Finding the next big thing is probably one of the biggest challenges in the world of startups. Countless companies, entrepreneurs and VC’s spend a considerable amount of time plus money figuring out where and what to invest in. Yet often the game changers seem to be coming out of nothing and from unexpected areas. Is it luck or do those who change the world know something we don’t?
In my last post I talked about some principles that can be used to design better digital products. In this post I will look at a model to map and explore what different kind of product you should do.
Most of the businesses spawned in the first bubble, where based on the belief that taking any business from the physical world and putting it online was enough to be successful. Any assessment regarding logistics, economy of scale, or competition with offline brands, was naively optimistic if not absent. A lot have changed since then.
It’s easy to be a wisecrack in retrospect. There is no shortage of expert analysis for why something became a success after the fact. It’s much harder to know what products or services will become a success before they hit mainstream. Yet some people seem to be doing just that. Do they know something that we don’t or are they just plain lucky?
Even though luck does have something to do with it (timing?) it’s not all just random. As a matter of fact there are some very good models to help you better understand the art of innovating. Some of them complex others rather simple. The one I find most useful is this two-way matrix which covers four different types of innovation.
Exploring opportunity by mapping your idea on this matrix.
Do what others do, but do it better.
This is the most popular category to invent within. The basic premise is to create something that outperforms either on price, features, ease-of-use or performance. For instance: Sony Ericsson and Nokia competing on features or MS Office and Sun StarOffice competing on price (Free vs. expensive) This category is the easiest (on paper) to compete in, but also the category with the fiercest competition. With the introduction of the free price-tag this haven’t gotten easier
Advice: Be better by being different. Think about how your product solves the jobs that your customers are trying to get done with your product, rather than simply thinking about what jobs you are solving. See what Steepster did for tea-connoisseurs
Do what others do, but do more.
This category is a little bit trickier. The basic idea here is to create an ecosystem for your product or service. The category takes advantage of easing the usage of a given product or service on different platforms.
Take the iPod as an example. You don’t only get a music player. You also get the software to create play-lists plus access to buy music. Recently with the introduction of the iPhone and the AppStore this have created an even stronger ecosystem.
This category often has some“hero” product (the iPod, Google search, or the HP Camera) and often with a mixture of hardware and software and services.
From a company point of view this is often called vertical integration. Simplified meaning that a given company, own all the parts of the production that are needed to deliver to their customers.
The challenge with this category is that it often requires a successful product to build the ecosystem around. For a startup this is a difficult area to deliver in.
Advice: But even though you often do need a hero product, there are ways around it. Create an API that allows others to interfaces with your product. Then they will help you build your ecosystem. You won’t necessarily have complete control (vertical integration) but you will become an important part of it.
Do what others do, but for a new audience.
This is the most interesting type of innovation IMHO. Basically you are trying to find non-consumers and turn them into consumers by either making the product affordable or by making the product less specialized so that non-experts can use it.
An example on the latter is WYSIWYG editors such as Dreamweaver from Adobe. Mint.com took the idea of managing your own money to a new level allowing people without financial skills to suddenly understand their money in a different light. SalesForce.com basically created a SAP like product and broke it into pieces thus allowing access to the power of data-warehousing without the price that normally comes with it.
Leasing is an example on the former with it’s different financial plans are used to give non-consumers access to products they couldn’t originally afford. The subsidizing that comes with most cell-phones is also an example of giving non-consumers access to your products.
Sometimes technologies that have previously been available for government or the scientific community find it’s way to the consumer market. It is interesting that rarely the original usage of the technology that end’s up being the way consumers use it.
The very Internet we are using right now is an obvious example. GPS is another, both originally military systems.
But perhaps the best example is in the mobile industry with SMS (Texting if you’r from the US).
Originally used by technicians to send test messages around the network. Then mobile customers began sending messages between each other. Later someone figured out a way to turn the SMS messages into commands that a server would understand (Look at any reality show). Then banks started using SMS for mobile banking (Large parts of Africans access their banks primarily through their cell-phone). Lately I have been buying ferry tickets with my cell. Ring-tones can be purchased through SMS. And last but by no means least, Twitter turned SMS into a broadcasting service.
Basically this approach to innovation is ripe with possibilities. Either a market has been proven (HTML editors, accounting, car markets and housing market) or an infrastructure is in place (Internet, GPS, Mobile net, Fiber).
This means that a lot of the hard work has been done already and you can focus on exploring different alternative uses of these to turn non-consumers into consumers.
Advice: Look around you and find areas that are served by only one type of customers and see if you can make that product available for what what previously non-consumers. As an example wordy.com to quote: “Let professional copy-editors check your text for grammar, spelling, punctuation and structure”. Looking at the amount of typos, spelling and grammar mistakes, I normally do, be sure to sign me up when available!
Do what no other is doing
This is normally considered to be the holy grail of businesses innovation. Inventing something new that does not exist on the market already.
Classic example would be the light bulb, the car, the computer, the telephone. But also many types of software and services such as the OS and the spreadsheet. The innovations either create a demand or tap into jobs people are already trying to accomplish but with arbitrary tools.
It’s hard to find something new, but not impossible.
By using the 2way matrix you can start to think more methodically about your startup. It won’t guarantee success but it will help you gain a better understanding of your product’s and thus allow you to better explore different approaches to become a success.
And remember. The art of innovation is not just about finding something completely new but as much to connect two known areas in new ways.