Episode 264 | How to Identify New Product Ideas

Show Notes

In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to identify new product ideas. They discuss some of the different stages you will encounter while researching a new business idea and some techniques to get the most out of it.

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Mike [00:23]: In this episode of Startups For the Rest of Us, Rob and I are going to be talking about how to identify new product ideas. This is Startups For the Rest of Us, episode 264.

Welcome to Startups For the Rest of Us. The podcast helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.

Rob [00:24]: And I’m Rob.

Mike [00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?

Rob [00:28]: Man, feeling a bit chaotic. If you listened to last weeks episode of ZenFounder you’ll have more details. But basically me and both my professional life and the personal life with the family just have a lot going on right now. Unusually large amount of chaos in terms of we’re selling our house, we’ve moved in with some friends temporarily while that’s going on. And trying to find a new place to live here in Fresno. Moving to a different part of town. And then have a bunch of transitional stuff going on. So, just trying to keep my feet under me at this point in time and just feeling overwhelmed and trying to maintain my sanity. So hopefully there’s some things that are starting to get checked off the list over the next few weeks. Somethings that close. And in fact, I don’t know if I mentioned on the show here, there was basically a patent troll that had sued me like a month or two ago. And that resolved itself pretty quickly. But there’s just been a bunch of bizarre stuff like that that’s come out of the woodwork right in the midst of this. And luckily, things are starting to take care of themselves here.

Mike [01:20]: Yeah, it’s always hard when you have several major things going on. And moving is one of those things that’s, I think, on the higher end of the major stressors in like. I think the other one is getting married and having kids. Those are two of the other ones. I forget what else. Oh, changing jobs is another one. But I imagine getting sued by a patent troll would be up there.

Rob [01:38]: Yeah, indeed. It definitely came as shock and it was for an old product done at invoice that I don’t actually even own anymore. But these things take time and then you have to do research and you have to not freak and then figure out how to handle them. So it’s always a learning experience, I guess.

Mike [01:52]: Cool.

Rob [01:53]: How about you?

Mike [01:54]: Well, I’m finally almost caught up with all the podcast episodes I’ve missed while my phone was gallivanting around Barcelona. So I’m down to under five behind at this point. Hopefully, from now on I’ll be caught up on a weekly basis as opposed to several weeks behind everything.

Rob [02:07]: So what are we talking about today?

Mike [02:09]: Well today we’re going to be talking about how to identify new product ideas. And we had a question that came into us from Twitter from Jason [Sweat?]. And he was essentially asking how to perform research to find a new business idea. So what we’re going to do is we’re going to go through a couple of different various stages of what that looks like. I mean the basic process is you do some idea generation, idea filtering, validation, and then execution. I think we talk a lot about execution on the show so we’ll kind of leave that off the list here. But essentially what we’ll do is we’ll walk through the idea generation, idea filtering, and then the validation phases. And walk through what each of those things look like and how to go about them in order to identify a new product idea.

Rob [02:48]: Sounds cool. Let’s dive in.

Mike [02:50]: So the first step is to look at idea generation. And you just have to keep in mind that when you’re generating ideas, this is an iterative process. You’re really looking for quality over quantity, essentially. Because the way that this is set up, you do the generation and then you start filtering things based on different criteria. So really what you’re just doing here is brainstorming. And you don’t want to prematurely eliminate things that might be viable ideas. And the main reason for that is because if you have an idea and you immediately cross it off the list, then essentially what you’re doing is you’re not only crossing that idea off the list, but you’re crossing every potential variation of that idea off the list as well. So when you’re brainstorming you really want to start looking at some of the past problems you’ve experienced. The current problems that you’re having, any interests that you have, and products or solutions that you use that you don’t like for one reason or another or you wish did things a little bit differently. Anything where there’s a spreadsheet handoff for a signature or approval or workflow needed, those are places that are good places to start for trying to generate some of these ideas because they lend themselves easily to building a software product.

But the other thing to keep in mind is that when you’re generating these ideas, you don’t necessarily have to restrict your ideas just to software. So you could, for example, go down the training route, or education route where you’re building training videos or tutorials and things like that, you’re going to sell to a perspective buyer.

Rob [04:09]: All right. So talk about the process.

Mike [04:11]: So when you start taking a look at this process, one of the things that you want to do is you want to start considering specific market verticals or people to serve. And that’s just one place where you can start. And there’s obviously several different places you can start. I talked about some of them before when you’re brainstorming. But essentially you just want to pull out something like a Word document or a spreadsheet and start hammering out these ideas. And then any variations that you can think of. And you want to push these out as quickly as possible. So if you write faster than you type, then feel free to write them. If you type faster than you write, like I do, feel free to type them out. But the idea is to not only come up with those ideas, but come up with the variations of them as fast as possible. So they might be based on a specific market that you want to serve. If you are already into the real estate market, for example, you might want to start there. Or if you don’t like the real estate market, for example, you might want to look at another one that you’re interested it. Whether that’s something that you’ve had any experience with in the past or just something that you want to learn more about.

You can also start taking a look at products that are out there that you like or admire. Or dislike, or don’t like for whatever reason, and you want to create a new version of it that performs in a different way. So you start taking those ideas and as you’re putting them down, typically you can think of variations of those ideas. So for example, if you start thinking about, let’s say, accounting software for example. Accounting software is a very broad idea, but how can you slice up that idea into smaller pieces of it. You can think about it in terms of sending invoices, sending receipts for things that people are purchasing. You can also think of it in terms of just capturing payment information, for example. There’s a lot of different ways to slice up that invoicing thing.

In addition, you could also go down the route of saying oh, well I just want to make it easy for people to issue purchase orders or to send purchase orders back to the company. As I said, there’s a lot of different variations of this and as you start iterating through that list, you’re going to find that as you come up with an idea you can probably come up with three, four, five, maybe even ten different variations of that idea for a specific business. So some of these are going to be based off of core business functions But other might be based off of just functions that somebody in the business might be performing. So whether that’s an administrative assistant, a software developer or marketer, etc. Each of them has a different job and a different set of tasks that they do. And if you can identify some of the problems that those people are facing, then down the road, you’ll be able to easily come up with a customer avatar for them. But those are places where you can concentrate to just start getting ideas down on paper.

Rob [06:42]: Yeah, and when I talk to people about idea generation, I find that some people say they just have too many ideas and that business ideas are always flooding their mind. And others say it’s just so hard to come up with ideas. I think that the folks who say they have tons of ideas always flooding their mind, my guess and in short conversations with the few of them, my sense of it is that they have a lot of business ideas but most of them are not very good. And so, what I tell people across the board is whether you think of a lot or not a lot, put them in a notebook, put them in a text file, put them somewhere and save them because these things are fleeting and they go away really quickly and you’ll forget some of the good ideas you have. And it’s also pretty easy to come up with a new idea and think that it’s great and hang on to it and not allow yourself to see the other ideas you’re coming up with at that time. But later on you may invalidate it and then you kind of have lost all those other ideas. I think being able to make a list of ideas over time that you kind of maintain and nurture, and then being able to hit it when you’re ready and actually look then with fresh eyes on this list of things that maybe you’ve collected over the course of months or years, I think is a pretty powerful way to- you kind of get some context around it. You’re not blinded by the passion or the madness of this idea that you’ve just come up with.

Mike [07:55]: So once you have this cache of business ideas that you want to start taking a look at, the next step is to start filtering those ideas. And the way that I like to go about filtering these ideas, as Rob just kind of pointed out, if you have a lot of ideas, it doesn’t necessarily mean that many of them are good. I mean you can have plenty of ideas and maybe only two or three of them, if any of them, are good ideas. So the basis for idea filtering is to walk through each of those ideas and develop a list of pros, cons, and disqualifiers for each of those ideas.

Something constitutes a pro for an idea if you have domain expertise or you have personal contacts or the engineering effort for something like that is going to be low or if you have passion for the idea or the problem space. Or if there is existing products out there, the product or the problem that it’s trying to solve are easy to explain. These are all considered pros for an idea. Now most of your pros are going to be able to be applied across all of your ideas. All of the ones that I just gave are examples of that kind of thing. So for domain expertise, let’s say that you’re going to come out with invoicing software that just sends out invoices, kind of like FreshBooks or something along those lines. If you have a lot of expertise with something like that, then you might give that a domain expertise of eight or nine, because maybe you’ve built three or four of them before for previous customers or clients when you were doing consultant work. But that exact same pro could also be applied to something where you’re, for example, developing a product around selling real estate, which maybe you don’t have any experience there, so you might only rate that as a one. And the idea here with filtering is to apply the pros, cons, and disqualifiers to all of your different ideas. And essentially, what that allows you to do is it allows you to rank your ideas against one another.

Now ranking the ideas against one another, the intent is to help make this more objective. It’s not because you want to rank them and say this is the best idea. Rather, you want to give yourself a quantitative approach to being able to rank them and how close they are to one another. So if you score your ideas and something comes out to, let’s say, 30, versus another one that only comes out with a score of five. Well clearly you want to go after the one that’s 30. But if something only comes up with a score between 25 or 26, and the next one is a 23, for example, it becomes very difficult for you to say, well this one is clearly better than that one. So again, you want to create these pros and cons in such a way that they are much more objective.

So in terms of cons, some of the things that I’ve used in the past are looking at the number of competitors for different products. Or if the concept or the difference from existing solutions is very difficult to explain, it’s a huge amount of engineering effort or it’s going to take a long time to bring the product to market. Those are the types of things that you can generically apply as cons across every product idea. But there are also ones where you might look at that and say, well this is a con but it only applies to this particular idea. So, for example, you might decide that in terms of the cons, there might be an advertising component. And that’s the [monetization?] strategy for a particular idea. That’s probably not a good idea to use an advertising strategy for most bootstrapped products. But, again, that’s not something that’s going to be generally applicable across most of your other ideas. You could try to apply in most of them. Or you’re going to say I’ll give it a score of ten because there’s no advertising component. You can do that as well. But sometimes those things just come out and say, yeah this doesn’t necessarily apply to this particular idea.

Rob [11:22]: Yeah, I’ve actually done kind of a matrix like this before. I struggled with it because when I did the zero to tens for all the categories, the pros and cons, I even had multiple categories of like my level of interest versus how big I thought the market was, versus how easy I thought it was to reach. And then when I got to the end I had two or three that were almost exactly tied and I realized that since I wasn’t able to weight different factors, that it like, I don’t know, it didn’t work for me, I guess. I shouldn’t say it didn’t work. What I should say is that it didn’t help me make the decision altogether. What it did help me do was rule out the ones that were overall just had low results or low scores. So it did help me narrow down to a few. And then from there I really looked at did I want to be working on this thing for the next two to five, to ten years. And that started narrowing some others out as well.

Mike [12:18]: Yeah, and that’s exactly the point of scoring these different ideas is not to necessarily point you and say this is the idea that you should look at. But it’s really to start eliminating some of those lower tier ideas that aren’t anywhere remotely close. And then the last step of the idea filtering process essentially apply and any disqualifiers. So if something is a two-sided market or it’s B to C or there’s customers with a lengthy sales cycle or they’re going to be difficult customers to deal with, maybe you’ve dealt with them before and you know that they are just very demanding and not necessarily willing to pay for things. Those are the kind of things that you might look at and say well, this is a property that I’m going to apply of a disqualifier to this particular idea. And it may not even matter how much you work or how hard you work on a particular idea, some of these disqualifiers are essentially blanket statements to say, not that it’s impossible, but it’s much more difficult than it probably should be and there are most likely easier ways to make money.

Rob [13:12]: There is some other disqualifiers. We’ve talked about these in the past. But things that require virality or a network effect in order to work. If you’re going to bootstrap it, I mean, you’re really looking at a long shot if you are requiring virality and a network effect. Unless you know how to do this. If you’re Matt Inman or you’re Sean Ellis or you’re someone who knows how to do this, then that’s another story. But if this is your first time, I’d say don’t start with that type of app. Another one is having indirect revenue streams. We’ve talked about having a two-sided marketplace where you’re taking three percent, five percent off the top. Really hard to make even a funded business at that level. So that’d be something that I’d instantly kick off the list. Or having no revenue stream apparent. Again, if you’re bootstrapping, self-funding, since you don’t have a bucket of funding that you’re going to be able to live on and hire employees on, that’s not going to be a good way to go. And then having a bunch of revenue streams also, I don’t know if it’s a disqualifier as much as it’s a really tough way to go because it’s just too complicated. Because you’re just trying to get your legs under you at this point. You’re trying to figure out what people want, can you build it, trying to draw in new customers. And if you’re trying to then sell through multiple avenues, it gets really complicated really fast. So these are all things that I would push those ideas down on the list unless they don’t have these attributes.

Mike [14:25]: One of the things that I briefly mentioned earlier was the process of scoring these. And as Rob pointed out, this essentially becomes a matrix for you to help make a decision about what to do. So to help you visualize kind of what this would look like, if you were to create a spreadsheet, along the left side of the spreadsheet you’d have a list of what all of your ideas are. And then across the top of it you’d have all of your pros set up and then followed by all of the cons. And within the cells that meet up where the pros and cons cross with the ideas, you’d essentially put a number that says how well you could execute on that particular idea for that pro or how much it helps you versus over on the cons side, how difficult it is. So essentially what you have is there are a set of pros and let’s say, there’s four of them, they all have eight, and then there’s a set of cons and they all have five associated with them. Well obviously the numbers are going to come out in such a way that that’s going to be a positive number, assuming that the pros and cons are equal. But it could very well be the other way as well. And what you want to do is you simply want to add up the scores across the board. And ideally, what’s going to happen is the number of pros that you have is going to equal the number of cons. But there’s a lot of cases where this simply isn’t going to happen. In those cases you can either just let it be or you can say, okay, well add or subtract the difference between the number the pros and cons and then multiply by five, either plus five or minus five depending on whether you’ve got more pros or more cons to essentially establish a baseline for you that helps you level set these things against zero. So if you have ten pros and ten cons, you’re best score would be a 100. You’re worst score would be minus a 100. And then it would be right in the middle for kind of an average idea. And what you want to do is you want to order these once you’re done by their final score. You want to validate from the best score down. And as I said, some of these scores could come up very, very close to one another. At that point, you can kind of just make a judgment call or figure out which one interests you a little bit more. So if the difference between the scores is very small, you can say, hey I’m going to try that one first.

And what you want to do is you want to be consistent about your optimism or your pessimism for each pro or con that you put into this matrix because otherwise, what can happen is you are essentially artificially leaning your scoring mechanism towards an idea or against it.

Rob [16:36]: Yeah, and the idea here, it’s to rank these in a way that starts to bring some clarity to it. This is not an absolute list where the top one on the list is the one you should do and the bottom one you should absolutely not. But I would say that if you have ten and there’s kind of a spread between them, typically there’s going to be two or three that are a lot further ahead than the others, then that’s your cluster and that’s what you should really think about doing. I also think depending on what stage you’re at it depends on how much you really want to do the idea. So let’s say you’re at a step two or a step three where you’re really diving all in and you’re going to be building an app for many, many years, then I think you really need to want to enjoy the domain that it’s in and want to hire employees in that space and you want to hire customers in that space. I think if you’re really early on and you’re just looking for your first thing and you want to make a few hundred bucks a month or thousand, two thousand bucks a month, then I think that your interest in that space does not have to be as high because this is just a stepping stone to something greater.

Now there’s also the thought that long-term, if you do launch four or five products as you step up, it would be nice if they all focused on the same niche or the same market, same customers. I think there’s value to that. That’s something to consider as well. However, don’t let that paralyze you and don’t let it make you think oh, this is a good idea but do I really want to work with construction companies for the rest of my life, because that’s maybe not a decision that you have to make now. Any excuse that you find to be paralyzed or to stop and think too long or to basically procrastinate on this stuff is an excuse that will keep you from launching. And so you have to figure out which of these things you’re putting in place just as mental barriers on your own and get rid of those so you can charge forward.

Mike [18:11]: So once you’ve scored and essentially filtered your ideas, what you want to do is move on to the idea validation stage. And this involves making a list of your assumptions about the idea and making a determination as to whether or not you need to validate each of those assumptions. So some of the assumptions that you might come up with are how much time somebody spends on this particular problem. And it’s very easy to validate some of these things and others it’s going to take you a lot longer to validate. But for something like how much time somebody spends on the problem, you might assume that it’s an hour or two, but at the same time, just a quick 15 minute conversation could reveal to you that oh, they only spend ten or 15 minutes on it and that’s only once a week or once every two weeks. So it essentially helps to level set what your assumptions are about the problem space with what the reality of the situation is so that you can make good decisions moving forward.

Another thing that you can start asking people about it whether or not they use existing solutions, are they paying for those solutions. If they are how much are they paying for them, does it work for them, what do they like about it, what do they dislike. And once you start getting further into those conversations, you start asking questions about who makes the decisions about paying for those types of solutions, what schedule do they make those payments on? Do they pay a one time fee for them, do they pay monthly, do they pay an annual fee for it? And as you start going through this conversation, you can start asking more direct questions about what it is that you’re bringing to the table and whether or not they’re willing to switch away from what it is they’re currently using to a different solution. And that’s, I think, and important thing that some people don’t necessarily consider is what is somebody doing now versus are they willing to switch. And one of the things that I’ve heard in the past in talking to people from Fog Creek Software, for example, one of their biggest competitors is people using spreadsheets. Spreadsheets tend to be free for the most part. So competing against free can be somewhat difficult for an organization, especially for a bootstrap company. If you’re competing against Notepad, for example, it ships on every Windows PC and Macs have a text pad editor. So it’s hard to compete with something like that. But if you have a definitive list of benefits that essentially help justify somebody moving from that to your product, then it might help push things in the right direction. But you have to have those conversations. You can’t just assume that somebody’s going to switch from whatever they’re currently using unless you ask them directly.

Rob [20:30]: Yeah, I think Pen and Paper or Excel spreadsheets are the competitor of the majority of our apps. You have a proposal app, you have invoicing software, you have accounting software. Any of those apps, I mean unless it really is something maybe like email marketing software where you actually need something to manage that, can maybe not be competed with [via?] paper. But I think that this is always something to keep in mind that you’re going to have people who are kind of at the forefront. It’s your Geoffrey Moore Crossing the Chasm idea, right? Where you’re going to have early adopters who really want to move into a nice tool. And then you can have the laggards, all the way at the other end, that are really still doing it on pen and paper. And then you have the massive middle. I forget what it’s called, but it’s the folks who might be using spreadsheets right now. And you got to figure out where your technology is in the adoption life cycle in order to figure out maybe how much viability there is an how big- the market ultimately may be huge, but where is that market in this space, right? It’s like where are people already at the middle of the curve and they’re really adopting it en masse. Or is it something more like wow, there’s really a big market but only the early adopters are in it right now and it’s going to be another year or two until this niche or this market really starts attacking it.

So think about, let’s say, lawyers for example. The market for lawyers and maybe for software for lawyers is very large. But from what I’ve seen and I’ve had a couple people launch that I’ve known, that have launched apps into the legal space, lawyers tend to be laggards. So they’re still not really keen on doing a lot of SaaS apps. There certainly are some that use SaaS apps. There’s some that do SEO. There’s some that do email marketing. But the bulk of them do not. And so when will that happen? It’s going to tip eventually, but you don’t know if that’s going to happen now or later. Whereas if you look at web designers, web developers, online marketers, just to name a few examples of people who tend to, just as a group be early adopters, a lot more of them are paying for SaaS already. So that’s why those markets tend to be a little easier to get to use a SaaS app. Now it’s also a lot more competitive to market to them. But these are the types of things that you have to weigh and look at. The existing solutions they’re using versus their willingness to use a new solution.

Mike [22:32]: Now once you’ve started validating some of the base assumptions about the problem space itself and whether or not people will pay for that, then you have to start asking the questions about whether or not they will pay you for that. And I think that is a very important distinction because you can build something and just because you’ve built it doesn’t mean that they’re going to be willing to switch away from whatever they’re currently using. So even though you may have identified some problems with a competing product, there could still be some pretty big deal breakers in terms of what you plan on offering that are going to prevent them from switching. Because there’s always going to be some sort of switching cost, especially if they’re using a current tool that’s in the market. How much of the functionality of that tool that you’re going to need to duplicate or build before they’re going to be able to switch over. And every single one of those pieces that you need to build before they will switch is essentially a dealbreaker to them and it’s going to extend your timeline to getting them up and running on it. So there’s this minimum feature set that you’re going to need to implement and the only way that you’re going to find out which pieces are important to then, without assuming those things, is to ask those people upfront. You need to ask them what are the dealbreakers, what’s the minimum things that you absolutely need in order to start using this and have it provide value to you.

Another important piece to ask is how the tools currently integrate into their workflow, how are they using it today and how does it affect their work to use it in a different way. Especially if you’re planning on implementing something in a different way. So, for example, if you are hosting a solution versus something that they are installing on their desktop, that to them is going to be a fairly different paradigm. Both in terms of purchasing and in terms of usage because they may be disconnected from the internet for parts of the day. Maybe they’re on their phone for most of the day. Those types of things can prevent them from using a new product that is in a slightly different paradigm than what they’re used to.

Rob [24:25]: And the point to remember is that what we’ve just talked through is a list of assumptions about the idea or a list of questions that you have and you’re trying to find the answers. Perhaps for multiple ideas at once. Now, I’m personally not very good at trying to sell multiple ideas at once. So I would pick one, focus on it, really hit it hard for as long as it takes. And it should be a matter of weeks because this should be something that’s at the forefront of what your doing, right? This is not something that you kind of put on the back burner or you put on the side with other things. If you’re going to be serious about this and you’re really going to try and validate an idea this way, rather than doing it- let’s say you find a tiny niche and you find some organic traffic and you’re going to put up a landing page and start building a small site and validating it, that’s kind of a different way. You’re not really talking to end customers and you’re kind of seeing can I get in front of a channel of traffic. And that’s a different way to validate ideas. What we’re talking about here is more traditional customer development, where you’re talking to people. This is a big time investment and it’s something that you need to be serious about and you probably want to move it along quickly because if you lose momentum on something like this, it just has a tendency to take forever.

Mike [25:31]: I think the last key piece of this is to not assume that the idea that you’re thinking of or the thing that you have in mind is actually what people want. In going through the conversations with the customers, you may find that the idea that you have or the product that you want to develop is not something that they need. But they need something related. Or they just don’t need anything in that area at all. So keep in mind that just because you have the idea doesn’t necessarily mean that that’s the end goal. It’s not the place that you’re going to eventually go. It could be something related. It could be in a completely different direction and you need to, essentially, cut your loses and move on before you’ve gone in and invested a huge chunk of time in developing the product.

Rob [26:08]: Remember that validation is hard and it’s not an exact science. And that there’s a certain element of gut feeling to it, but you don’t want that gut feeling or especially your optimism to overpower warning signs. Or you also, if you’re normally a pessimistic person, you don’t want to throw every idea away at the first sign that something’s not going to work out. It really is this balancing act and you get better at it the more data that you see and the more of these you do. Like anything else, it’s a learned skill. So that wraps us up for today. This whole episode was outlined based on a question sent to us. And if you have a question for us call our voicemail number at 888.801.9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by MoOt. Used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.

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