For more from Jen Baird, see her blog: Startup CEO Reflections
Founder: Jen Baird, Founder & CEO
Company: Fifth Eye
Date Founded: 2014
Forming a startup means that the founder(s) has an opportunity to choose what problem they will invest themselves in solving. Choose wisely!
Starting a company has some chicken and egg elements to it. These elements can coalesce in various orders. However, ultimately, they all need to fuse together to create the nucleus of future success.
- Deciding you are motivated to create a high-potential startup is one part.
- Recruiting the cross-functional founding team needed to execute is yet another part.
- Finding a worthy business concept (also known as the combination of an important unmet customer need/problem plus innovative solution) to form the foundation of a new company is another part.
This post is going to focus on element #3, the process of choosing a problem to solve and identifying a creative way to solve it.
What is a good industry for you to focus on?
Begin by picking an industry to focus on. By picking an industry that is aligned with your values, interests, and experience, you can give yourself some practical focus for identifying the right problem for you and your co-founding team to solve. Deciding to look for opportunities everywhere gets overwhelming quickly. Consider the following questions to help you narrow your area of exploration to a specific industry or two:
- Is there an industry that I am interested in? Given the amount of energy building a startup requires, it makes sense to focus your efforts on industries that align well with your values. For me and my values, there are some industries I am attracted to and others that I actively avoid. Each person has their own values, and mine may not match yours. For example, I am motivated to help people flourish, and I like to work in sectors that are directly about enhancing the quality of people’s lives or the future of the planet. These preferences have led me to focus on solving problems in healthcare and alternative energy. On the opposite, since I do not want to support taking peoples’ lives, I have decided not to investigate opportunities in the defense industry. Similarly, I found the insurance industry (which I did work in for several years) depressing. When picking an industry to focus on, it helps to reflect on your values as a starting point.
- Is there an interesting industry that I have experience in? Industry experience often yields a great deal of nuanced insight into where the points of pain are and what the dynamics of the marketplace are. These insights improve your chances of identifying worthwhile problems and novel solutions. Given that I am now building my third healthcare/science-focused business, I have a level of understanding that helps me make better decisions faster, which is an advantage in startups. Also, your experience in an industry helps build investor confidence that you know something about what you are doing.
Can you identify a critical unmet need and a valuable solution to address it of sufficient importance in your preferred industry to justify founding a startup?
Many, many, many of the ingredients you need for future success will flow directly from identifying the right problem-solution combination.
To begin, you need to identify an unmet need that causes your potential customers enough pain that they are willing to spend money to solve it. When you are considering if a problem is worth solving, make sure you ask your potential customers. Their response needs to be genuinely enthusiastic. Avoid “me, too” solutions where you replicate a product concept that is already addressing a known problem. You may well be setting yourself up for a difficult road with entrenched competitors.
Once you have identified an important problem to solve, you will need to come up with a novel solution to that problem that will delight your future customers. A compelling solution often requires nuanced insight into the nature of the need, creativity, technical prowess, and knowledge of the relevant and effective business patterns for developing and delivering the solution profitably. This will usually require a cross-functional team and lots of what-if testing with potential customers. Do not underestimate the months of effort required to build a well-developed business concept that justifies quitting whatever you are doing now to launch a new company.
When you succeed in finding a critical unmet need and a compelling innovation to solve it, you should have a product concept that customers will be motivated to adopt. Motivated customers will often pay a significant amount for a novel, needed, and high-impact solution to reduce their pain, and they will often share their excitement about your product with like-minded prospects. These are critical elements in a business concept that will enable a successful startup. This combination of elements – need, solution, willingness to pay, and excitement to share with others — creates a virtuous cycle of growth that can form the foundation of a fast-growing and eventually profitable company if executed well. Looking for these elements should be your criteria for evaluating potential problems to solve.
Does developing your chosen business concept require fundraising – and, if so, does it have the characteristics that will attract venture funding?
Not all startups should raise venture capital. However, if your goal is to build a high-potential startup with venture capital, you should be thinking about what investors need to see to fund your company from the very beginning. Does the problem you are trying to solve and the way you plan to solve it have the characteristics that will attract angel and venture capital?
Consider the business viability of the idea carefully. Does the business concept have the large market, rapid growth potential, sustainable competitive advantages, development timelines, and potential acquirers to create a highly attractive and investable business proposition? If you are not yet able to personally evaluate all these factors, then you need to assemble a team that can, and reconsider whether you need to gain more experience before taking the lead role in founding a startup.
Within your preferred industry, are you passionate about the specific problem and solution you are considering pursuing?
Last, but certainly not least, you need to feel personally passionate about the problem you are solving. Remember that you will most likely be investing years of your life into this venture – and your success will depend, in part, on your passion and commitment to solving this problem. Your ability to weave a compelling personal narrative around why this problem and this solution is often the beginnings of a good fundraising and sales story for your business concept.
Be honest with yourself. It is hard to maintain the required motivation and energy to weather the storms of a startup if you do not care deeply about the problem you are solving, and believe strongly that the solution you envision is attractive. For my startups, Accuri and Fifth Eye, as I got to know the potential customers early in the business concept vetting stage, it was abundantly clear that, if we could execute well, we could make their lives dramatically better. That aligned with my values and was exciting! In contrast, I was invited to join a startup team building a healthcare application that I struggled to get excited about. While I liked the team, believed the startup had some excellent elements and was likely to succeed, I just could not bring myself to care enough about the problem and the prototype solution to muster the passion needed to go all in. Similarly, I was recently talking with a friend about a startup he worked for, where he could never get excited enough about the product to adopt it himself even though he was certainly in the target market. Pay attention to such warning signs and find something you can believe in and be passionate about.
Identifying a compelling problem-solution business concept will guide who you need to have on your founding team and can help provide the motivation you need to launch into a startup. One of the great opportunities inherent in being a startup founder in having the direct responsibility to choose what it is that you will do. Take the time to choose with care.