In order to pick the best of our many ideas for our next project, we have sketched a process for evaluating ideas. This consists of market analysis and testing and should help us decide what to work on.
Sammy and I started Minimum Noise, a marketplace for music licensing similar to the various design contest sites, with the belief that we could turn it into something profitable. We made the site in two months and launched. Aside from talking to friends in the music business, we intentionally did not research the market very much. Our plan was to get it out, see what happened, and evolve from there. We believed in pivoting over analysis.
Musicians love the site and have given us lots of feedback and suggestions. But we have not been able to find people who are interested in paying for custom-made music. And, we have not yet seen any obvious direction to take it with a pivot.
While we are not taking the site down, we are not going to be focusing on it, which means we’re looking to start a new project. We have a long, long list of ideas but despite the entrepreneur mantra that ideas are worthless, we now feel that there is at least some variation in value. And we want to pick the best of our ideas for the next venture.
We decided to create a framework for evaluating ideas. We are going to be a bit more strategic this time, without turning to too much academia. PEST and SWOT analyses are fine, but we are pragmatists and it has to be very hands-on.
As with everything, we will start using a rough sketch and refine it as we get smarter. The first version we’ve come up with is a funnel of five steps.
Phase One: Initial Assessment/Intuition
Here we think through the details of the idea. We like having an explicit step for this because it allows us to stuff every thought into our ideas-spreadsheet without initial cynicism. This makes free brainstorming easier.
There are a number of criteria that an idea must match in order to pass this phase. These include:
- Can we make a minimum viable product quickly (max. 2 months)?
- Does it have a well defined business model?
- Will it potentially be able to make enough money to pay both of our salaries and company expenses?
There are a couple of nice-to-have’s as well:
- Does it scratch our own itch?
- Is it suitable for blogging etc. (is it sexy?)
- Does it have the potential to grow really big?
If the idea appears to match these criteria, it goes into
Phase Two: Market Analysis
We will now try to get a feel of the potential market. Who would be our customers, do we understand their needs? What is the competition like?
There are a number of tools that you can use for this. We have a bit of experience with MarketSamurai which is very nice. It queries Google for various data about keywords which gives you some indication of the market as it appears on the web and is an excellent tool for quick understanding of a market.
If there seems to be a market with buyers and the competition is not too strong (or we can find a suited niche), the idea has passed phase two.
Phase Three: Testing
In order to convince ourselves that the market actually exists, we will now test it. That is, ask people if they will pay money for the product or service.
Steve Blank talks about this under the term Customer Development. You simply go out and talk to potential customers. The customer should say “I will buy that” – not “I would buy that” (big difference!)
That is mostly for B2B ideas. If the idea is more of a B2C or the unit price is very low, we will replace or complement the talking with fake landing pages. A fake landing page is a page that looks like you can buy a product. It may even have a big “buy” button that leads to a page saying that the product is not currently shipping but you can enter your email to be informed when it does. In a sense, this is the only real way to test a market. Nobody is as honest as an anonymous person deciding whether to spend money or not.
Now, we haven’t yet decided exactly what the actual criteria for phase three is yet. An obvious choice would be that we should have indication that we could reach our financial goal, so if a fake landing page runs for two weeks, it should make 1/26th of a years salary for both of us. However, that implies that the idea should fully evolved in its first version which it won’t be and that would be setting the bar too high. However, we require that we have actually made some imaginary money and not just had encouraging pats on the back.
Phase Four: Further Analysis
If an idea has made it this far, we likely have a number of new questions about the market and the product. This phase is for final thoughts and analyses before we launch.
Phasse Five: Go!
If the idea made it this far, it should be worth turning into something real.
Now, as a friend pointed out, these criteria more or less rule out real innovation. Twitter and Facebook wouldn’t even make it past phase one because there are no inherent bunsiness models (ads don’t count). Also, this is based on the notion that we should solve a problem, which rules out any kind of entertainment product (video games, for instance). Entertainment products can make very sound businesses and on top of that, they are sexy. But that will have to wait. We feel that even if the framework might rule out some ideas with a lot of potential, an idea that does pass through is very likely to have potential.
The point here is that we want to get to profitable as quickly as possible, and then take it from there. We might develop products that don’t make it through this funnel later on, but that will be when the wheels are turning.
These are quick thoughts and I would love feedback – are we missing something obvious?