In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to take pre-orders for a new product. These are strategies that can be used to help gain interest and validate a product. They also discuss some motivations and benefits to taking pre-orders.
Items mentioned in this episode:
Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about strategies for taking pre-orders for new product. This is “Startups for the Rest of Us,” episode 305.
Mike [00:00:16]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products whether you’ve built your first product, or you’re just thinking about it. I’m Mike –
Rob [00:00:25]: And I’m Rob.
Mike [00:00:26]: – And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:00:30]: Well, it’s nice to be in a big city where a lot of musical acts are coming through, and this week we are seeing not one, but two, bands, or acts, at this club called First Avenue, which is this icon of Minneapolis. It was featured prominently in that movie “Purple Rain,” and I think Prince owned it at one point, so it’s this club that’s been a club since the ‘70’s, and it’s just a very popular club. Anyway, we saw Lauren Hill, former lead singer of the Fugees, a couple nights ago. Then we’re seeing Explosions in the Sky tomorrow, so aside from the same stuff that I’ve been saying for the past four or five episodes, of we’re almost done unpacking, it feels like transition is coming to an end, we’re hiring several people at Drip, and things are moving forward and going pretty well in general, that’s the other thing that’s new.
Mike [00:01:13]: You know, when you first mentioned you were going out and seeing a couple of musical acts, my first thought was you’re going to get to hear the entire soundtrack for “Frozen,” or something like that.
Rob [00:01:21]: Yeah, right.
Mike [00:01:22]: Laughs.
Rob [00:01:22]: I mean that’s a lot of what we did – well, not a lot of what we did, but I think that tends to be the default. You get the musical stuff coming through that is kid-appropriate. It’s easy to bring them, and it’s been fun to do some grownup things, too, which the big city really allows that pretty easily.
Mike [00:01:37]: Cool.
Rob [00:01:38]: How about you? What’s going on?
Mike [00:01:38]: Well, I’m finally back to normal in terms of my back issues. I don’t think I really talked about it on the podcast, but I was kind of out of commission for about a week, week and a half with a pretty severe spinal problem. So, back on my feet now. I can actually stand and walk around without too much trouble, and kind of getting back to things and plowing through the work that has been stacking up a little bit. The other thing I do have is a listener sent us an email about an episode we did back in 303, which was our favorite tabletop games, and he runs a company called Playtable.xyz. So, if you go over to that website, they have – essentially, it’s a tabletop game device that you can put down, and you can play tabletop games on it. The focus is on being able to minimize the setup and tear-down time for some of the more complicated games and to be able to streamline the rules so that you don’t have to go look things up, and it gives a little bit of visual flair to the tabletop games. I checked it out. They’ve got a video up and got a mailing list that you can sign up for. It looks pretty cool.
Rob [00:02:33]: Yeah, I checked it out as well. I’m intrigued by it. I’d like to see how many games they get on it and how expensive they are and that kind of stuff, but certainly it’s an interesting work-around instead of having to read all the paper rules all the time. That’s something I like. You know, we talked about Pandemic a couple episodes ago, and there is a Pandemic for the iPad, and it’s really cool –
Mike [00:02:51]: There is.
Rob [00:02:51]: – Because you don’t have to remember all the stuff. You just move around, and it really helps guide you. I think it’s – once you know the rules of Pandemic, it’s easy enough to play, but those first couple of games are pretty painful just trying to remember everything –
Mike [00:03:01]: Yeah.
Rob [00:03:02]: – And that’s what the iPad kind of – it’s scaffolding that helps you get their faster, basically.
Mike [00:03:07]: Yeah. Some of those games, it’s not even just all the rules. It’s all the little markers and stuff that you have to put on the board for all these different things. Then there’re special-case situations that an app will just take care of that stuff for you. I think there’s a bunch of apps for some of the games that we had talked about. I’m pretty sure there’s one for Catan. There is one for Pandemic. There’s also one for Small World, which I think was only $6 or $7, but if you buy the board game itself, it’s 40 or 50 or something like that.
Rob [00:03:32]: Oh, jeez. Okay.
Mike [00:03:33]: Yeah, so there’s a huge price difference between them, but it’s on an iPad so it’s not nearly as expansive; but you do get the abilities to play against computer opponents. So, if you like to game, you can do that.
Rob [00:03:44]: Yeah, that’s nice. Cool. So, what are we talking about today?
Mike [00:03:47]: Today, what we’re going to be talking about is how to take pre-orders for a new product. These are essentially strategies that you can use to go out and, if you have an idea that you’re trying to validate, or you’re trying to get people interested in it and trying to figure out what it is that you actually need to build, then you probably want to get to a point where you’re going to be taking pre-orders for that product. That product can be a piece of software, it can be a book, it can be a service, it can be a course. Depending on how long it takes and what your time investment is going to be, you want to be reasonably sure that people are going to pay for it afterwards. You don’t want to spend six months or 12 months building something and then try to find people to buy it. I think we talked about it before. James Kennedy at MicroConf Europe had said that sales is really about finding out what people want, going out and getting it, and then delivering it to them; and you have to do it in that order. And if you try to build something and then go find someone to sell it to, you’re in a much more difficult situation, because now you’ve already put that time investment in, and it may not have been the right time investment. So, taking pre-orders is a step along that process to identify whether or not you’re on the right track. So, let’s talk about some of the motivations for taking pre-orders. I think the first motivation is risk mitigation. Are you going to be able to find people who are willing to pay for this? Can you convince those people that it’s going to solve their problem? There are a few caveats here, because if you’re talking to people individually and one-on-one, it’s much easier to sell somebody on the idea than it is if they were to come to your website; but that’s also the intent behind this. You want to have those conversations so you’re talking to them directly and you get the feedback about what sorts of hurdles you’re going to run into, or what questions they have, so that you can use those questions to put on the website that talks about those objection points that they might have.
Rob [00:05:36]: Yeah, and I think risk mitigation is a really nice benefit of asking for pre-orders. I think there’re obviously a lot of different ways to mitigate risk in terms of having a product idea that you don’t know if anyone is going to buy, but this is perhaps one of the best. Building an email list is another one. Talking to people and getting a verbal commitment is another one, but until someone actually makes purchase you don’t know for sure if they, in fact, will do it, right? We’ve heard people different doing it different ways, where you get a check that you’re not going to cash, or where you get the credit card and actually charge it and tell them you’ll refund it if stuff doesn’t work out. But I think this is an intriguing way to do this, and I think that it requires probably a lot of chutzpah to ask for money up front, especially if it’s someone you don’t know. I think if you tend to know people and they trust you’re going to deliver, makes it a little easier; but I do think that doing this is an interesting idea. We’ve talked about this in the past. I have always tended to build the email list rather than actually as for pre-orders up front – than actually take money. There’s a bunch of logic to that, that maybe we can cover in this episode, of why I’ve done that; but at the same time, I do think that, single-handedly, risk mitigation may be the single biggest reason that you may want to lean towards actually taking pre-orders.
Mike [00:06:48]: Let’s expand on that a little bit right now instead of trying to talk about it or come back to it later –
Rob [00:06:52]: Sure.
Mike [00:06:52]: – Because building the email list, I think in many ways, serves as a proxy for asking for money –
Rob [00:06:58]: Exactly.
Mike [00:06:58]: – And that you can use that as – there’s people that have signed up for my mailing list; and, sure, I’ve got 1,000 people there, but not all of them are going to buy, but some percentage is going to buy.
Rob [00:07:07]: There you go.
Mike [00:07:07]: The question is what percentage is that? You don’t really know, and taking the pre-orders and actually taking somebody’s money for it is not even just a proxy for that email list. It is actual money that you’ve got in your hands that all you have to do is you have to deliver what it is that they wanted.
Rob [00:07:22]: Right. And, yeah, all those points are valid. The reason I like building an email list is because I can get – let’s take Drip, for example. I built the list up to about 3400 people, and then I was able to nurture them along the process: give them screenshots; give them screen casts; ask for feedback via a survey; eventually do a slow launch, a email three to five hundred people at a time. It was a very well-orchestrated and well-crafted thing, and we had a really good conversion rate on that. If instead of building the list I just had a form that was like, “Here’s this amazing thing, and at the bottom of this page pre-order Drip for” – whatever – “three months for 99 bucks,” or whatever price it would’ve been, I would have gotten – I don’t know – a hundredth. Maybe I would’ve gotten 50 people or 100 people to pay me. Now, I would’ve had that money up front and would’ve had it for sure, but I wouldn’t have had the access to all 3,400 people, right? I actually think in the long run I converted a lot more people to paying, but I had to accept a little more risk up front by not taking the money up front. That make sense?
Mike [00:08:20]: Right. It does, but I don’t think that you would use that exact, same process for taking pre-orders. Taking a pre-order is not something where you just put up a website and just hope that people buy it sight unseen without any real walk through of it. I think that with a pre-order, your strategy is really finding people who really desperately have that problem and then crafting a solution that specifically solves that and, at the same time, having those individual conversations with other people who hopefully overlap, to help give you a better sense of what you should actually be building rather than building stuff, sending it out, doing surveys and not having as much of a hands-on approach with the people that you’re talking to. I think the strategy that I’ve seen work and I’ve used so far, with BlueTick, for example, is that if those initial people that you’re taking pre-orders from – if you know them or they know you, you can have those one-on-one conversations and establish that rapport with them such that you’re able to get the answers to the questions that you really need answered.
Rob [00:09:19]: Got it. Yeah, so you’re talking about doing medium-, high-touch sales to get a handful of pre-orders, in essence, to validate a product. I think there’s a difference – I think we’re talking about two, different things and I think those two different things are you’re talking, by hand, going through 10 or 15 people and getting those pre-orders to say, “All right, it’s valid. Let’s start building it.” I’m talking more about later on down the line, having that big list where you actually want to launch and you want to launch to thousands of MRR right off the bat. But I think our two approaches that we’re talking about are actually most powerful when they’re combined, and let me –
Mike [00:09:48]: Yeah.
Rob [00:09:49]: – Talk through that real quick. I do think that validating – the way I validated Drip was I emailed a bunch of people – by “a bunch,” it was 17 – and I got verbal commitments via email, “Yes, if you deliver that, I would try it out for three months.” That’s all it was. I didn’t actually take pre-orders. Now, why didn’t I take pre-orders? Well, two things. One, I knew that it could easily be six months from that time until we finished the product, because Derek was part-time on it. There was just a bunch of stuff, and I didn’t know how long it would take. It didn’t feel cool to me to take people’s money and to just sit on it for that long. Number two, all the people I was emailing with had some relationship with me, and so I trusted that if they actually said that they would try it out, that they would try it out. In the end, almost all – there were 11 people that said yes, and almost all of them – I think nine or ten – took me up on it and did deliver. Now, your mileage may vary there. If you’re at a conference and you’re meeting brand new people and you don’t know them, it’s like how much is their verbal commitment worth? You don’t know. I do think there’re some things to think about there. I don’t think there’s a right or wrong answer here. I really do think that you have to ask yourself what situation you’re in. Now, I have seen people multiple times when they go to take pre-orders, they do it on a landing page, where they send you to a site that looks like a landing page or a SaaS marketing site type thing, and they say, “The products aren’t ready. Enter your credit card here. We’ll charge you 49 bucks, and you’ll get the first X months free.” That’s the approach I mentioned, and that’s, I think, what we’re both saying is: “You probably don’t want to do that.” I actually think that’s a really bad approach, and the reason is because of what I said earlier. If you can build a list of a couple thousand people and then get pre-orders from there, you’re going to be way better off, right? It’s to combine the two approaches and nurture that list until you’re getting close to when the products will be ready. Then you’ve shown the screenshots. You’ve shown them screen casts. You’ve got them interested in the product. Then before the product is ready, but you’re like, “I think it’ll be done in the next month,” or the next few weeks, then you come in and say, “I’m going to give you this awesome deal. Buy your first year or your first six months for X, Y, Z.” They’ve already seen the screenshots. They know it’s pretty close anyways. Then that’s when you’re going to make that big, initial push, and I think you can get quite a bit of revenue. You’re no longer validating the idea. I guess you’re validating all the way to product-market fit, if we were to just take it literally; but you do at least know that there’s some desire for it. At this point, you really are trying to maximize some early revenue and get momentum going.
Mike [00:12:01]: Yeah, and I think the two approaches, as you said, are very complementary, and they overlap quite a bit. I don’t think that you either do one or the other, but you are probably not going to be in a position where you can gather 1,000 or 2,000 emails without having a pretty solid idea of what it is that you’re offering and what problem that you’re solving. That’s really where some of these strategies for taking the pre-orders really helps, because you can have those individual conversations. You can use that to craft what it is that you’re going to building, the marketing messages around it, the specific pain points that you’re trying to solve, and then use that information to go out and help build your mailing list at the same time. Then you’re building, and you’ve validated, “Hey, I’ve got enough people here that have placed a pre-order for it.” In parallel, you’re also trying to build that mailing list, using that information. I think you can build a mailing list without it. You can kind of – I don’t want to say “guess,” but it is, I’ll say taking educated guesses about what it is that people really want or need and having a few conversations here and there to help make sure that you’re on the right track.
Rob [00:13:00]: Yeah. I think another benefit to doing this kind of hybrid approach you’re talking about, where you do get validation up front from a small number of people and maybe take pre-orders, maybe you don’t based on what you want to do, and then building that mailing list, launching to it and potentially also taking a second round, essentially, of pre-orders right before you’re ready to launch. There’s another benefit to that in that you can then start trying out paid media when you’re building that list, right? You can try Facebook ads and AdWords and whatever else. You can also try content marketing. You try SEO. You can do a bunch of stuff that is that more broad, wider funnel marketing rather than just all the one-on-one stuff that would be required if you really have to talk to everyone who’s going to buy from you.
Mike [00:13:39]: I think one of the other motivations for accepting the pre-orders is that it allows you to fill in some of the knowledge gaps in terms of who exactly is your target customer, what do they do, what’s their role. This comes back to having those individual conversations with people, and it allows those one-on-one conversations, let you find out what you think is important that the customer actually doesn’t care about. It’s very easy to think that something needs to be done when the customers actually don’t care about it. It might be cool. It might be interesting to see, but it’s not something that is really a big deal. Then the reverse of that can also be true. You might think that, “This small feature over here is a nice-to-have,” and then customers see it, and they realize how powerful it is, and suddenly that’s the thing that they really are looking for; and you didn’t necessarily realize right away that that was so important to them. They may not have either, but in seeing it, it can change their mind, and it can make them see things in a different light.
Rob [00:14:34]: Other knowledge gaps it can fill in are what is important to buyers that you don’t know about, how much are people willing to pay versus what you think they’re willing to pay or what you think your app is worth. There are a lot of questions early on when you’re building an app, and I think that getting someone to put money down – this is essentially another form of risk mitigation, and it’s a form of learning early on, even before you have a product.
Mike [00:14:55]: Yeah, and we’ll talk specifically about what people are willing to pay versus what you think it is a little bit further in this episode. Yeah, those are all very important parts. Again, those two motivations for taking the pre-orders are just the risk mitigation and then helping to fill in the knowledge gaps. Let’s talk very, very briefly about how to actually take somebody’s money when you’re doing pre-orders. There’s three different ways that I know of. The first one, that I’ve done, is using WordPress and WP Simple Pay Pro and Stripe. It’s very easy, obviously, to set up a WordPress site. There’s a plugin made by Phil Dirkson. It’s called WP Simple Pay Pro, that you can buy. I think it’s $40 or $50, or something like that. It’s not very expensive. Then you wire it up to a Stripe account, and you can take pre-orders. You can even refund people’s money through Stripe months later, whether it’s six months, or seven months later. It appears to not be a big deal through Stripe. Now, of course, their credit card still has to be active; but you can do that and because Stripe hooks into your bank account when depositing the money, they’re able to turn around and take that money back out of your account, assuming that no more money is coming into the Stripe account. The other two mechanisms that I’ve seen are Gumroad and SendOwl. Both of these are mechanisms for typically delivering digital assets over the Internet. Both GumRoad and SendOwl allow you to set up a pre-order mechanism that allows you to distribute things once you’ve taken a pre-order. One thing I don’t know about either of these is whether or not you can go back and charge them in the future, like on a subscription basis, so it may not be the best option if you’re selling a SaaS application. But if you’re selling an info product, or a training product, or a book of any kind, those are pretty reasonable options, because then once you’ve finished it, you can upload it and then get it distributed to people very, very quickly.
Rob [00:16:36]: The other option here is there’s an iOS app – I’m assuming there’re android apps as well, but I’m just looking in iTunes right now. There’s an iOS app called Payment for Stripe, and you can hook this into your Stripe account. You could potentially, if you’re at a conference or anywhere, you could be talking to folks in person and pretty easily take pre-orders. I think that’s a nice way to do this if you don’t want to do it over the web and you want to do something more in-person.
Mike [00:16:57]: When you’re doing one-on-one demos with people, what is it that you really need to show them? For something like a course or a training product, you probably want to give them a course outline. If it’s a book, you probably want to give them a table of contents and outline all the different topics that you’re going to cover. If it’s software, you mostly want to have screen mock-ups of some kind. What I would do is I would walk through all the important parts of the application that are going to solve their problem. You don’t need to put in every screen, show things like profile screens and administration screens. You most likely don’t need those. You really want to focus on the screens that are going to solve their problem. I would wire up as much as you possibly can in a way that makes it obvious where they’re supposed to go and what they’re going to do and how they’re going to solve the problem that that software is designed to solve. There’s a lot of different tools and wire framing products out there that you can use. Balsamic is one that I’ve used pretty extensively. I’ve also seen people using Vision App, and there’s probably half a dozen others as well. You can put these together, and you can spend as much or as little time on these things as you want. It’s like any software product. You’re going to get out of it what you put into it, but at some point you have to draw the line and say, “Yes, this is good enough.” I think that’s a very important piece to remember – is that you don’t have to make everything look pretty. The final design does not have to be there. You’re really trying to focus on the problem that you’re solving and showing to the person that you’re going to give that demo to that this product is going to solve that problem.
Rob [00:18:23]: Yeah, that’s a key thing to remember. When I did pre-orders for Drip, I actually didn’t show any screenshots. I do think it’s helpful – if you are a designer, you can do decent mock-ups – to show some, but I think that if you get too far into the weeds, people frankly don’t necessarily have the time to dig into it. I think building a landing page and a marketing page for it with just a bunch of copy and maybe a fake screenshot – not even as something you’re going to distribute, but just as something that you can email to folks as you’re emailing or as you’re talking through – or, even just a short slide deck, like five slides of what you think things might look like. But I think you should focus, as you said, more on – you’ve got to figure out that value proposition, and that value proposition could almost be communicated in one sentence or a sentence plus a few bullets. If that’s what resonates, then what you’re actually going to build can come later. You’re just trying to figure out – is there a problem here that needs to be solved? and what is the general way that I’m going to solve that? I think the earlier in the process that you can figure out and that you can get confirmation that it really resonates with people, where they’re not puzzled, like, “Yeah, I guess that’s it,” but where they’re like, “Oh, my gosh, yes. This is such a big pain point,” that’s really what you’re trying to get to.
Mike [00:19:26]: The other thing to keep in mind when you’re going through that is that your value proposition that you communicate people is likely going to change probably dramatically between the first two or three or even five people. You’re going to iterate on that value proposition and your sales pitch after each person that you talk to, because you’re going to get feedback. There’re going to be certain things that resonate with them, and the future conversations that you have, you’re going to want to take those and extract things that you’ve learned from earlier conversations and present it to them and see if that works with them. You’re sort of split-testing the information that you’re learning with the other people that you’re giving the demo to. I don’t know as I would just say, “Give a demo to five or ten people.” You want to give it too as many as you can. I would probably shoot for at least 15 or 20, if you can do that; but realistically, you also want to run your idea past probably more than that. Probably, 30 or 40 people is probably a good, ballpark number of people to run the idea past. Then in terms of the demos, you probably want to give at least a dozen of them so that you can start honing in on the specific pieces that the majority of the people feel are important to them. Then you can concentrate on understanding what features need to be built first and what is the most important to people, and categorizing them according to what things need to be built first, and what things can be pushed, what things are not important and just can go into a future version.
Rob [00:20:45]: Is this similar to the process that you’ve been following for BlueTick?
Mike [00:20:48]: It is, actually. Most of it is. For example, I didn’t take orders through GumRoad or SendOwl. I took them using WordPress and the WP Simple Pay Pro. One thing that we haven’t talked about yet – I did say that we’d come back to it – was talking to people about actually taking the sale and taking their money for it. What I did for this piece was – what I wasn’t sure of was how much people were willing to pay for it. I had in my mind that I wanted to charge people $50 per mailbox for it, but I wasn’t sure whether or not that would be appropriate. What would people feel like the product was going to be worth to their business based on the problems that it solved? So, when I explained to them – I said, “Hey, here’s what my process is. I may or may not actually go through with this, but if I take your money and I decide not to go through with it, then I’ll refund it.” I laid out my refund policy. I laid out exactly what my timetable was, and I told them, “I’ll take your money now. I’m probably not going to be able to deliver for at least four to six months, and even after that point, it may still not work for you for another three or four months after that. So, it could be upwards of eight or nine months before I have something that I’m able to deliver to you. With that said, if eight months down the road you say, ‘This isn’t working for me,’ or, ‘I’ve gone on a different direction,’ I’m more than happy to give you a refund, and I’ll eat whatever transaction costs. If I have to send it to you through PayPal, I’m more than happy to do that. What I’m really interested in now is does this actually solve a problem for you that you’re willing to pay for.” Going back to the naming a price, this is a piece that I wasn’t real sure about, so I was very careful and cautious about presenting it to people in such a way that I wanted them to name what they felt it was going to be worth to their business. So, when I did that, I said, “You’re going to put your credit card number in,” and the website that I connected it to, I literally had a text box there, and they had to type in the amount. So, I would send them a URL through Skype, and they could plug in that number, and I would ask them to prepay for a certain number of months. It defaulted to 3, but they could select anywhere between 1 and 6. I’ve had a recent conversation with somebody, and they thought that, by and large, everyone would just choose one month. But the reality is what I found was out of the dozen people that I took pre-orders from initially, there was one person who prepaid for one month, there were two people who prepaid for two months, and then nine people who prepaid for three months. So, it was very interesting to see that most of them prepared for either the default, or at least a little bit. I think that that was because they had this understanding that, “I’m not going to get a ton of value out of this up front. It’s more of a longer-term investment,” which is really what I was looking for, because that validates and qualifies the people who are signing up for pre-orders, they’re looking at it as a longer-term investment. They’re looking at it as something that they’re going to be using for a while as opposed to somebody who’s a tire kicker who’s on your mailing list and does not have the level of investment or intended investment that you desire as the person who’s creating the product. I will say for sure that the first couple of conversations that you have with people – and this is especially true on the first conversation where you’re asking for that pre-sale – is when you ask them and say, “This is what it looks like. Would it solve your problem?” If they say yes, say, “Great. Well, here’s a webpage I’m going to give you. Here’s what the refund policy is, timeline, et cetera, when you will be charged for it the next time.” What I did for people was I took the payment that they had, and I said, “I will apply that as a credit to your account, but only after you have told me that it’s going to provide value to you.” I think that there’s a few different ways you can structure when they’re going to start paying for the application that you’re delivering, or the product that you’re delivering. But if it’s a SaaS application, you have three options. You can either have them start being charged when they’re first onboarded, a specified time after onboarding. Let’s say you onboard them on the first of January. You can say, “You get it for X number of months,” whatever you’ve prepaid for, “and then I will start charging you immediately,” or maybe you give them a 90-day grace period because you know that when you first get them onboarded there’s probably going to be issues. So, maybe you give them a little bit of an extended runway there. What I did, which I think may have been a mistake, was to say, “I’m not going to charge you until it provides value.” In retrospect, I think that that was a mistake because it gives people an unlimited time window which they can push it lower on their priority list. So, one of the challenges I’ve run into is people just aren’t really making time for using the app, and I think that if you were to say, “After I’ve onboarded you, I won’t charge you for 60 days, but once that point hits then the clock will start.” If you set that expectation up front, then you can always extend it. You can always say, “Look, we delivered this. We’re not quite ready yet. We know that there are some issues or things that we need to implement for it to really provide value, so we’re going to push this timetable out.” If you’re trying to dial things back in, if you’re trying to reel them in, you’re almost taking things away from it, and it’s not really fair to do that.
Rob [00:25:34]: Yeah, that makes sense. That’s a good way to think about it. I’ve talked about this, but with Drip I basically let people have unlimited trial because I was working so closely with them. This was for the first, let’s say, maybe 20 customers, when I was essentially doing early access, and we were just onboarding and trying to get features done. The hard part that I had is certain people would say, “Once I have X and Y, then I’m willing to pay,” and sometimes X and Y took us a month to build. I didn’t want anyone’s trial to be expiring during that time, so that’s why I was telling people, “Once it provides value, then let’s call it and start charging.” But I think you make a good point. There’s always not a real impetus for them to dig in and do a time investment there, so I think this is another place where kind of have to use your judgment.
Mike [00:26:17]: The other piece that factors into that is – let’s say that you signed up – call it ten people for easy math there, and three of them come back to you with stuff that’s going to take a month to build. Well, in order to deliver all three of those things, it’s going to take three months to probably deliver it, so it kind of pushes your entire timetable back for all kinds of things, and some of them you may not have realized up front that those things really needed to be built in order to provide value to everybody. So, if you dial back those expectations a little bit and say, “Look, you’ve prepaid for three months. I’m going to give you a month and a half, or two months up front just to get comfortable with it. Then I will start applying the credit.” Again, it just goes back to being able to extend things out if you need to, or if problems come up and you need to push things out and say, “Look, I know we were going to charge you now, but we’re not going to. We’re going to push this out because we’re not ready yet. We can’t deliver on this yet, and it’s not fair to you.”
Rob [00:27:10]: Yeah, I think that’s a good way to handle it.
Mike [00:27:12]: The other thing that I did, as I mentioned before, about naming the price and letting the customer pick their price is that it gives you a solid sense of what people are actually willing to pay versus what you think that they’re willing to pay. I think that this is super-important, because if you are too far off in what you think that the product is worth – let’s say that you think that people are going to pay $100 a month for it, and they come back to you and they say, “Yeah, I might pay 35 or 40 for it, but 100 is just way too much,” you might step back and say, “Do I really want to go forward and build this product when my lifetime value is going to be less than half of what I thought it was going to be?” And assuming that somebody paying $50 a month would stick around the same amount of time as somebody paying $100 a month, your lifetime value is going to be half for those people, so the issue is can you justify building the product at that price point and selling it at that price point. Are you going to be able to acquire customers at that price point? If you are talking to somebody and you name a price, their mind is instantly anchored to that price as opposed to what they think it’s going to provide to them in value, so there may be a disconnect between people who don’t know who you are or what the story is behind it and just hit your website versus those people that you’re talking to individually, and you can kind of convince them that, “Hey, this is a justifiable price for reasons X, Y and Z.” You can’t have that conversation with somebody who just hits your website.
Rob [00:28:30]: Yeah. Since pricing is such a hard thing to nail down, and there is so much guesswork and risk in it, I really liked the conversations that I had early on validating Drip. I think it is really important, and I also think something you need to think about is, if you’re just getting started, it can be okay to have a lower-priced product that you’re going to learn on. I think of how I stair-stepped up, and I went from one-time sales and then to subscriptions with HitTail, and it was – what – nine dollar starting point. It was like $9.95 and 20 bucks and 40 bucks and 80 bucks. Then at a certain point, I saw how bad the churn was, and there were limitations of how much I could grow it. Then beyond that, it was like, “Let’s get aspirational,” right? The original pricing of Drip was 99 bucks a month. That was going to be the minimum, and I kept saying, “What do we have to build to make this product worth 99 bucks a month?” That can be an interesting question if you’re far enough along that it makes sense to do, but I also don’t – I think you can toy with lowering price points. Just know you’re going to have more churn and stuff like that.
Mike [00:29:25]: I think the last step in this process is once you have decided whether or not you’re going to move forward or abandon the product that you’re looking at launching, I think you need to let everybody know. You need to let them know whether it’s a mass email or individual emails. If you’ve decided to move on and go do something else because it doesn’t look like you’re either going to be able to deliver, or that the product is going to be radically different than what you had envisioned and it’s not something that you want to pursue, then you’re going to want to go back and refund everybody’s money and maybe look at either a related product, or try something completely different. But regardless of what that is, you need to let people know early enough in the pre-order process, especially when you have them on the phone or you’re talking to them and you’re giving them that demo. Set their expectations, and you can tell them, “I’m doing this with X number of people,” or you can just ballpark it. Let them know, “I expect to know within 30 days,” for example, “whether or not I’m going to move forward with this. At that point, if I don’t have enough people, or haven’t gotten enough momentum with this, I’ll refund your money.” So, just make sure that you let them know what you’re going to be doing at that point. If you’ve made a commitment to them that you’re going to let them know by a certain date, follow through with that. Once you’ve done that, make sure to keep in touch every four to six weeks to let them know how things are going, what new developments are going on. If you can, include screenshots and keep them posted on how different pieces of the application are going, if you’re ahead or behind in any areas. The more information that you can tell them about how close you are to the original timeline that you expected, the better off you’re going to be and the more invested that they’re going to be in the application when they finally get onboarded. You’re going to help generate that excitement with them.
Rob [00:31:00]: I think this part can’t be underscored enough. When you have someone’s money, they tend to want to see some results from it. You can either make it kind of a crappy experience for them where you’re not communicating with them very well, and that would tend to be a lot of our defaults. As a developer, your head’s down, and you want to build stuff. Or an entrepreneur, if you have other developers, you’re going to tend to not communicate enough. But I think there’s a really nice approach here to be able to get people excited about this, and then they get thinking, and then they get talking about it. Then they tell other people. What we saw with Drip was there were people in early access who started talking in their Mastermind groups and in their little, private slack channels and their private forums, and I started getting direct emails from people saying, “Hey, So-and-so’s talking about this,” you know. We had early-access folks like Brennan Dunn and Jeff [?] and Ruben from BidSketch, and they’d say, “Ruben mentioned this. This sounds like something I need. Can I get in on it?” So, I then had people asking to get in early access before we launched. It was crazy – right? That’s a type of thing that you want to be able to build. It’s not as hard as it sounds. I don’t think this is lightning-in-a-bottle, Cinderella story stuff. This is just following this playbook and building something that people really are interested and need, and that it really does solve a pain point for them.
Mike [00:32:08]: Yeah, that’s actually a really good point, because if somebody comes to you and specifically asks to be on that early access program, there’s nothing saying that you can’t put them into it. Let’s say you’ve got the initial 12 people signed up, and you’re working through the pre-order process with them. Maybe you’ve delivered an alpha version to them. There’s nothing saying that you can’t take more pre-orders and put them through that process and start onboarding those people. I’ve actually done that to some extent, but it’s also got to be somebody who I feel is going to be a good fit for it and is going to start using it right away as opposed to somebody who is more of a tire kicker, I’ll say.
Rob [00:32:40]: Totally. I feel the same way. I also added people late. I did confirm with them. I was like, “If you’re really ready to dive in, let’s do this. There’s not a lot of time.” So, I added a little bit of time pressure, and I also started implying by that point – since I’d had enough experience with folks getting started up on Drip, I did tell them, “Hey, I’m going to give you as much time as you need for trial, but it’s going to tend to be between 20 and 30 days when you’re really going to hit the ground running.” So, I kind of set an expectation of, “You can’t just surf on this thing for 90 days and expect to see results.”
Mike [00:33:06]: Yeah, and as they’re going through that onboarding process, it helps you pave over some of the rough points of the app, whether there’s documentation issues, or pieces that are not entirely clear because the [UY?] or the [UX?] is not well designed. Or, you just haven’t quite figured out how to present information in a way that makes it easy for the user to understand. There’s lots of those types of issues that, as you’re going through the early-access pieces of it, you’re going to be aware of those. You can point people specifically to different things, or you can create videos that you send somebody so that you maybe don’t – get to a point where you don’t have to onboard each person individually. That’s really the position you want to be leading up to the point where you leverage your mailing list and start doing a much more public launch.
Rob [00:33:49]: That wraps us up for the day. If you have a question for us, can call our voicemail number at (888) 801-9690; or, email us at email@example.com. Our theme music is an excerpt from “We’re Outta 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, and we’ll see you next time.
Episode 264 | How to Identify New Product Ideas
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.
Items mentioned in this episode:
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 firstname.lastname@example.org. 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.