Some friends of mine, Alex LaPrade and Ray Angel, have started an investment fund, Lion Fund. One of their investment precepts is that market is more important to a startup than team. The fact that this is contrary to the traditional belief of betting on the team is the subject for another day. Today, however, I’d like to discuss the similarities between this element of Lion’s investment philosophy and the innovation process I employ and write about.
As Alex puts it in a post titled “A Contrarian Thesis on Startups for the Rest of Us” …
“Before gambling on whether an idea will work or not, start with market research (yes, it sounds like it’s straight out of a 1950′s B School class) and find out what is valuable to this market. Remember, the more valuable your product or service is (and the bigger the pain point it helps solve), the more you’re able to charge (e.g. more revenue for you and we’re all capitalists, not communists, right?).”
The innovation process I describe in my book Innovation Rules and Tools starts with a step called Discovering Value. The whole idea is to learn what the various customer segments and stakeholders in the market think is valuable – before you create and deploy your product / service / business model solution. Like Alex, I think it is just common sense. Why would I create a solution that is designed to make money until I know what people value (another way of saying pain point)?
Learn What the Market Values by Studying What People Do
The best technique for gaining market understanding is the good old fashioned one-on-one interview – combined with observation. There is nothing quite like talking with someone (i.e. asking open ended questions and doing a LOT of listening and note taking) for an hour or more and doing a deep dive into their perceptions, beliefs, and values about what they do in that market and how they interact with the product you are designing.
When I talk with customers, I listen for the activities they do (or want to do) – from cradle to grave as they work with the product. When I hear a new activity, I’ll have them either walk me through it verbally – or beter yet let me observe them doing it. I learn in depth by asking lots of questions like, “Why did you do that?”, “Why is that important?”, “Tell me more”, “How do you do that”, “Who else is involved”, and more.
Organize Your Market Knowledge by Activity
I like to organize the data I find about a market by the customer’s or stakeholder’s activities. My colleague Ron Sears at the Design Consortium (I worked with Ron as a protege for 6 years) leads the discussion of his Product Value Matrix innovation process with this …
“The value anyone receives from a product must, by definition, stem from that person’s interactions with the product. If you don’t use, touch or interact with a product in some way, it has no value to you at all.”
If you create a thorough description of each activity (or, as Ron would put it, interaction) for each customer segment or stakeholder group and keep it up to date, you possess a comprehensive guide to value in your market. I call this “The Book”. For each activity, it can tell you not only what people want to accomplish, but also what they like, hate, and wish for.
Compare Your Competitors, Yourself, and Your New Concepts
You can use The Book to rate your competitors across each activity, noting what the winner does to achieve success and what the loser does to lose. Knowing which competitors do a great (or poor) job with an activity already, how they do it, and why it works (or doesn’t) gives you even more market insight.
You can also use The Book to rate your current product (if you have one) and your new concepts. This ranking gives you an objective view of where you are behind or ahead.
Even better yet, The Book and ratings will pinpoint for you those activities where no one does a good job today. These are areas where innovation can have the biggest impact, the areas where your competitors (and even you, so far) don’t seem to understand what it takes to be wonderful.
You are now at the point that Alex described where you are able to tell if a venture idea is wonderful or terrible – or what I describe makes you ready to start ideation and create a brand new venture idea that is wonderful!
Subsequent posts in this series will describe more about other innovation steps.
For more detail, Innovation Rules and Tools is a practical handbook that describes a complete set of innovation steps that you can use to make innovation happen on demand in your company. For each step, it describes a set of general rules or keys to success along with multiple tools you can apply from day one. It is available in paperback and Kindle from amazon.com.