As an early stage startup founder, whether you are looking to raise investment, do some bootstrapping, or a bit of both, there are three questions you need to evaluate before you go any further. Failure to do so could cost you a lot of unnecessary time, money and effort.
I talk to startup founders every week and always ask these three questions, and the answers can range from intelligent, obfuscated, to downright bizarre! But onto the questions, and the order is important:
1. What problem are you trying to solve?
This is by far the most important question you need to answer. If the answer to this question cannot be stated clearly, it is likely that you are trying to solve a problem that doesn’t really exist. Similarly, a response along the lines of :
“We can’t answer that right now because we are solving a problem that people are not aware exists yet”,
really means that you’re not solving a problem at all.
Let’s look at that last one and then see if there is anything that appears to contravene it:
How did we cope before the mobile phone existed? Did we even know we needed one?
Henry Ford is often quoted as saying that if he would have asked people what they wanted, they would have asked for a faster horse.
Steve Jobs is rumoured to have said that customers don’t know what they want until we have shown it to them.
You could take any of the above to imply that there doesn’t need to be a problem in order to come up with a successful product, but this is not true. In some instances a customer either cannot identify that they have a problem, or cannot identify a solution to that problem, until someone else shows it to them. This does not mean that there was no problem in the first place, and that in designing a product you had no need to identify what that problem was.
Another response I’ve had to this question was (quite flippantly):
“Well what problem does Facebook solve?”
Without quoting Facebook’s mission statement, or focussing on the many ways in which Facebook has evolved, it seems to me that the original idea provided a convenient informal means for friends to stay in touch and keep abreast of what is going on.
When trying to answer this question, make sure you are solving a problem for the right set of people, Facebook aside (and you’ll see why later), the right set of people are those that will pay. Imagine you have a product that you know consumers are going to love, but retailers are going to have to pay for. It’s all very well demonstrating the value to the consumer and having thousands of them wanting to sign up, but unless you’ve managed to demonstrate the value to the retailer and what problem it solves for them, you’ll be fighting a losing battle.
In another encounter I spoke at length with someone who had identified a problem which was very familiar to me:
“With an ever growing number of social networks, and increasing volumes of traffic on those networks, it can become increasingly difficult and time-consuming to filter the value from the noise”.
I loved this statement of the problem, but the proposed solution (which I won’t go into here), would not only fail to solve that problem for me, but would have increased the amount of time I spent on social networks.
So to summarise:
Understand the problem you are solving
Ensure you are solving the problem for the right group of people
Be able to state your solution clearly and without any doubt that it will solve the problem
2. Will people use your solution?
Just because you have come up with a solution to a problem, it doesn’t mean people will use it, there will be many reasons why they may not. Allow me to highlight some of the more obvious ones:
No-one wants a solution. This may seem strange, but there is a real possibility that if you have a solution to a problem that people do not really care about, or that your solution requires too much effort from the customer to gain value from it, then it is entirely possible that your solution will remain unwanted.
No-one shares your vision. You’ll no doubt love your idea, but the reality is that no-one else will love it anywhere near as much as you. Such adoration can be blinding to the extent that your idea may be nowhere near as good and innovative as you believe it to be.
Your idea is not unique. Actually this part is a statement of fact. There are no unique ideas. Someone will already be doing what you are planning to do, and will already be doing it better. Unless you can find some differentiators then you are really going to struggle to gain some traction.
No-one knows who you are. This is a tough one. Until people know about your product, they are not going to use it. You need to think about how you are going to gain exposure, and you need to do this whilst avoiding vague statements. If you really think you will grow your user base virally, then you are going to have to state specifically how – because everyone claims this but very few succeed.
Initially you can do some market research to find out if people have a need for what you are proposing, but do proceed with caution. What people say they will do, and what they actually do are rarely the same thing. The only sure way you are going to find out if people will use your product is to build it.
3. Will people pay for it?
This is really important and do not let anyone tell you otherwise. You need to know who will pay for your product, and have some sort of idea how much they might be willing to pay. Gone are the days where you can secure hundreds of thousands of users without any idea of how to monetise them, and expect to have a successful business. Sure, people will quote Instagram and their lack of any revenue plan that netted close to $1B for the founder. Instagram got lucky, and there’s 1000+ co-founders of other photo sharing apps that will testify to that.
If your answer is “we’ll sell the data”, then prove it. You know exactly what data you’ll be collecting, so go to market and get some quotes from the people who would actually buy it. Make sure that what you propose to sell is not actually going to breach the Data Protection Act, or EU regulations, because while you may be able to fetch big bucks for that sort of data, it’s not going to help your cause if you lose it all by way of fines, and irreparable damage to your reputation.
Big dollar deals for big user, zero revenue solutions are rare and exceptional. If you are betting your time, effort and money on this happening, it is as likely to deliver you a retirement plan as playing the lottery – but requires more effort. Why even go there?
So will people pay for it? Again, you can carry out the market research, but you will only really know if you actually create a product and start charging. Sorry, there are no shortcuts.
These are not necessarily easy questions to answer, and you may not get it right first time, but nobody said it was going to be easy! However, if you prove you have the answers to all three then you are well on your way to having a profitable and successful business. By ticking these boxes you will instantly appear far more investible to any VC or Angel because you’ll have already gone some way to validating that what you have is worth something to someone.
Ask these questions of yourself and see what answers you come up with. Leave a comment below, I’d love to hear your own experiences.
A lifetime Brummie & Startup Mentor with several ventures under his belt. Phil has a infectious enthusiasm for fledgling businesses that easily hides an ability to cut to the chase in identifying what works, what doesn’t, and translating ideas into viable businesses.