5 strategies for coming up with business ideas

In this post, I want to detail five different ways in which I've seen founders come up with ideas, with examples for each, as well as the strategies we use for idea research at Software Ideas.

Let's dive in!

1️⃣ Scratching Your Itch

Scratching your own itch is, I believe, the most common and the worst approach to coming up with ideas - mostly because people don't really understand what it means to actually do this correctly.

Here's the problem - most new founders aren't sure how to go about exploring new ideas, so instead they focus on what they think they would buy themselves. This is usually called, "Scratching your own itch."

So, what's wrong with this approach?

The problem is that this approach encourages you to self-validate your own idea.

You may even skip validation entirely, because you think you've "proven" demand by scratching your own itch!

Take a look at the hundreds of failed startups post-mortems at Failory, and you'll find plenty of examples where someone scratching their itch didn't translate into market demand.

To put it more simply, when you rely on "scratching your own itch" for coming up with business ideas, and you do so without proving market demand, the idea doesn't have any proof of being a good idea besides your own, highly-biased, opinion!

The right way of scratching your own itch:

Building a product that you've personally seen to have market demand, but which also has unsatisfactory solutions.

If you can say to yourself, "This is something that I've seen my company buy and been unhappy with, or try to buy and not found a good enough solution," this is a great idea for scratching your own itch!

The key here is that you've seen the market demand first-hand. You have proof of it and can point to a specific example of that demand. This makes the idea much more likely to be a good one compared to the regular definition of scratching your own itch, which only proves that you like your own idea... which isn't a very good indicator of market demand!

In fact, identifying market demand is the key to all of the different methods we'll talk about in this post! At the end of the day, all of these strategies are just methods of doing that one thing.

2️⃣ Audience-Driven

"I just shared everything I learned during [building an agency]... That kind of worked, but it mostly built a great email list of people... That was kind of the origin story of what became RightMessage. Which was basically a reaction to people saying, "Hey that thing you're doing is pretty cool, but I'm a marketer, I'm not a coder. I want it, but I don't want to hire a coder. Can you help?"

• Brennan Dunn, RightMessage ($18k MRR) (Interview Link)

An audience-driven approach is arguably the most reliable way to build a business, which is why it's gained so much popularity as of late. The idea is really simple: use your existing audience to identify business challenges, and create products that help those people!

The reason this approach works so well is two-fold.

First, having an existing audience means, by definition, that you already have a marketing channel that you can use to grow your product!

This is a big deal, since according to @csallen, many Indie Hackers fail exactly for this reason:

You need an answer to the question, "How am I actually going to reach my customers?"

The number one mistake here is skipping this step entirely. Especially if you're a developer, a designer, or a creator of any kind—you're antsy to get to the product. Growth-related activities probably seem boring, perplexing, or even nefarious to you. You'd rather just build something so great that it grows on its own.

Sadly, that almost never happens. Relying on it is akin to playing the lottery. Sure, you've seen some stories. Some people win. But probably not you.

Remember that even though artists like to complain about the record labels, they do record deals regardless. It doesn't matter how great your music is if nobody ever hears it. Your business can't make money if you can't reach your customers.

This is too crucial an aspect of your business to put it off and leave it to luck.

Courtland, IndieHackers (link)

Having an audience means that you have an email list, Twitter followers, or something similar that you can use to easily reach out to potential customers. By going this route, you already have at least a partial answer to the question of "How am I actually going to reach my customers?", which dramatically increases your chances of success!

The strategy here is simple. Using your existing audience, find what people keep complaining about. Pay special attention to problems that people are looking to spend money to solve, but they can't find a solution that works for their use case.

If you have a unique use case and a problem people will pay you to solve, congrats! You've found a potential business idea!

For more on the subject, check out @arvidkahl new book, The Embedded Entrepreneur: How to Build an Audience-Driven Business

3️⃣ Audience-First

"I've been building communities for a long time, but I always failed (or found an excuse) not to participate in the communities for community builders. I know, kinda funny.

As part of my own personal progression I wanted to change this.

As part of this process I set up a page of resources to help myself. I also decided to set up a newsletter, this was mostly to help keep me accountable of staying on top of current news...

(Six months later...)

It's been 2 months since I started my paid newsletter and this is where I'm at.

50 paid subscribers, $8k+ annualized revenue, creeping closer to 1000 email subscribers in total.

... My dream is to get 1000 subscribers, slowly but surely!"

• Rosie Sherry, Rosieland updates (link)

Audience-First is a subset of Audience-Driven, but I like to separate the two because I feel they are different. If Audience-Driven is about leveraging an existing audience to come up with product ideas, Audience-First takes an even more radical approach.

Audience-First is about deciding on a niche where you feel you can provide value, building an audience from scratch, and then building paid solutions for that audience.

In other words, the Audience-Driven approach requires you to already have an audience, but Audience-First starts from zero.

Audience-First is the harder one to pull off, because you'll have to be okay with not making money for a while until the community grows. In the meantime, you have to put substantial effort into providing value and growing your audience, which can be tough.

However, this approach continues to grow in popularity due to its consistency. If you can succeed in building a strong audience, the opportunities to build paid products for that audience will come naturally and will be much easier to sell!

4️⃣ Agency-Driven

Prior to founding Condeco Software, Paul ran a software development company called Condeco, which he founded in 2000.

It was while running Condeco that the idea for the software was birthed.

Paul noticed that many of his clients came to him to build a scheduling & desk booking tool for their business. And once he saw this pattern, he decided to create a solution that could solve this problem for that audience.

And that solution is what became Condeco Software. And after a while, Paul stopped taking on client work and decided to focus entirely on building the software business.

Software Ideas Newsletter, Issue #30

Similar to Audience-Driven idea generation, where we focus on building ideas for our existing audience, Agency-Driven ideas come from existing clients of our agency!

Of course, this approach only works if you already have an agency, so I'll keep it short.

Here are three ways to leverage your agency to come up with product ideas:

1) Identify common tasks that clients hire you for, and build a SaaS that solves that problem without the need for an agency.

Same as the example above, this approach is mainly for software agencies. If you find that your company is building the same thing over and over again for clients, it's probably a great candidate for a dedicated SaaS solution!

2) Build a lightweight version of your agency's services as a SaaS product.

For example, WordStream offers a $299/month service that includes regular goal-setting sessions and hands-on support, but they also offer a $49/month SaaS-only product that is perfect for companies that need the tools WordStream provides, but are willing to do the work themselves.

Update: Interestingly, it looks like WordStream has recently shifted their business model in the last week to be more of a lead gen tool for LocalIQ, their acquiring company back in 2018. Take that as you will!

3) Create an internal tool that helps your agency work faster or better, then sell it to other agencies!

This approach reminds me a lot of an audience-driven approach, except that instead of listening to your audience for pain points, you listen to your employees!

This is a really interesting way of transforming an agency into a software/agency hybrid that I haven't seen many examples of. If you happen to know (or are part of) any agency that has done this, share your experience down below!

5️⃣ Market-Driven

Lastly, we have the strategy we use at Software Ideas, which I call Market-Driven idea generation. Like the other "driven" models, the Market-Driven approach uses existing software markets to identify places where customers are not satisfied with the current solutions.

With this approach, you start by looking at successful companies, instead of jumping immediately to a problem to solve.

A great place to start is Capterra's software categories list, which will really open your mind to the thousands of different types of B2B software that exist!

From there, I like to find a company whose value proposition catches my interest. Then, I'll research the following information about them:

Questions for Market-Driven research:

• How many customers and how much revenue does this company have? Are they profitable?
• How do they compare to their competitors? Is this a relatively large company, or a relatively small one?
• If small, how are they able to out-compete the larger companies in their space? What are they doing that's unique?
• Why do users choose this product specifically?
• Are there customers that are unhappy with this product due to their unique use case?
• How is this company attracting new users? What forms of marketing do they offer, and which of these are successful?

The nice thing about this approach is that it lets you evaluate the entire business model, not just the product idea. When researching other companies, you'll see the marketing channels they are seeing success with, the price-points that the market accepts, and how companies in each software category position themselves differently to attract different types of customers.

Once you have a solid understanding of the current landscape, the gaps in the market begin to show themselves. You can identify where a particular software doesn't seem to meet the needs of a particular niche or a subset of users, or identify high-demand features that haven't trickled down to the general market yet and are only available in high-priced enterprise tools.

The main benefit of this approach is that you're starting from a place where there is market demand. You already have a clear picture of what the audience looks like for this software market, how much they're willing to spend, and the various use cases and sub-niches within that market.

By limiting ourselves to markets where where companies are already spending money to purchase this type of software, we have a much higher chance of landing on an idea with market demand!

After all, we already know that companies want this type of software, so the only question that remains is, "can we build a version of this type of software that is the BEST product on the market for a specific group of users?"

Outro

It's important to note that these are different ways of finding ideas, but ideas are not automatically good ideas just because they were made using one of these methods.

I want to write a longer post on what makes a good idea in the future, but for now, I'll leave you with two resources:

1. @csallen's top post of all time on how to brainstorm great business ideas is a fantastic resource.

2. I open-sourced my Notion template for validating ideas, which includes over 30 real conversations with potential customers from when I validated and pre-sold Software Ideas. If you've ever wanted to see what real-life validation conversations look like, you'll want to check that out!

Thanks for reading! If you liked this content, you'll probably also like Founder Flubs, the free series I'm writing on the most common mistakes I see (or made myself!) while working with hundreds of founders over at Software Ideas!