If you’re going to go full on into a new product idea (either a totally new one or in a new direction for an existing one), how do you work out that your hunch is going to work?
The Soothsayer Myth
I saw someone on X this week asking people to post their ideas for a business and he would give it a score out of 10. It was a bit light-hearted but the implication was that he knew a good idea when he saw it. But my immediate reaction was ‘how?’. Nobody possesses magical powers that can allow them to see into the future. You can’t assess the success of an idea based on a few characters on social media. ‘Uber for Ice Cream Vans’ got 8/10 I seem to remember.
Experience is probably more useful when it comes to knowing what is a bad idea rather than knowing whether something will work. For that, you have to apply actual data (and wish for luck).
What to look for?
Instead of gazing into your crystal ball, there are some tangible things to consider:
Market Size
Depending on your ambitions for the project, you definitely have to understand your Total Addressable Market (TAM) and from there the realistic Serviceable Addressable Market (SAM) and from there the Serviceable Obtainable Market (SOM).
Quick example:
There are 100,000 potential customers in the world and your product sells at $10,000/annum. Your TAM is therefore 100,000 x 10,000 = $1bn
But your product is aimed at Medium sized English-speaking customers of which there are 5,000. Your SAM is therefore 20,000 x 10,000 = $200m
But there is competition and your realistic share of that is probably at the very most 5%. Your SOM becomes 1,000 x 10,000 = $10m
If the most you could ever realistically achieve with your business is $10m/annum, how does that feel as a bet? Maybe. Maybe not.
Competition isn’t necessarily a bad thing
You want to know whether there is a demand for your idea? Well if there are already people out there doing it successfully, then they have answered that question for you. If you think you do it better, then that’s a pretty good signal. When we started ScreenCloud there were loads of other digital signage companies out there. We just felt that we could do a better job of it.
Finding a gap is also good
We once had a product called Flow that was the missing iPad app for Instagram. The lack of an iPad version of Instagram was a popular gripe so we made a fix. It even got featured by Apple as best new app when we launched it. The important piece here isn’t that we spotted a gap, it’s that we spotted a gap that lots of people were moaning about. That was the clue.
Speaking to potential customers
I’ve said this more times than I can remember, but speaking to customers is absolutely the most important thing you can do. How often do we do stuff because we have a hunch it might be a good idea? Why don’t we just go and ask the people we think will buy it whether it’s a good idea first? Not just for completely new products, but for new features. We’re all guilty of this, but it’s madness.
I think the real reason is something to do with the time and effort it may take when it’s easier just to do it. Secondly our fear is that the idea is still half baked and we might end up looking foolish trying to sell a concept that doesn’t fully make sense. And finally just the idea of being told your idea is shit.
But I would say that before you invest a penny in development you should ask yourself the question “what do my potential customers think about this?”. If you can’t answer that question then go and have some conversations.
How not to speak to customers about your idea
Nobody likes being told their idea is shit right? Well, guess what, you’re asking them the wrong question if the answer you get is that they either do or don’t like your idea. You should never rock up with a prototype and say, hey, I’m thinking about launching this product what do you think? We all know the story about Henry Ford and his Faster Horses.
Instead what we need to do is understand what the jobs are that people are trying to do and how your product make it better. And importantly, what the impact would be of them not being able to easily complete the job that you are seeking to solve.
So rather than saying, “do you like my idea for a SaaS tool that uses AI to make writing a proposal a lot quicker?”, the discussion should be more along the lines of “tell me how you currently approach writing a proposal”, “how long does that typically take?”, “what are the most frustrating parts of proposal writing?”, “how does that impact your day?”. “which bits do you enjoy?” etc. This will give you way more insights than simply sharing a wireframe and hoping for a thumbs up or thumbs down.
Signals that you’ve got something
Sometimes you could rely on gut feel for this. You will know whether your customers love this so much they are literally ripping it from your hands or whether you are having to hassle and cajole them for every tiny step towards making a decision.
I think it is Jason Lemkin, founder of SaaStr, who said that if you can sell your product to 10 people that didn’t come from your existing network, then you have probably found Product Market Fit.
Sean Ellis, author of Hacking Growth uses a specific question to determine Product Market Fit. He asks customers how they would feel if the product no longer existed (as opposed to how satisfied are you with the product) and gives them one of four choices: a) very disappointed b) somewhat disappointed c) not disappointed d) no longer using it. He says that every successful company he has worked with has at least 40% of people answering ‘very disappointed’.
In fact, if you search for Product Market Fit, you’ll see a multitude of clues that people use to try and gauge it.
Back to Gut Feeling
I really dislike the idea of basing your future on gastro-intestinal superstition, but ultimately, there is a point at which we have to make the leap. The quote I often use:
Going from $0m to $1m is impossible
From $1m - $10m is improbable
And from $10m to $100m is inevitable
If you need to see your SaaS doing $10m in ARR before you fully commit, then I’m afraid you’ll be waiting forever. At some point you need to take a leap of faith. But it should be an educated leap of faith based on the data you can collect on the way.