As Canada navigates an ongoing tariff dispute with the United States, small businesses and startups are emerging as a source of economic growth that could help Canada assert greater independence from its largest trading partner.Prime Minister Mark Carney has warned that Canada cannot rely on the U.S. any longer and must instead achieve “economic autonomy.” Ottawa’s efforts to remove internal trade barriers and expand infrastructure projects are central to this objective, paving the foundation to revitalize the Canadian economy. Another key part of this agenda is fostering entrepreneurship — the engine for new opportunities and economic growth.Small and medium-sized enterprises (SMEs) are the backbone of the Canadian economy. As of December 2023, small businesses made up 98.1 per cent of all employer businesses in Canada, accounted for 63.7 per cent of the private labour force and 48 per cent of Canada’s GDP (gross domestic product) over the 2017-21 period. They also represented 38.2 per cent of the total value of exported goods. Although exporting has traditionally been dominated by larger, innovation-intensive SMEs — particularly those with significant intellectual property — recent data shows an increase in exports from smaller, service-oriented firms, many of them immigrant-led.These businesses are playing an increasingly important role in diversifying Canada’s export base and reducing dependence on any single market — particularly the U.S.The lean startup modelFor many aspiring entrepreneurs, one of the most popular frameworks for launching a business is the lean startup method, developed by Silicon Valley entrepreneur Eric Ries and expanded on in his 2011 book, The Lean Startup.This practice has been widely adopted by incubators and accelerators, some of which require new ventures to meet hundreds of mentors and potential customers for consultation.The Lean Startup provides a recipe for starting businesses with minimal cost, fast iteration and higher success rate. The philosophy behind it is for entrepreneurs to validate their market before investing tons of resources into building a product. Since its publication, The Lean Startup has been used by millions of entrepreneurs around the world. The book advises entrepreneurs to “get out of the building” and talk to potential customers, but it doesn’t specify how much effort entrepreneurs should invest in market validation — how many people to consult or how often to do so.Market validation is the process of testing a product or service idea with its target market to confirm if there’s real demand for it and whether it is viable for success. Although it’s central to the lean startup approach, many entrepreneurs shy away from it for different reasons. Some entrepreneurs want to protect their business ideas from being stolen by others. In addition, new ventures have scarce resources that need to be allocated to multiple tasks, and market validation competes for the limited attention and resources of entrepreneurs.The ‘sweet spot’ for market validationIn a recent study, my co-author Stephen X. Zhang and I set out to understand which entrepreneurs are more likely to invest in market validation, and how much investment is optimal for new venture performance. We conducted a three-wave survey with 210 entrepreneurs and their co-founders from Canada, Chile and China.We measured the self-efficacy of entrepreneurs — how confident they felt about market and entrepreneurial success — and asked co-founders to report their ventures’ market validation frequency and hours. We found that entrepreneurs with moderate levels of confidence invested most resources into market validation. They sought feedback more frequently and invested more time in understanding potential customers. Entrepreneurs with low confidence either didn’t think market validation was worthwhile or they found it too intimidating. Those with high confidence didn’t think it was necessary to validate their market because they were already convinced of their success. More importantly, we found that a moderate level of market validation led to the strongest new venture performance. Checking in with about four to five people monthly was the most efficient. Interestingly, this number coincides with the most efficient size of social network, as well as the number needed for user testing. The results suggest that effective market validation is more about quality and consistency than quantity. Talking to a small, diverse group of knowledgeable contacts on a regular basis is optimal for enhancing new venture performance.Yet there is a precaution: we did not study the quality of informants. Five people may be enough for qualitative methods such as interviews, but it may not be enough for quantitative methods such as surveys. What this means for new entrepreneursOur findings can make the task starting a new business less daunting for entrepreneurs. Instead of trying to interview hundreds of customers or skipping validation entirely, early-stage entrepreneurs can start small.If you have an idea, find five people that are most knowledgeable and relevant for the idea, and ask their opinions about the product or service you envisioned. If they like the idea, develop a minimum viable product to test it out. If not, revise your idea or try a different one. In addition, understanding the way confidence has an impact on how entrepreneurs seek feedback can help organizations and mentors improve their coaching methods.Entrepreneurs with low confidence may benefit from support that builds self-efficacy through vicarious learning, such as observing and simulation, to make feedback less intimidating. Those with excessive confidence may need to be challenged to provide evidence for their assumptions and reminded of the value of customer feedback in challenging even deeply held convictions.Xi Chen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.