A question I get asked all the time is ‘How do you find product ideas?’. This is normally followed up by ‘Actually, how do you find good product ideas?’.
What is a good idea? Most people are looking for profitable product ideas. This can be a difficult process, particularly if this is your first product. However, there are some excellent strategies that you can use right now.
Firstly, let’s see what they look like.
Characteristics of a Good Product Idea
Don’t think that you need the most advanced and sophisticated product before you can be profitable. Simple products are easy to explain and therefore easy to sell. When you can explain your product in a single sentence or using a simple strapline, you can get the attention of others.
Have you got a 5-second pitch nailed?
Reliable and recurring revenue is the ‘flywheel’ for many businesses. The alternative is a one-off product. On the first day of every month, you start from zero. (This is one of the best reasons to migrate from being a consultant to having your own recurring revenue product – you won’t need to find new leads every time a contract ends).
With recurring revenue (the typical pricing model for most SaaS businesses), you can use the monthly cash flow to improve your marketing, reduce churn and make your customers happier. All this leads to a higher lifetime value and more money in your pocket.
Time and cash flow are often the most important factors for early startups and those looking to launch their first product.
‘Annual pre-pay is God’
The benefits of cash flow, particularly a year in advance, are multiple:
- you can pay any outgoings
- you can increase your marketing spend to gain more customers
- you gain motivation from the revenue so that you can keep going
- you increase your runway because you give your startup the time it needs to succeed
These are products that are non-‘realtime’. Realtime businesses can require significant initial capital and can also be very tricky for first-timers. If you’re running an invoicing SaaS product and your servers go down for an hour, your customers will probably forgive you. Alternatively, if you’ve got a realtime stock market trading SaaS product, your customers are going to be seriously upset if they can’t make trades because they could be losing money.
Likewise, if you’ve got a data sensitive product, for example one that is HIPAA compliant, you will need to make sure you have the correct infrastructure, security precautions and liability insurance set up.
If your product idea doesn’t require initial capital, strict contractual requirements or any realtime integration, then it’s probably a good starting point.
Whatsapp, Twitter and Facebook have leveraged the viral effects of their social networks to grow. Are you hoping to use the same techniques? If so, the odds are against you, especially if this is your first product. Beware of survivorship bias – there are probably many more companies that wanted to be facebook or Twitter that have failed – you’re only aware of the ones that have succeeded.
Products that have used viral marketing typically operate a freemium model to acquire users. These freemium users can put significant strain on the business before it can be profitable. Your freemium users will cost you real money in infrastructure and support costs.
Instead, look for a product that uses slow marketing. Treat your first 10 customers as veritable deities, do things that don’t scale at first. Once you’re profitable, you’ve got momentum and cash to grow.
Do you have unique or inside knowledge in your target market? Understanding the market and having a connection with your potential customers is the best way to ensure success. Research can help this process (read on for more) but if you’ve already got a good understanding of a sector, you’ve got a head start.
An Extension of You
Are you already paid as a freelancer or a consultant? Or perhaps you have a 9 to 5 job. Can you leverage these skills or ‘productize’ your consulting process?
The benefit of this: you already know that people are prepared to pay for you. Can you structure what you do into a product? Perhaps a video series, a udemy course or a masterclass webinar?
The other benefit of ‘productizing yourself’ is that you already know and understand your audience; you can educate and sell to them already.
No Single Reliance
Building your first product on another service like Twitter or Twilio is a great way to start. You can leverage the scale, distribution and marketing of these services to grow. However, be wary of having a single point of failure. The risks are often of the following:
- they turn off their API (or go out of business)
- they like what you’re doing and compete with you
- they don’t like what you’re doing and send you a cease and desist (or sue)
Aside: Basing your business on social media could also be a mistake. Getting repeatable business from facebook or twitter is not easy.
B2B (or not)
Many entrepreneurs say that you should target businesses for your online products. There are many reasons for this and the benefits are significant:
- lower price elasticity of demand (increasing your price doesn’t reduce the demand)
- lower support costs (compared with low price b2c models, especially freemium)
- lower churn (you don’t need to spend time/money getting new customers)
- higher ltv (business customers stay customers for longer resulting in higher revenues)
So, B2B products tend to be more sustainable and ultimately drive higher revenues. However, they can require higher startup costs and the sales cycles are often much longer. The middle sweet spot is a consumer service that you can repackage as a service for businesses.
The road to startup success can be rocky. It’s certainly full of ups and downs. How are you going to push through the dip? Revenue can be a fantastic motivator, but it often takes time to get your first dollar. If you’re working on something that you’re truly passionate about then you can enjoy the journey. It’s a marathon not a sprint, there’s no way to get rich quickly!
Are you building a solution to a problem? Are you sure? Is it a problem for your potential customers? Do they want it urgently?
If you’re just scratching your own itch, you will benefit from your own solution but make sure that other people benefit as well. There could be less itchy, more boring things that are a safe bet in the long run. Create solutions, don’t massage your egotistical ideas.
Can you actually build the solution. Do you know how to market the solution? Do you know someone who can? Can you afford (either your time or money) to get it built? Or do you have a team?
Are you a multi-talented, full-stack hipster, hacker, developer designer, marketing genius? Me neither. Starting and sustaining a profitable product requires skills across many disciplines. Having the the right team to get the job done in your product area will help you succeed.
If the team consists of just you, make sure that you know how you can satisfy the other requirements of the product. In general, the four main areas are Designer, Developer, Sales and Business. If you’ve got access to experts with complementary strengths, then you’re on to a winner. If you don’t have access to experts, you can still do yourself it but it will be harder and it will take longer.
If you’re a specialist, don’t hide from the other aspects – you will need to cover them. You can learn them yourself but it might be better to outsource.
Don’t underestimate the support that you can get from those closest to you. The troughs of sorrow can be dark times – having loved ones nearby who are supportive can be the difference between fantastic failure and screaming success.
Price and Market
There are infinite number of ‘niche ideas’ that you could build products for. Building a SaaS app for your local church has a market size of one – that’s probably not enough. A SaaS app for all churches in the United States is probably enough. Great products don’t need 100% market share and even better products know that once they hit saturation they can easily take their product to a different vertical or geography.
Make sure that your market consists of buyers – consumers who actually spend money. It’s best to avoid very price sensitive buyers, like students. The best customers are those that run businesses who already make money and don’t need to get ‘sign off’ to purchase your product. If your product makes businesses more money (and more than the cost of your product), there is a clear return on investment and they’ll bite your arm off!
Revenue and Profitability
Revenue and cash flow are fantastic if you’ve got no outgoings but keep an eye on the profitability of your product. This is particularly useful if you think about how your profit may change over time. As you grow, how will your fixed costs increase and what might happen to your margins if a competitor joins the market.
SaaS products have been particularly popular over the last few years as they are high margin businesses where the profits can be pumped in to marketing to acquire new customers.
Appealing to multiple segments of your market will ensure that you get the maximum volume of sales.
“On average, merchants who use tiered pricing make 5X as much as ones who launch with a single price…. on average 1X, 2.2X, 5X is the best performing price strategy”
Ryan Delk, Gumroad
This is typically done by tiering your pricing model. The Goldilocks Method can be particularly effective and uses the following formulae:
- Tier 1: 1x Price
- Tier 2: 2.2x Price
- Tier 3: 5x Price
Tim Ferris famously tested titles for his book the 4HourWorkWeek by using Adwords. Can you test your product with a landing page and a signup form? Do you really need to build the solution to test it?
Buffer used this technique to huge success (they have a monthly recurring revenue of almost $300,000). How did they test their ideas? They launched the ideas before they built them.
Buffer tested features by creating a fake button in their application and recording how many people clicked it. The button didn’t do anything but based on the number of people that clicked the button, they could determine whether it was a good idea.
Can run some quick tests to see if a) it will work; b) it will sell? Try Google Ads, Zapier, IFTTT.
How many steps are there to revenue? The fewer the steps, the quicker you’ll make your first dollar. This is the only guaranteed way to know whether you’ve got a good businesses idea – is anyone willing to actually pay for it?
Community & Influencers
Are you influential in the community or do you know influencers? Getting attention can be hard at the beginning of the journey but you can get a leg up from those in the community.
Can you call in favours such as getting a tweet with lots of followers or guest post on a popular blog?
Meet Your Goals
This could be $10,000/month per founder (or much less, or much more). It could be a lifestyle business whereby you can quit your job and travel whilst working remotely. Evaluate your product ideas on whether they get your closer to those goals.
The Good News
The Idea Doesn’t Need to be Brilliant
“You don’t need a brilliant idea … a startup makes money by offering people better technology than they have now. But what people have now is often so bad that it doesn’t take brilliance to do better.”
Paul Graham, Start
Know That It Will Probably Change
“The fact is, most startups end up nothing like the initial idea…The initial idea is just a starting point.”
Paul Graham, Ideas
The Bad News
You might think that it’s easy to find good ideas. In fact you might think that there are plenty of places to find them. You’re right. Here are some great sources for ideas but the chance of them being right for you is very small.
This is Where You Think You’ll find Ideas (but you probably won’t)
- YC Ideas
- Richard Branson’s Ideas
- Six Month MBA
- Jacques Mattheij
- CrowdSourced 1
- Crowd Sourced 2
- 6 Starup Ideas Every Nerd Has
- Almost Startup
- Steve Poland’s 100 Ideas
- Hacker News Idea Thread
However, most of these are bad sources. Why? Go back and look at what makes a good idea – do any of these apply to you? You need to make sure that your idea matches your market as well as you and your circumstances.
By all means, get some inspiration from these links but there are other strategies that are more effective. Read on…
Where to Find Good Ideas
The next article in this series looks at where you can find profitable product ideas. You will see how to do the research, observation and customer outreach to identify profitable product ideas. Everything from online resources, understanding key pain points and customer interview techniques (which most people get wrong).
I’ll be sending it to the hundreds of subscribers who have signed up below. Join them to find your profitable product idea.
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