Investigating a business idea? Go analogue hunting

Rob Johnson, who I got to know when he was CEO of our partner company Makers Academy wrote a great answer on Quora yesterday. The question was “How do I know if my business will generate value?”. Rob suggested a good four step process:

  1. Identify the (burning) pain point
  2. Hunt for analogues [more on this in a second]
  3. Customer development work [I’ve written about this before]
  4. Sell it to 10 people as a service

All good advice. I’m going to focus in on the hunt for analogues. In more detail Rob says:

Go analog-hunting. Find some examples of other products / services people are paying for right now to solve this problem. Your product / service can be completely different, but you want to know that people are willing to open their wallets to solve this problem. (There are a lot of problems that are “nice-to-solve” but not “must-solve.”) An example of an analog would be if I had an idea for a one-time paste that I could apply to my teeth and they would be clean, white and healthy for the rest of my life without having to brush again. The problem is: health, whiteness and cleanliness. Our analog: toothpaste.

The process of hunting for analogues delivers a lot of insight and we do it all the time, often using the question “if someone buys XYZ new product, what will they not be buying instead?”. Taking Rob’s one-time toothpaste example – the analogue with toothpaste tells us that people care enough about having clean white teeth to spend money on the problem, and gives a user experience benchmark that our new product has to beat. In this case ‘you only ever have to brush one’ is clearly much better than ‘you must brush 2-3 times every day’ so the idea sounds good. (Although there is an obvious question about the revenue potential for a one-time-use product.)

Talking software companies as an example, the analogue is often potential customers hacking together custom solutions for the problem you are solving (customer development guru Steve Blank highlights custom solutions as a great sign customers will buy a product, although he doesn’t mention the word analogue). This ‘custom solutions’ analogue was important when we decided to invest in Dataloop last year. At the time I wrote “From a market perspective we liked the fact that companies everywhere are building their own custom cloud monitoring solutions using open source software”.