I’m always coming up with new business or product ideas. Most of the time I quickly identify a product/market fit issue and quickly discard it, but there’s the odd one that I can’t easily dismiss. The trouble is I rarely follow through and actually do anything with the idea—other than to mysteriously allude to it with friends, usually over drinks. But I will let you in on one of the recent ideas ruminating around my head— mostly so I can talk through how I would go about exploring its potential and deciding if there is anything to it.
So this is my idea (let’s keep it between ourselves):
What if we had a car insurance product that uses your dashcam footage to assess how safe a driver you are, then adjusts your premiums accordingly?
Before we start using up my time, effort and money, let’s understand the kind of environment we’re operating in. Did you know that 60% of digital investments lose money and only 0.4% (the unicorns) will return 50 times their investment? **.
One report that looked at the top reasons why startups failed found that it wasn’t always because they ran out of cash (about 29%)**. The top reason was actually because there was no market need for it (42%). And, of the top 10 reasons why they failed, the majority were related to either flawed product development thinking or just not having the right team around them.
With this blog, I’m going to outline some of the steps you can take to increase your chances of product success and see if your idea is something worth exploring. The key areas to explore should be the same whether you are in a start-up or part of a more hierarchical / corporate / innovation lab type environment, but your ways of working may change as a result of that context. In my next blog I’ll go beyond the why, into the how.
To check if my idea is worth pursuing, let’s answer a few questions that we use at DiUS to validate product ideas:
1. Is there a customer for it?
Seems obvious, but you’ve got to have people willing to pay for your product—it needs to make money. Now this doesn’t always mean the user pays as there’s other ways to be able to make money from your product such as through ads, or selling your data.
So for my insurance idea, who are the potential customers? There’s two main ways that could play out:
- If we wanted to start our own insurance company (or at least partner with an existing insurer), the customer could potentially be anyone that buys car insurance. We could also do some user research to further segment customers as maybe this type of insurance would be more desirable to more cautious drivers that aren’t as worried about the insurance company monitoring their driving.
- Alternatively, perhaps we white label it to existing insurance companies which could then offer incentives to their customers to use it.
Perhaps we could even use this as a data play, where road / traffic usage data can be sold to public planners or government agencies, but probably worth checking that assumption later.
So at this stage, we’ve identified a couple potential customers and users, that we’ll further narrow down throughout the process.
2. Is it solving a problem (for the customer) and is it a problem worth solving?
Unless your product is solving a problem for someone, it’s unlikely people will use it. Remember wrong solutions can be fixed, but non-existent problems aren’t adjustable.
So unless you have identified a real problem for the customer, the solution just won’t work. And as good as you make your solution, if it isn’t fixing the underlying problem, users won’t embrace it.
It’s so important not to base your product on unclear or incorrect assumptions about user needs. If you don’t get this right initially, you’ll start down the wrong path and the first Minimal Viable Product that is built, will result in you continually iterating on something that isn’t quite right to begin with. A little like putting lipstick on the pig.
Be careful how you do your user research. You might be tempted to guide users to where you want them to get to (biased by your product goals) so be sure to find out what the customers actually want, not just what they say they want. Often the key is to observe how users behave, not just what they say, to check you’ve identified a powerful need or problem.
For my insurance idea let’s start by doing some user research on car insurance customers to see what some of their key pain points might be. If as part of that, we uncover that the cost of premiums is a key issue then we’re still in business because my key value proposition—that we’d have to test of course—is that we’d be able to offer cheaper insurance as we won’t have as many contestable claims. And this reduction in claims is hopefully solving one of an insurance companies’ key problems—if we go down that route. Also key for us to understand are the feelings the customers are likely to have with the insurance company monitoring their driving and any associated privacy concerns. Would they trust insurance companies to use the information gained fairly?
3. Is there an opportunity in the market?
We need to understand the potential of this product. There’s no point proceeding if the size of the market doesn’t justify the investment. At the same time, we also want to see what competitors we have and whether we can sustainably differentiate ourselves from them. It’s the sustainable differentiations that protect us from the need to continually outcompete our competitors on price. So this comes down to doing some market sizing, competitive positioning and competitive analysis to see what the opportunities are for us.
For my insurance idea, I’ve just done a quick google search and it does appear some insurance companies in Australia give you a discount if you have a dashcam installed—but this is a flat rate across premiums. To help us differentiate, I think we can offer even cheaper premiums, as we’ll look to have some machine learning (ML) smarts to monitor your driving and adjust premiums more dynamically the safer you drive. We probably also want to explore other markets—say, other countries—as this could feed into our bigger product strategy. Let’s assume there’s enough of a market for us and we feel this is a sustainable advantage over our competitors.
4. Is now the right time to try it?
One of the additional lenses we need to consider is whether now is the right time to be doing this. Are our users culturally ready for it? Also, is there any disruptive technology or other emerging trends that we should be considering? Going back to the reasons why startups fail, 13% of them failed due to their product being mistimed.
So for my insurance idea one of our key resources is the technology that’s going to unlock our ability to gauge who is a safe driver or not. This idea is going to need some significant machine learning capabilities and processing to analyse the dashcam footage.
The technology wasn’t readily available ten years ago, so it might not have been the right time, but with advancements in technology speed, storage and ML capabilities, we’re probably in a good position. Although this is definitely something I’d want to validate when we get to shaping our idea later. Another trend that might be relevant here is the ability to justify an ML decision (i.e. as to what is considered safe or not). I also wonder if the changing landscape of data privacy might impact us here. Overall though, I think we have enough to justify continuing on.
5. Is it viable?
We need to know if we’re going to be able to make money from our product. This is going to come down to looking at the business model and make predictions / assumptions about what our costs are likely to be, as well as how much money we think we will make. This won’t be definitive—a lot of this relies on assumptions—and so this will continually need to be reviewed as we continue with our product development.
If part of an existing organisation, one of the important considerations here is whether this new product is aligned with our organisation’s goals and strategy. As well, we also need to understand whether our key stakeholders are onboard. There are so many considerations as part of this, your customer channels, your operating model and your revenue and pricing model. Have a quick exploration of what might work for you but remember this can be adjusted as you move forward.
So for my insurance idea the business viability will be one of the key influences as to whether we go with the new insurance company approach or just look to sell this as a product to the insurance companies. In either case, our key initial setup expenses are going to be around:
- Developing the technology and the processing of that information. This is likely going to require some expensive engineers.
- Operational costs to support the claims process and then the actual cost of paying the claims,or underwriting, or setting up the business. This is probably also the time to explore any potential partnerships.
In terms of revenue we’re going to need to be able to estimate exactly how interested users will be in our proposition, so we probably need to do some more user testing here. Based on all that we need to decide if we think there’s value in proceeding.
At this point, a key risk I’d also like to understand is how the users would feel around privacy and what we can do with that information. Are the potential savings in premiums more of a motivator for the users than the potential privacy concerns they have?
6. What’s the best value proposition to attract our target customers (product-market fit)?
It’s never too early to start testing your value proposition with potential customers (and much better than leaving it too late which can be costly and difficult to backtrack from). For your product to be successful, this type of testing should become central to how you approach your decision making from the beginning right through the product life cycle. You should try and make your testing as realistic as possible, to better understand the underlying user behaviours.
At this point it doesn’t need to be elaborate or resource intensive testing but it should be focused around what’s currently most important, targeting your key assumptions that underlie your product success based on what you currently know. Look for simple ways that you can test that product/market fit within your target market—think simple and lean tests. The original Blackberry was tested using a small block of wood. With digital products there’s a range of fairly easy ways to test things, this could be setting up sample links on your website to gauge interest, using Facebook or Linkedin to test different value propositions to specific audiences, or even getting out and doing some guerilla testing in person somewhere.
It’s important that this type of product-market fit testing happens as much as possible throughout the product development – as this is one of the main ways to get around your own personal biases and receive data that you can make actionable decisions about.
So for my insurance idea, let’s assume we did an assumptions mapping exercise and we now have identified some key assumptions we need to test. Some likely examples in our case would be trying to find the sweet spot between the cost—willingness to pay—and whether they’d trust their insurer to use the information fairly—protect their privacy.
The next step would be to create a few different value propositions that explore those options i.e. very cheap but heavily scrutinised versus a bit pricier but more transparent / forgiving. Then with these different value propositions, we could use Facebook to buy ads to our target customers and see what percentage actually click through. Whilst this might cost us a little bit of money, it’s more likely to give us better results than simply doing user interviews.
7. Is there value in continuing on?
Once you make it to this point, you should have a pretty good understanding of the potential opportunities and risks, whilst we haven’t really gotten into any specifics yet, we should know enough whether we think there’s value in continuing on or not. Remember that it is just as important to know when to kill off an idea, as it is to carry on—especially given if it’s your own idea, you’re probably a little biased towards it.
If we did want to take it further, we probably just need to add a little more meat to the bones of this concept and start shaping it into something more tangible.
So what do you think? Will you invest? Let us know your thoughts on our DiUS Product Community on Slack.
DiUS can help If you’re looking to explore or validate a product idea of your own – contact us for a free discussion on the type of approach and experiments we’d try in your case.
I’ll cover off how to go about shaping your product further in my next blog so stay tuned. In the meantime here’s my step-by-step guide in a handy checklist.
** Statistics sourced from: The Invincible Company, Osterwalder, Pigneur, Etiemble, Smith. https://www.cbinsights.com/research/startup-failure-reasons-top/