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Just recently a VC asked me to do an executive summary for SetJam, so I decided to use Angelsoft to build it. I'd listened to 1000s of entrepreneurs talk about the software. I'd watch them use it. I'd personally done 100s of executive summaries with the software, and I'd even done them for previous companies I'd started, so I'd have to use real data. It wasn't until I was actually doing is AS an entrepreneur though, when my reputation was on the line, that I really saw some of the short-comings.
It's a real problem for companies that are building products for third-parties. Everything you suggested is great, but details are what separate great software from garbage, and you just can't see them unless you're using the software with intent. Maybe method-acting classes are what product managers really need.
If you follow this path, you need to be super honest with yourself. Working/coding is not the same thing as using your app (as a user would). Are you using your service because you built it or because it adds value/allows you to do something new? Are others using it?
If you're really honest with yourself, scathing your own itch can go a long way.
Great quote "details are what separate great software from garbage, and you just can't see them unless you're using the software with intent."
It can be done (my statsfeed project was a business I backed into out of solving a personal need)...but I think it's more the exception than the rule (from my own personal experience I probably have another 100 examples of things I built to solve my own problems/needs that I later thought I might be able to turn into a business...only to later realize at some point during the journey it wouldn't be worth the effort/return to keep at it)...
So +1 to 'it depends' :-)
Most of my work these days relates to social web technologies. This often leads me to new ideas about social networks and consumer products in the space. But there is always a nagging feeling that while I understand the technology and think I understand the product, I just don't use it. I think this is the case where being connected to the consumers requires being a consumer.
If you're in the market of making a product for yourself, you better be using it, because if you can't convince yourself of its value, you can't convince others. But if you're not a target of the product, you don't need to become the target (and therefore, there's no need to eat your own dog food there).
Maybe I'm coming at this too strongly from an evangelist/biz dev/marketing perspective, but "believing in one's product" isn't the same as "using one's product". Sometimes the former requires the latter, though.
And on the wide open seas of the web, users can intuit authenticity pretty quickly. I guess I agree with Charlie that you don't have to be the intended audience. (Taking the opposite viewpoint to its logical extreme, all toy executives, children's book writers, and cartoon animators would be kids.) However, I think you need to have some sort of organic, authentic, and ongoing relationship with the community.
Further afield, as an interesting counterpoint to children's products of another industry where the providers are almost unavoidably not the consumers is charity/philanthropy. However, unlike toys, charity is doubly problematic because it lacks a true market-based method of separating the effective from the ineffective. Separation of provider and consumer along with the lack of a market-based mechanism results, inevitably and unfortunately, in the development and application of a lot of inappropriate solutions. [This is not an argument for less charity. Just solutions that integrate the charity consumer more firmly into the "development" process.]