To get good startup ideas, look for anomalies

Most entrepreneurs are aware of product-market fit. It’s a good advice but I have an issue with the term “product-market fit”. It makes an entrepreneur focus on product first, market second. The words we choose to describe the world ends up shaping the world for us. This means not all “social networks” are the same and words you choose to describe an innovation has a significant influence on how much customers value it.

Repeated usage the term product-market fit, develops a mental model where the entrepreneur’s inclination is to make a product (or get an idea) first and then go out in the market to test it. In fact, that’s what Lean Startup and other methodologies suggest. Quick experiments and fail fast.

The issue with this mental model is that it doesn’t work most of the times. I’ve been involved with tens of product failures and have seen many other startups struggle because they’re trying to find a product-market fit where there is none. Starting with product or an idea also leads an entrepreneur vulnerable to confirmation and overconfidence bias. Because an entrepreneur starts with an idea, she starts latching on to even slightest of positive news while explaining away (or ignoring) all non-usage with various reasons. Evidence of absence is not absence of evidence. According to my experience, confirmation bias is the number 1 reason for startup failures that not many talk about. (However, there are hacks to avoid cognitive biases).

Market-product fit, not product-market fit

I came across the term “market-product fit” here and since then I’ve come to appreciate it. The key implication of this swapping of words is that an entrepreneur searching for market-product fit starts with the market first and then derives a product from it. It’s a subtle shift but that makes all the difference.

Subtle difference, but a shift in mindset

A classical example of market-product fit is how Sony’s founder Akio Morita created Walkman. He observed teenagers lug heavy boomboxes with them to beaches and realized many places where music is needed are not convenient for a heavy music device. So he asked his engineers to create a version of the boombox that can be carried along. (Sony was able to execute on the idea because they had a prior experience in miniaturizing electronics and they were able to market it because they had existing distribution and brand; remember, we’re talking about ideas here, and not capability or economic profitability of executing and marketing those ideas).

My initial startup attempts were all idea-driven. Kroomsa was my idea of putting college-band indie music online. Wingify’s first platform was an all-in-one marketing software. None of them succeeded. What worked for me was trawling through online marketing forums and observing people describe their struggle with Google Website Optimizer. The result was my first successful product: Visual Website Optimizer. Of course, I know this only in hindsight but it makes sense from first principles: any evidence of a pre-existing consumer behavior is an experiment already done for you. The data point that teens want to listen to music on the go was one less experiment for Sony. Similarly, the data point that well-paid marketers were doing A/B tests and struggling with it was one experiment less for me.

Compensatory behavior is compensatory to what?

All this may suggest to you that I’m recommending looking for compensatory behavior by customers. Innovative customers in any market are already hacking together solutions that an entrepreneur can improve upon and standardize for the rest of the market. But the trick here is to ask yourself: what’s a compensatory behavior and how would you identify it?

Compensatory behavior implies that users know that their existing behavior is compensatory (and suboptimal) to a better solution out there. But that isn’t the case. If users are aware that their behavior is compensatory to something else, they’d go and get something else. This is why you can’t simply survey people and ask “what are your compensatory behaviors”. I know this doesn’t work because at Wingify, we tried it and got no useful results. What customers are doing is doing what seems natural to them. Whether there’s a better way of doing things is a job of an entrepreneur, not customers.

So what works?

Look for surprises, study anomalies

If people aren’t aware of their compensatory behavior, the job of the entrepreneur becomes that of an observer. Look around you and ask: What seems odd? What shouldn’t be happening but is happening? What’s happening but shouldn’t be happening? Entrepreneurs are explorers first, inventors second. Once you find these anomalies, then look for the “why” behind such behaviors. Why are people doing this? If it was easier/legal/cheaper/faster, will others do it too? You don’t have to copy customers behaviors and offer it as a solution. Rather you have to understand underlying motivations and design a solution for supporting those motivations. Remember, nobody likes using technology.

The anomalies and surprises will give you a starting point, but it’s important to probe deeper into understanding what’s happening and whether it represents a valid business opportunity. I’ve made the mistake of jumping right into the first idea that seems even half-good. The positive signal is usually an indication of confirmation bias at play. Remain skeptical but optimistic.

There are many ways you can still go wrong in business: maybe what you observe is a quirk, maybe it isn’t applicable to a wider market, maybe you can’t design a better solution than the current one, maybe you can’t market it profitability, maybe once you make it, an established competitor copies it. Discovering and executing a profitable business is hard and all these failure possibilities are real. But you have at least reduced one point of failure, and that is: someone already is in the market for what you’ve observed.

Some examples to make you think about market-product fit:

  • What are people doing in spite of governments not allowing it? Avoiding taxes, buying drugs, speaking freely. What are motivations for those behaviors? How would you address those motivations in a legal manner?
  • What is everyone annoyed by but people still do it anyway? Talking on the phone at movies, long queues at the grocery, not getting enough likes. Why are they doing that?
    Is there a better way?
  • What do your neighbors do that you find surprising? Early morning running,
    multiple locks in-house, not paying enough to maids. Why is it surprising? Are you, not them, an anomaly?
  • What are your friends or cousins obsessed about (that you don’t understand) Trying new bars, photos of their kids, posting good wishes on Facebook. Why are they doing it?
    Is there a better way of accomplishing the same desire?

What anomalies have YOU spotted in the wild?

Now that you’ve read the article, I have a question for you.

What shouldn’t be happening but people are doing anyway? Tweet your response to me as a reply to this thread and I’ll retweet the most interesting examples. In the same thread, you can also check out and comment on what others proposed (if you are an aspiring entrepreneur, I recommend checking out people’s responding and asking yourself: why did they mention it and how can I help them achieve it).

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