The first product I created was a poll over email plugin for a CMS.
The idea came from a discussion I participated in as part of a tech user group about how to decide on a course of action affecting the group. I thought, “If someone could just send a poll over email, we’d be able to come to a decision immediately.”
I was looking for a product idea and leapt on this.
Over the next 9 months, I wore myself down writing the plugin in my evenings, weekends, and vacations. I traded work with a graphic designer to create a polished website design to sell it and build that too.
I launched it to crickets. After a month working on the website and marketing and was able to improve my 0 sales to 2 purchases.
It sucked hard.
Ideally, product opportunities organically present themselves to you:
- You scratch your own itch.
- You build something for a client that everyone needs.
- Your boss tasks you with building something that’s not in the market (looking at you Bezos.)
But most of the time, for most of us, that’s not going to happen.
So how can you deliberately identify product ideas that are winners?
Where Entrepreneurs Go Wrong
We live in Eric Ries’s world. He wrote the Lean Startup and popularized a vocabulary and world view that most software entrepreneurs follow.
The consequence of this is that we focus on Lean concepts, like pivoting and customer interviews, and overlook the underpinning that makes those concepts effective.
What’s fundamental to the success of any product is the market.
Understanding the market and what constitutes an opportunity is what is overlooked.
Instead, we develop a relatively small group of ideas, pick one, and start gathering data and iterating. Maybe if you’re super rigorous you even anchor idea generation in customer development.
This approach is heavily biased towards innovation. Innovation as a starting point is incredibly high risk with most efforts failing (and often high reward, which is why Silicon Valley works like it does with investors winning rather than entrepreneurs).
Imagine you’re in the wilderness trying to find your way to water…. But with a blindfold on.
You form hypotheses like “Water flows down. So I will follow any downhill terrain.”
If your blindfolded sojourn starts in my state, Oregon, you’ll find water using this approach. But if you’re placed in the Mojave desert, you’re going to die of thirst.
Most product ideas end up in some variation of the Mojave and iterate their way into a sandy grave.
Defining the Addressable Market
I love customer interviews. They’re incredibly data rich.
However, if you’re deliberately looking for product opportunities you need to start many levels higher than a customer interview.
Start At the Top
The highest level is choosing a specific market.
- How big is the market?
- Is it growing or shrinking?
- How is it changing and how is it going to change?
- How accessible is it for you? (E.g. pharma is an insider market and tough for outsiders to sell into.)
The mistake that entrepreneurs make here is that, concerned with competition, they start with a niche that doesn’t have the numbers or options to support their goals. Niching into a focus comes after choosing the market.
Ideal markets are big and growing or big and rapidly changing.
In both cases there are lots of unmet needs and limited competition.
What’s “big” though?
There’s no rule about what constitutes a good market size. For some businesses a market of 10 customers will work. Others will need 100,000,000.
Big is a subjective ballpark evaluation using napkin math taking into account size, price ranges, your capabilities, and the number of competitors. Like all estimates it should be pessimistic.
Smaller markets will only work if you have horizontal offerings that everyone will be interested in and that you can dominate.
Slice up the Market
After you’ve chosen a market with good potential for opportunity, the next step is to slice it up into areas of interest.
Different products will have different potential for revenue.
What is of interest to you is going to be unique to you, but generally solid places to look for opportunities:
- Have recurring customers or subscription models.
- Are high value from a customer perspective.
- Are integral to a recurring customer activity.
- Have options for pivoting or future growth.
Software that helps someone make money will hit most of these attributes, but there are many less obvious routes if you look for them. For example, consider the $1,400 piano tuner app with a $110 app subscription:
Which brings us to the next level…
Look for Market Signal
After you’ve chosen areas of a market with good potential, the next step is to look for market signals.
No market is 100% efficient in meeting customer needs.
Where it doesn’t, you’ll find signals that there are opportunities. These are like ripples in a stream that indicate rocks underneath the surface.
A few things to search for:
- Competitors. You need at least a few of them!
- Bad reviews and customer complaints.
- Keyword searches for alternatives “Alternative to x.”
- What problems or solutions thought leaders in the space are talking about (coming trends.)
- Job board postings for customizations or integrations.
- Cobbled together solutions (e.g. popular Zapier zaps)
Niching & Postioning
Finally, at the lowest level in your market research, you might consider niching.
Niching is a tactic to beat out incumbents by offering a more relevant solution to a portion of the market.
You may have gone from a market of 5,000,000 to a market of 20,000 for a specific solution.
If your niche takes you down to a market of 5,000, your napkin math is going to look very different.
E.g. Assume that you can own 5-10% of this niche over 3 years. If you’ve chosen a niche with a monthly subscription model and a price point of $100 you’re looking at $300,000 – $600,000 annually. Is that good? Is that bad? It depends on your goals and your capabilities.
What’s key though is that you can attain that market share. Just because you’ve niched doesn’t mean that your target consumers will perceive you as having a better solution. You’ve got a leg up, but it’s not a sure thing.
Alternative to niching, you might consider positioning. With positioning, you can still address larger markets by being a leader in a different approach. For example, rather than reporting software for compounding pharmacies (niche/vertical) you might develop the most flexible (position) reporting software on the market for pharmacies.
In either case, this level is a good jumping off point for customer development and gauging a niche’s dissatisfaction with incumbent offerings.
Working on the Right Problems
Many new entrepreneurs focus on the wrong things: creating a brand, printing business cards, writing an optimistic and uninformed business plan.
It’s a bit of a trope.
However, it’s symptomatic of a more serious problem that even experienced entrepreneurs struggle with: working on the right problems.
Not all problems matter.
And when they matter is different.
Early on, the problem to solve is choosing the right market.
Archimedes said, “Give me a long enough lever and a fulcrum and I will move the world.”
Market selection is all about giving yourself a long enough lever before you start applying force.
Image used under the public domain. Source: By Mechanics Magazine