This process involves a two-phase approach. The first phase consists of finding external information and separating good ideas from bad ones. It includes a series of loosely-related steps such as:

• Gathering data: asking friends, friends of friends, searching the Internet, posting questions, reading books and articles.
• Analyzing ideas: finding gaps in the market, eliminating possibilities, developing rough models.
• Connecting dots: exploring ways to involve others, either as employees, suppliers or consultants, relating people’s contacts, experience and interest outside of core to support the idea.
• Validating assumptions: finding supportive evidence, asking for feedback, refining ideas.
• Formulating a model: one that seems feasible for the founders, not necessarily for the people they might have asked.

The perfect place to find ideas is within the market or industry. The goals are to find a group of customers who would buy or use a similar product or service and then to behave in a similar way regarding such purchase or use. We call the group of potential users a ‘market.’ A market is evaluated in terms of number of customers, number of clients, number of sales and total revenues. Some people call this an ‘industry.’

Markets develop in a predictable way:

1. a few people are curious enough to try a new product or service
2. another few see some advantages of being first to use it
3. it becomes popular
4. it becomes a necessity
5. it is substituted by another product or service

As you can imagine, it is much easier to enter a growing market than to create one or to enter a shrinking market. For years, cars, fuel, electricity, fax and phones were considered very interesting growing markets. They faded and gave way to Internet services and mobile phones, which faded too, and are in turn giving way to the mobile Internet and social media. Break-through innovations follow the same curve all the time. Finding a new market is very interesting because there is no point of comparison with regards to prices and conditions, so the firm is establishing the rules of the market.