I don't normally agree with the venture capital firm Andreessen Horowitz.
However, the questions they ask founders here are good:
When someone wants me to evaluate their business idea, the first question I ask them is:
Who really wants this today?
When the new iPhone gets released, you can tell who wants it that day, because they're all lined up in front of the store:
This is the mental image we need to have when we're launching new products: who would line up for this today, money in hand?
But how do you know, before you've launched something if people will want it?
One way to evaluate a new market is to ask:
What products do these customers already pay for?
There should be evidence that folks are already spending money in the space you’re thinking of entering.
For example, if you're targeting small SaaS companies, with 1-10 employees, go out and ask them: "What kinds of things are you paying for currently?"
My guess is they're paying for stuff like this:
If you're launching something for small SaaS companies, and your product isn't in one of these categories, there's likely no market for it.
Founders should look for categories where folks are already spending money.
Before Airbnb launched in 2008, folks were already paying to stay at hotels, B&Bs, cottages, vacation homes, and hostels. These days, annual spending on travel accommodation is $570 billion worldwide.
If folks are already spending money on it, it’s a problem worth solving.
Author Rob Fitzpatrick (the Mom Test), advises that when we interview potential customers, we should "get specific about examples in the past to get real, concrete data."
He recommends asking questions like:
"What are they using now? How much does it cost and what do they love or hate about it? How much would those fixes be worth and how traumatic would it be for them to switch to a new solution?"
The idea is that a potential customer's past or current behavior is a pretty good indicator of what they'll do in the future.
And, scientific research backs this up:
"Researchers have argued that it is important to consider the role of past behavior when the behavior in question is performed repeatedly because past behavior is a stronger predictor of future actions for frequently performed behaviors than for infrequently performed behaviors." (Source)
In most cases, we'll continue to do what we've done in the past.
Ben Orenstein tells this story on the Art of Product podcast:
One of my favorite questions in Rob's book is:
"What else have you tried for solving this?"
The answer from folks is often: "I haven't tried anything." If they haven't searched for a solution on their own, they're likely not highly motivated to solve the problem.
If you find a target market that's currently using a bunch of workarounds, that's a good sign.
That's what happened for Arvid Kahl and Danielle Simpson. Danielle was working as an online teacher, teaching English to Chinese students.
"Feedback after classes would take me hours and not leave me with much time to prepare for the next day’s classes. I tried cutting the repetitive part of the work down by using templates and a spreadsheet, but it was still quite complicated." (Source)
Danielle encountered a problem (hours of providing feedback to students) and tried instituting her own workaround (with spreadsheets).
They also noticed that the Chinese education market was picking up speed. VIPKID, a Chinese teaching platform, grew from 15,000 teachers to over 50,000 in a year.
So they jumped on the opportunity and built FeedbackPanda. (They recently sold it to Sureswift Capital).
You can see how they answered Andreessen Horowitz three questions. We might add a fourth question (What current behavior backs this up?) as well:
I hope this framework helps you evaluate your future business ideas and potential markets.