Quick Takes:
Defining the problem is always hard. Problems, by definition, are either situations regarded as unwelcome and needing to be dealt with, or are inquiries starting from given conditions to investigate a fact. This means that problems are both something we don’t want and something we can’t accurately define.
But wrapped in this cloak of unknown lies a solution to the problem itself. The solution, generally, is based on the understanding that most people can’t solve the problem, providing someone with the opportunity to solve it for them. What it gives someone is the ability to define a problem and then solve it on a wide scale, helping people deal with a specific pain point.
I’m sure you’ve heard the business philosophy that in order to create a successful business, it needs to add real value to a specific consumer segment. Real value? What is value, anyway? To me, a successful company does add value, yes, but it does so by solving an acute problem, for which customers will pay money for.
How painful is a problem? How easy is the solution? Are people in enough pain and is the solution intuitive enough that they’ll pay money for it? These are the questions that need to be asked when starting a business. In fact, the flow of problem, solution, revenue, is the order in which business owners should always view their businesses.
First things first, define the problem.
If a problem is something that is unwelcome and undefined, chances are that people would pay a lot of money to have it go away. A problem could be anything really. It could be the need for a more effective mode of commuter transportation. It could be the lack of efficient shipping options internationally. It could even be the need for better B2B marketing strategies. A problem is a need or void that a paying customer wants to be filled.
What did Mark Zuckerberg solve when he started Facebook? The desire for better connect-ability over the internet. What void did Sergey Brin and Larry Paige fill when they started Google? The need for an efficient commercial search engine on the internet. They were solving real problems, and thanks to the scalability of those problems, they were able to grow their businesses to the giants they are today.
So, what’s your problem? What’s the pain point you’re trying to solve? If you aren’t filling a need, you don’t have a business. But, defining the problem doesn’t stop there. The most important question you can ask when verifying the potential of a company is: how big is the problem?
The larger the problem and the more acute its pain, the more potential customers you have. Further, the more it hurts, the more someone’ll be willing to pay to have it alleviated. So, whether you want a cash flow lifestyle business or a billion dollar unicorn, make sure that the size and scope of the problem is one that will support the vision of your company.
Once you have the problem clearly defined in your mind, the next step is to provide a solution. Sometimes the solution actually comes first, and the problem is identified with product / market fit, but generally, the solution comes from a need to solve a specific pain point.
Regardless, there’s no need to reinvent the wheel here. What tools, strategies, and services are already available that can help alleviate the problem? Often times customers are too lazy, unknowledgeable, or just too busy, to do their own proper research and find an answer to their pain. Herein lies the opportunity.
By accurately defining a problem and then providing an intuitive solution to those in pain, it’s possible to create a viable business. People are more than willing to pay someone to do the legwork and solve their pain so they don’t have to invest the time or energy figuring it out themselves.
If the wheel literally has to be reinvented, in the form of completely new tools and services, then great, just make sure you’re up to the task. Chances are, however, that there is already a solution out there, waiting to be discovered. Or, if there isn’t a definite solution, it’s possible to create a service that uses a mosaic of available tools to solve a pain point. The fact is that by bringing an existing solution to an already defined problem gives you the power to charge money for that solution.
Sometimes it’s as easy as arbitrage. Do you have specialized knowledge in an area where people need help? Great! By charging a premium for your guidance, you can help customers solve their pain by simply pointing them in the right direction and helping them through the process.
Which brings us to the revenue model, the lynchpin for consumers and business owners alike, but for opposite reasons. For business owners, in order to have a viable company, it needs to generate sufficient cash flow or profitability. This means that the pricing structure and revenue model needs to be one where high margins can be realized. For consumers, they want a pricing structure that offers them the most value with the least amount of out of pocket payments.
In economics, this is called consumer surplus and producer surplus. Consumer surplus is the difference between the inherent value of the product or service and the amount the customer pays for it. For consumers, they want to maximize consumer surplus because it means that they are getting high value for a low price.
Producer surplus, on the other hand, is the difference between the actual amount a business sells its product or service for and the minimum amount it's willing to sell it for. The goal is to maximize producer surplus. So, you see that there is an inherent struggle between customers and businesses where consumers try to maximize their value surplus and companies try to maximize their monetary surplus.
An efficient revenue model, then, is one that finds a happy medium, where a customer is willing to pay for the product or service, and a business is able become successful and remain solvent. But, if you’ve been following, a customer isn’t really paying for a product or a service at all. What they’re paying for is a solution to their problem.
So, if the problem is a real one, a consumer is more willing to pay a higher price to have it solved, and vice versa. Then, if the solution does a good job of solving it, a consumer will be more ready to part with their dollars in order to alleviate their pain. Half solutions result in full problems and failed businesses.
Which means that rather than looking for product / market fit, it’s important to look at problem / solution fit. That way, if the problem is large and the solution comprehensive, a company can charge what they want and still add legitimate value to its consumers.
A capitalistic win-win if I’ve ever heard one.
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