By now most people will appreciate that we begin the New Venture Discovery process at Kellogg by focusing on “problems” instead of “solutions”. There are a number of reasons why we take this approach. At the end of the day it boils down to this: there are often a number of different ways to solve any particular problem. Being married to one approach/solution too early will stifle an entrepreneur’s objectivity (and creativity) when it comes to the process of customer discovery and the development of a compelling new offer.
You’ve heard the old adage, “If the only tool you have is a hammer, everything looks like a nail”? Well, if the solution you have in mind an ios app, every potential customer looks like someone who has been waiting with bated breath for a product just like yours to show up in the App Store.
So what makes a good problem?
We’ve taken a shot at trying to frame some criteria that can be helpful when thinking about what makes a good problem on which to build a business. (There are numerous points of view on this – and below we have listed a few articles and blog posts below that are worth checking out).
A good problem is…
A “sizable” problem is one that it affects a large enough market to build a business around and offers you degrees of freedom (viable options/different paths) in scaling it.
So what constitutes a large enough market? Well – that depends on the business you’re in, what type of entrepreneur you want to be and how you plan to grow.
Small, local businesses for example may be content to grow organically serving only the communities that they are in (think main street/retail). High Growth startups that seek venture funding, by contrast, typically need to be pursuing ≥$1B opportunities. This might come from selling a $2 product to 500M customers, or selling a $1M product to 1000 customers.
For the purposes of New Venture Discovery we are interested in focusing high-growth businesses. We are looking for ideas that can be scaled quickly.
Note: you may believe that the existing addressable market doesn’t appear to be sufficiently large, but that your idea has the potential to expand the pie, by creating a new usage occasion (e.g. couch-surfing with the iPad), increasing purchase frequency (e.g. the ease of Uber), appealing to a new user segment (e.g. the affordable luxury of Lexus in 1990 ) the opening up or expansion into a new channel of business (e.g. Amazon.com, MOOCs) etc. While this is a great way to be thinking about your idea, you’ll have to work hard to make your case to an audience of potential investors. It’s a lot more challenging to make the case that you’re expanding the pie, which is being truly disruptive (and wonderful) than to take market share away from an existing set of competitors.
“Accessible”, in this context, has a couple of meanings:
Meaning 1 = Can you reach (and actually get in front of) the customers/users you intend to serve? In our opinion, this is one of the BIGGEST SNAGS for start-ups. We’ve seen more ideas go into the scrap heap because of their inability to gain access to the target market, whether it’s due to high user acquisition costs, reticence of users to change existing behavior, or structural entry barriers (e.g. slotting fees in supermarkets), etc. So don’t underestimate the challenge in this key area.
Meaning 2 = Does regulation or other market/non-market forces block a path to entry into this market (this does not include competition – we don’t want you to be afraid of that – at least not at this stage).
Your market must be accessible to you in order for you to properly learn about your customers and commercialize a solution.
3. Un/Under Addressed
So as obvious as it seems, you should focus on opportunities where customer/user needs are being unaddressed, or at the very least under-addressed. These might be functional needs (like wanting something faster, better, cheaper etc. than they are getting it now) or higher-order needs (like feeling less lonely, more confident, more interesting etc.).
We are constantly surprised by how many “better mousetrap” business ideas we see where the entrepreneur has no idea of whether or not users feel like their needs are being adequately addressed by existing offers or not. Of course the entrepreneur feels strongly that an unmet need exists…but does anyone else…especially anyone that will be paying for the product??
The customer discovery process is designed to dive in to this question in detail, but before we get to that level or research there are some quick sniff tests that an entrepreneur can perform to get a sense for whether or not there is a true “there there”.
Will someone pay you to solve the problem?
If ‘yes’: you have a business! If ‘no’: you have a charity.
(Along these lines, be careful when you advocate a “freemium” model. We’ve often seen that freemiums stay free—customers don’t easily segue to your paying model…)
If the problem that you are trying to solve with a startup is that “kids needs mintier-tasting toothpaste” there is a finite number of approaches to solving it.
The best startup problems are ones that allow the entrepreneur to explore the conceptual macro challenges related to the problem. In other words: problems for which there are number of different potential solutions.
A more conceptual version of the toothpaste problem might be: “how to get kids to bruth their teeth longer or more frequently” or “kids need a toothpaste that makes it more exciting to brush their teeth.” Now we can explore innovations not just with flavors, but also with packaging, experiences, and more. Could be that the end result is not toothpaste at all.
The more conceptual the problem, the more shots-on-goal we get with possible solutions.
Most of the easy problems in the world have already been solved.
If you find yourself saying, “I can’t believe that nobody as thought of this!” chances are that someone has. It could be that the reason you are not aware of this is that it has been tried…and failed for one reason or another.
We don’t mean to sound cynical, but most good, high-growth businesses are built around solving hard problems (technically, commercially, operationally etc.). It’s where true, defensible and lasting value is created. PLEASE resist the temptation to go after a problem you think will be easy to solve. Chances are it is indeed easy….and therefore it has been (or is being) tried.
The most compelling startup pitches come from entrepreneurs that are passionate about the problem they are solving. In fact the best entrepreneurs are more than “passionate”- they are “obsessed”.
This type of passion/obsession is almost impossible to manufacture. It is usually rooted in a personal connection to the problem, the customer being served or the solution being created.
Too much passion for a particular solution can also be a very dangerous trap for a founder (for many of the reasons touched on above), however passion for a problem or customer segment can be the fire-in-the-belly that fuels an entrepreneur though the inevitable challenges that go hand-in-hand with starting a high-growth business. Those that have this type of connection are unusually able to demonstrate deeper empathy for the customer, which often results in a more compelling and human-centered solution, as well as being more open to exploring multiple ways of solving a particular challenge.
Try to find a problem that you are personally passionate about solving. There is just no substitute for authentic passion.
Other articles and blogs worth checking out on this topic:
Paul Graham: “How to Get Startup Ideas”
Kauffman Foundation: “The Itch”
Mohan Sawhney: “Is Your Startup Solving a Worthwhile Problem?”