04 Dec Start a Business – Problem/Solution, Market Fit, Business Model
Dec 4, 2024
In the next few publications, I am going to talk about the first steps you need to follow before starting your own business. I strongly recommend considering it as a mini-workshop because I will present some theory and practical exercises you need to complete. Take a notebook and a pen, and let’s get started.
Identify a Real Problem
Before you even think of investing a single penny in your business idea, stop and think. Have you actually identified a real problem that needs to be solved? If you speak with people who are taking their first steps in business, you will quickly notice that more often than not, their ideas are vague and very often do not solve a real customer problem.
The reason for this is that they fall into the trap of believing that a problem exists. The mistake here is that they haven’t spoken with enough people to find out if there is actually a group of people who need a solution to the problem they have identified.
Another trap along the way is overestimating one’s own supremacy. People love to talk about themselves. If you ask them a question, you will find that people like to string together long sequences of words, building a monologue that describes the image they have of themselves. In essence, they like to describe certain aspects of their life because it enriches their self-image, giving them a solid foundation to stand on.
A belief in one’s own supremacy in building a business can further solidify this foundation. When you meet a person who relies on such a foundation, you might hear things like:
“My business idea is really a good one, and there is no way it can fail.” “There is a 100% guarantee that this business will succeed.”
The bottom line here is this: before you move forward with building a business, you need to understand if you have really identified a real problem. To do this in the best possible way, you need to do two things:
First, put aside your belief that you and your ideas are the best. Be humble and accept the fact that you may be wrong, and that’s totally fine.
Second, don’t guess — go out and speak with people. Try to understand if the problem you have identified is real. That’s something we will talk about in my next publications: how to build the profile of the customer and how to conduct interviews.
Exercise 1:
Answer the following question: What is the real problem that customers have?
Product-Market Fit
Let’s presume that you have identified a real problem. The next important question to ask is the following: Do I have a product or a service that solves the problem I have identified?
This is a solution to the customer’s problem that people desperately want, because, as we already claimed, the problem is real, it causes pain to people, and they need your “pill” to relieve the pain.
If you don’t have an idea of what this product or service looks like, now is the time to describe it.
Exercise 2:
Write down answers to the following questions:
Is there a product or a service that solves the problem I identified? How does my product or service work? How can people get it? Is it a machine, or a piece of software? How do I build it? Who will build it?
There is no need to go into too many details here. The ultimate goal is to identify a solution that can be built and delivered with the resources you already have — knowledge, money, people, etc.
Business Model Fit
After you have identified a real problem and have a solution in mind, that doesn’t mean that your success is guaranteed. We need to consider something called “Business Model Fit”. The business model fit asks us a simple question:
Is there a way to scale my business to a sustainable model that can earn money in the long term?
Let me give you a simple example of a business model that may have difficulties scaling and being sustainable.
Seasonal Businesses
You have identified that there are many tourists in your city during the summer, and they are definitely willing to buy small souvenirs before they return to their country. On top of that, they would like to buy not just souvenirs but locally produced products like creams, perfumes, etc. There is certainly a problem, and your solution is to open a small shop in the central part of the city.
However, there is one downside. The summer season is only three months long, and for the rest of the year — which is nine months — your revenue is so low that it does not make sense to keep your shop open. Also, the revenue during summer is not enough to cover all your expenses for the rest of the year.
The bottom line is that you have identified a problem, and you have the solution, but the business does not fit in the market. It might be better to abandon the idea unless, of course, you adapt it and find a way to fit in the market.
Above, you described how your business works. Now, the next and final exercise for today is to find out if your business has a market fit. There are no particular steps here that I can provide as a step-by-step guide because it depends on your business case.
Exercise 3:
However, what you can do is write down all of your expenses, resources, and the location of your business if it is a physical one, etc. Next, conduct a thought experiment. Imagine your business operating and ask yourself questions like: What may go wrong? What may stop me from earning enough money?
Final Words
The purpose of this publication was to provide clarity about the following three topics:
- What is the problem considered important to be solved?
- A solution to the problem I have — a product or a service.
- An idea of whether my solution has a business model fit.
For these three, it is not necessary to be perfect. That’s because, as we have demonstrated, we need to first speak with the customer. Only then will we have a clear idea of what we are doing. And only then can we return to the exercises above and do them again.