broad and deep.
- Methods: proprietary datasets, advanced market modeling, expert networks, multi-country competitive benchmarking, structured customer segmentation, and multi-scenario growth forecasting.
- Deliverables: board-level investment roadmaps, country-by-country entry strategies, and detailed risk analyses.
- Strengths: depth of data, access to global benchmarks, and credibility with the C-suite.
- Tools & Frameworks: Excel and PowerPoint for financial and market modeling, SQL/Alteryx for data manipulation, Tableau/Power BI for visualization, SPSS/SAS for statistical analysis, Salesforce for customer and market insights, proprietary dashboards for industry benchmarks, and structured frameworks like Porter’s Five Forces, PESTEL, and growth segmentation models.
The price tag is closer to a house than a hoodie, about $500k to $5M, and every output is built to move CEOs and investors.
Unlearning and rethinking market validation.
When it comes to market validation, you don’t need to use the same approach every time. Many large businesses stick to fixed rules and treat TAM like gospel. TAM is a valuable indicator, but it’s not the holy grail. It can be defined and measured in many ways, not just from a single angle.
Validation isn’t a one-time step; it’s continuous. The approach and purpose change at the idea stage, the growth stage, the scale stage and even further. Startups often need to make it wider, while large companies focus on making it both wider and denser. Small companies can borrow enterprise discipline, and enterprises can borrow startup agility. The smartest companies use validation as both a tool for risk control and a fuel for innovation.
At its heart, market validation is an ongoing act of curiosity. The best companies, whether a one-person startup or a Fortune 500 giant, don’t just measure a market. They reimagine it.
So the next time you see a commuter sipping a milkshake at 8:15 AM, remember that their competition isn’t another milkshake. It might be a banana. Or boredom.
