Idea extraction was a mystery to me for quite some time. Specially when it is for business purpose.
News, Now I am a partner in a SaaS (Software As A Service) with two other guys.
As this is quite a new business for me, I thought it would be great to share my experiences with being involved in a software company as it isn’t as commonly written about as say, content marketing/blogging/seo.
So let’s start with the beginning; idea extraction.
What Is Idea Extraction?
If you want to build software that people will buy, you have to have a problem that it solves and a market that is interested in paying to have that problem solved.
There are two ways to go about this.
Come up with the problem, and then find the target market it applies to.
Come up with a target market, and find out what problem they want solved.
Idea extraction is the process that applies to the latter.
It is the process by which, having identified a target market, you extract an idea from them.
The brilliant thing about this method is you have already identified the buyers and come up with the “perfect” solution, since it was drawn up by the market itself. In theory, if you can find enough people who describe the same problem, then you have a winner (as well as a group of potential buyers).
If done right, you never have to worry about not having any customers – because you don’t build the software without them.
As many people usually approach business from the former (here’s my idea, let me find someone who is interested), and we all know how tough that is, this logic probably resonates with a lot of you.
But hold on, it’s not that simple, first you have to identify an industry.
How To Identify An Industry For Idea Extraction
Idea extraction is a term coined by Dane Maxwell from The Foundation – a very successful (at least financially) course on software. If you follow their methodology, then identifying an industry for SaaS boils down to seven criteria:
Criteria Number 1: Lucrative industries are preferred
Criteria Number 2: Profit driven businesses
Criteria Number 3: Roughly 5,000 to 10,000 businesses (or more) in the market industry
Criteria Number 4: Reachable by phone, email, facebook, linked in, twitter, or message boards.
Criteria Number 5: Can get person with pain point on the phone
Criteria Number 6: The average successful business earns at least $100k per year in revenue, and ideally profit (guestimate this)
Criteria Number 7: The business currently pays for software of some kind
Examples: property management companies. physical therapy practice, chiropractors, pilates or yoga studios, graphic designers, realtors.
Seven criteria may seem like a lot, but if it were up to me I would add a few more. Really – this doesn’t exclude that many businesses.
I’ve read quite a bit about people who chose industries that seemingly fit all the bills, and then discovered things later on that made idea extraction incredibly difficult.
I can also validate this from my own experience identifying industries and going through the idea extraction process.
Here are the criteria I would consider adding:
- Not overly technical – If your industry is say construction, or engineering, and you are not already an expert in those industries you are going to be in a world of pain when you try to find their pain. Now it’s true, that these are killer industries such that if you did create a software that solved a major problem, you would probably be an instant millionaire. Getting to that point, however, is incredibly difficult as a result of how technical and complex these industries are. This is why I recommend trades like painters, lawn care, etc. These concepts are relatively easy for anyone to understand.
- Decision maker (director level and up) understands his/her business at a high and low level – Here’s the problem. You want to speak with someone who makes business decisions, because ultimately you are going to try and sell them a product. At the same time, a lot of people who make business decisions are not the people who use software day to day. For example, the waitress who uses the software to create receipts is not the person who decides whether or not to purchase it. You want a decision maker who knows what entry level people are doing on a day to day basis, which in my opinion lends itself to smaller companies.
- Industry you are interested in – At a minimum you should be interested in the industry. This is potentially you going into business with people from this industry. If you don’t like what the industry is about, or the people that are in it, then don’t create a business around it. This seems obvious but a lot of people, when they get started, don’t actually get the idea that they might be creating a business down the line (it’s still not real for them). This makes it easier for them to overlook this fact. Additionally, if you have connections (relatives who are in the industry) this can make all the difference.
Why Is Idea Extraction Hard?
Now you may be thinking that all of the above sounds easy enough.
Well, think again.
Idea extraction is anything but easy. I’ve talked to dozens of industry professionals (having called dozens more) and only walked away with two ideas that seemed even remotely promising. One of them I am going to be sharing in an audio at the end of this post.
Here’s what makes IE hard, and what you can do to help:
Cold Calling And Cold Emailing Sucks
If you have never cold called someone, it isn’t very fun. These are business professionals. They are either too busy to deal with you, or think they are too busy. Either way, you have to convince them why they should hang around on the phone with you for even 5 minutes, let alone 20-30 minutes which is what it will take to derive anything useful.
Naturally, expect the response rate to be very low – like, single digits low.
Ideally, you are trying to get someone on the phone. I am not an expert, but here are two ways to go about it.
First, you can try sending an email to break the ice and introduce yourself. Then try to transition into a phone call.
Second, you can try cold calling. Often you will catch the person at a bad time. That is OK though. You have made yourself known. Offer to follow up with an email, and then transition that into a phone call (now that they know who you are).
Getting The Right Person On The Phone
You are looking for the persons who make business decisions. You also want them to be aware of how the business operates day to day (at a low level, like, what are the mundane tasks that get done, for which software might be a solution). These people are not easy to find, and depending on the size of the company might have “gatekeepers” i.e administrative assistants who put you through. Be persistent and follow up. Picking the right industries really helps.
Getting The Information You Want
OK so you got the right person on the phone – now what?
Well, you have to identify their problems. Unfortunately, not everyone is super willing to share them with you.
I mean, imagine some stranger called you and asked you what you were struggling with today. You’d probably hang up – right?
The key is to warm the person up, build a rapport with them, and slowly transition into the problems area. When you’re there, you have to dig deep. A lot of people have problems. Not everything can be answered by software.
I had one person tell me that seasonality was a problem for their business. Perhaps there is more there, but at least on the surface, software cannot change the seasons.
How To Make Idea Extraction Easier
There are a few tips I picked up from doing calls that definitely make the process easier.
Have Scripts, And Keep Them Handy
Don’t go into every call cold unless you are some sort of smooth talking James Bond. Every time I made a call, I had my script written out in front of me. Not to sound rehearsed, but to sound confident and to speak without interruption. Confidence is key. Not just having it, but exuding it. It’s what makes a person want to talk to you. This is super important for the intro.
Additionally, I always keep a list of questions handy. Again, not to just rattle them off one by one, but to not ever be in a situation where I didn’t have a question to ask, as long as someone was willing to answer.
Record All Your Calls
It is definitely difficult to lead a conversation and internalize everything, on the fly. Record your calls and then you can always refer back to them. It is particularly useful if you are going to have multiple calls with the same person. Since I am traveling I used Skype. I actually bought a Skype number from Framingham Massachusetts to look a bit more local (since I was calling companies in the Boston area). It also allowed me to leave a call back number, which is very important when leaving voice mails. This recorder works well for me. I would set it to auto record all calls I initiated.
Organization Is Key
You will be calling and emailing dozens of people, and you want to have an organized way to keep track of them.
- Who has been emailed?
- Did they respond?
- If they didn’t respond, did you follow up?
- Did you get on the phone, what did they say?
- Where did you record that call?
- When did they schedule the meeting?
I created a Google Doc for myself to keep track of all this. Take it slow and steady and after each call make the appropriate notes.
Choose Multiple Industries At First
At first, I recommend choosing different types of industries. Eventually, of course, focus is key, however, I think it’s a bit ridiculous to think that you can just nail an industry on your first try.
If you choose a couple to go after you can get a feel for different things, like, which people are easier to talk with on the phone? Who is more likely to respond? Can you get in touch with a decision maker?
Once you have figured that out, go all out on that industry until you have an idea of have a reason to change.
Ask For Referrals
A referral is the easiest way to get someone to give you the time a day. After each call, ask for a referral. People in the industry know other people in the industry.
Use Their Name
As you are trying to build a rapport with someone, it is best to try to use their name when appropriate. Obviously don’t go overboard here, but little things like “Thanks Tim, I really appreciate that” help people warm up to you. If you don’t already have a Point Of Contact, usually someone says their name when they answer the call – remember that because you only get one shot.
Scripts For Idea Extraction
Here is a script for the cold emails I would send out.
Subject: Can you help me Anthony?
Message Body:
Hello Anthony,
My name is Dave and I’m a software engineering student at Harvard University. I’m doing a research project on the Test Prep industry to see if there are any big problems for which software could be a solution.
Is it possible to put me in contact with someone who can answer a few questions?
Essentially, I’d be looking to understand.
– A bit more about your industry and business
– Some of the day to day activities, specifically the ones that seem repetitive, dull, or boring
– Understand how you are currently handling them
This is not a sales call, and if you would prefer to simply answer these questions in an email, that is also fine – I don’t want to take up your valuable time, but I am hoping to deepen my understanding of the industry.
Thanks!
Dave
Here is a script for the introduction on the phone. There is a bit of a white lie here in that I am no longer a student but graduated a few years ago. I figured people, especially in the test prep industry, would respond better to students.
Hello my name is Dave and I’m a software engineering student at Harvard University. I’m doing a research project on the Test Prep industry to see if there are any big problems for which software could be a solution. Is there anyone available to answer a few questions, because I would really appreciate it?
Here is a script that I would send after a cold call (if the person suggested I send them an email to set up a time).
Subject:Follow Up From Today’s Call
Message Body:
Hey Lauren,
My name is Dave and I spoke with you this afternoon. Sorry to have caught you at a bad time!
Just a reminder, I’m a software engineering student at Harvard University. I’m doing a research project on the Test Prep industry to see if there are any big problems for which software might be a solution.
If you have a few moments to spare, I was wondering if we could set up a brief call.
Essentially, I’d be looking to understand.
– A bit more about your industry and business
– Some of the day to day activities, specifically the ones that seem repetitive, dull, or boring
– Understand how you are currently handling them
This is not a sales call.
Thanks!
Dave
Here is a list of key questions I might ask, depending on the conversation.
- Tell me a little about your business and the test prep industry?
- What does a typical day look like for you?
- What do you like the most and what do you like the least?
- What activity in your business takes you a lot of time?
- What is the biggest problem in the industry?
- Are you currently using any sort of software?
- Are there any features missing in your current software that you wish existed?
- How much time/income could that generate/save?
- What would you pay for a solution to $$ problem?
Case Study – An Example Of Me Doing Idea Extraction
The following is an example of me doing a quick idea extraction on someone in the lawn care/snow plow industry. It’s about 13 minutes long, and it’s actually a call back from an email that I sent.
This is definitely not a perfect call. It is also not super typical, because I was able to wrap it up very quickly by just getting straight to the point as it was 5PM his time and I didn’t want to keep him with all the usual questions.
I guess it goes to show that there is no typical idea extraction call.
I chose it because it actually reveals a viable business idea that Chris said he would pay for.
Volume is a bit low on this, headphones are recommended. Total call time is 12:24.
Additional Articles On Idea Extraction
If you found this interesting, I have collected some additional articles on the topic.
- How To Find Profitable Business Ideas
- Live Video: Dig Deep to Find the Most Painful Problem
- FINDING IDEAS FOR YOUR NEXT PROJECT
- Weeks #3-4: The market I’m targeting
- The Foundation: How Entrepreneurs Come Up With Profitable Ideas (Out Of Thin Air) – with Dane Maxwell
