Startup Opportunity Identification 2.0

The difficulty with customers is that they don’t really know what they want until they see it! This creates a nightmare for any startup or corporation trying to build a new product – What do you make that people really want and are willing to pay for?

To find the answer startups have to commit to an idea and  move quickly, and cheaply  through to a Minimal Viable Product .  You are looking for a ‘must have” product. This  requires continual iteration around customer needs. The ultimate test is  getting customers to profitably pay for your solution i.e. a higher lifetime value of a customer to the cost of customer acquisition.

We’ve had three product ideas in our startup before we found the one we’re working on now. Creating a new startup product moves through three successive stages starting with ideas development and finishing in a successful product/market fit.  Currently our startup is trying to get to product/market fit.

Last  week I gave talks to MSc and  MBA Entrepreneurship students on identifying entrepreneurial opportunities (above deck) based on these three stages:

  1. Ideas development – We spent a  very long  time researching and looking for the killer idea. We were trying to find the perfect opportunitya gap in the market between existing suppliers in a new growth market. We went round and round in circles looking for the perfect opportunity. In the end we ditched our first real idea because the customer ROI was weak in the economic downturn. We then,  much more rapidly, came up with lots of new  ideas and committed to one – external website monitoring. Unfortunately research takes time and as a startup without revenues you don’t have time. You have to commit to an idea even if it’s not perfect -  NOTE: there will always be competition!
  2. Product development & release – Without perfect knowledge on customer needs and competition you have to make many product  assumptions. Right from the  start  we were testing our assumptions with potential customers at network events, in meetings, online and during our Alpha/Beta. It’s not easy to get real answers without a shiny product to sell.  A prototype helps. You have  to rely on your gut instinct. During  this feedback we switched our app from internal systems monitoring to external web monitoring. We found potential customers more receptive to this offering. This early engagement process also helped us to develop our sales messages, sales funnel and  go-to market strategies.
  3. Market/product fit -  If you’ve made it this far the really hard work starts.  You’re now looking to make your product a ‘must have’. The challenge is its very hard to be heard by potential customers. You’ need to get the product in their hands! Only then can they make a true judgment on its value. They’ll also compare your product to  substitutes and alternatives in the market. You therefore need to differentiate and deliver a much better product to get them to change! The sales message and product needs constant refining until you have a measured product/market fit. Only the can you pull the sales trigger.

As startup founders we think we know what customers want and the problem they want solving the most. Unfortunately we’re probably wrong. We then  waste huge amounts of time building a product around that  perceived need. It’s hard for many founders to admit their ideas, product and dreams are incorrect. The ideas which formed the startup were based upon a assumptions.

You have to know when to quit an idea, re-form it or find a new idea as assumptions are tested.  Flickr (started as on-line games), Youtube (Hot or Not) and Blogger (project management) are all great examples of product ideas which iterated to a different final product. As startups we don’t have the comfort of time and must move rapidly through an idea, production and iteration. Unfortunately non of this guarantees success but it sure helps!

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3 Responses to “Startup Opportunity Identification 2.0”

  1. Joel Gascoigne Says:

    Wow, great article packed with many links, most of which are spot on with the reading I’ve been doing for quite some time. It’s great to read an article from someone as into all these concepts as I am, and executing them. I’d love to hear more technical aspects for example whether you’re implementing continuous deployment and if you are how.

    I just finished listening to a VentureHacks interview with Sean Ellis about product market fit and that really cemented that notion of not scaling until you have found that must have product and have proven it. That’s something I struggled with for a little while and I think does not come naturally to many.

    Also, time and time again I meet people who talk about NDAs or stealth mode (well, more times than I’d like anyway!), and the whole point you address in your final couple of paragraphs about pivoting between ideas is key I think. Love the examples too, Microsoft (from BASIC interpreters to the world’s largest OS monopoly) and PayPal (digital cash for PDAs evolves into online payments for eBay) are good ones to add too. Always helps to use examples when explaining this. I’ll remember this post to come back when I need to advise others :)

    I look forward to meeting and chatting more about this sometime. We’ll be putting a few blog posts out about how we’re taking some of the lean startup concepts and putting them into practice with OnePage soon.

  2. Nick Barker Says:

    Thanks Joel!! Its great to find another startup focused so passionately on MVP, CAC, LTV, etc. We are harnessing continuous deployment. It’s a necessity when working so closely with customers and prospects. We can talk more of our methods.

    Yeah, its a great interview with Sean Ellis. He speaks with words of experience. We’ve also seen/heard so much talk of ideas or hiding plans. As the saying goes “ideas are cheap and execution is everything”!

    Of course, non of this is easy which is why it’s so great to share ideas, problems and opportunities. Thanks for the comment and look forward to our overdue chat and hearing your exploits.

  3. Startingup JFDI!! « Nickpoint Says:

    [...] students to run their own businesses.’ I talked about our Aware Monitoring journey from finding the idea to commercialising the service. My underlying message was clear and loud – JFDI (Just [...]

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