This question could easily become multiple articles or even several books, but it is a solid question.

1. Look for Opportunity - what or where are the current gaps within the market? What are competitors not doing? Who are they not serving?
2. Get Validation - ask your "ideal user" or "target customer". You can ask your friends and family if they meet your target users, however, it is much better to get candid feedback from people you don't know (family and friends tend to be overly agreeable). At this point using Polls and Surveys can be helpful. Also, test the waters on Kickstarter or IndieGoGo and see if people are actually willing to pay for what you are producing.
3. Deliver Minimum value first - This follows the "Lean Startup" methodology of building your minimal viable product. This doesn't mean release a buggy product or one that hasn't been thought through, it just means delivering the smallest functionality that will work properly and still provide value for your customers.
4. Iterate on your product or service - you must always look to add additional value to your product and service. Look for ways to improve it (features, functionality, usability improvements, cost reduction, a product line instead of one product, etc.). Iterating is a continuous process, so repeat from 1 to 4.

Does that make sense? I'd be happy to hear if you have additional questions on this topic.