Solve a real problem: The problem you solve for your customers should be real in that it should address a valid pain point. Sometimes, founders of startups are enamored with problems they believe are real, but customers don’t actually see things the same way! For instance, Netflix solved a real problem of usurious late fees charged by Blockbuster, as did Blue Nile, when it helped men to buy jewelery in private without looking foolish in a store.
Solve a focused problem: Too often, “world domination” and the pursuit of the mythical “mass market” leads to startup failure. The more focused the problem is, the better your chances of success because you won’t have “just-in-case” features in your product! Consider Segway, the revolutionary personal transporter from Dean Kamien. When Segway tried to pursue the “mass market for pedestrian travel”, it failed to gain market traction because the value proposition wasn’t compelling for anybody in particular. But it has become much more successful in the focused niche market for public safety, with its Segway Patroller for beat cops
Solve a big problem: You should solve a problem that a lot of people have and problems on which a lot of money is being spent. If you create an e-commerce site to sell hot sauce (e.g., www.hothothot.com), how big can this be? On the other hand, the market for cloud infrastructure services is likely to be huge, so its well worth chasing
Solve a difficult problem: Ask yourself – what prevents someone else from solving the same problem as you? What’s proprietary about the intellectual property and the knowledge? What’s difficult about the technology and the operational capabilities for your venture? For instance, the folks at www.diapers.com solved the difficult problem of online sales and direct distribution of bulky, low value to volume ratio commodities like diapers. Bigger players like Amazon had ignored this market because the logistics simply did not work. But these guys figured it out with amazing innovation in warehousing and distribution
Solve an obvious problem: If you are asked “what does your startup do”, and you need more than 30 seconds to convey the core problem and solution, you’ve got issues! Your problem should be easy to define. For instance, Akamai “decongests the Internet” and GrouponNow finds you “deals RIGHT NOW, in your neighborhood”
Solve a complete problem: Too many companies leave customers at the altar by creating incomplete solutions to a problem. A problem 80% solved is a problem not solved at all! That’s why Best Buy is aggressively building its Geek Squad service, because it knows that selling consumer electronics is not enough – they need to help customers install and set up the gear.
Solve a worsening problem: Pick a problem that is likely to get worse over time and you will guarantee that your market opportunity will grow for years to come. When Google set out to make the world’s information useful, its a problem that is getting worse by the day. So there’s plenty of headroom for them. On the other hand, distributing DVDs in stores or by mail is not a problem that has legs, which is why Blockbuster Video is bankrupt and Netflix is moving to online streaming.
I hope these seven tests will guide startups to problems that are worthwhile and can present a valuable business opportunity.