14
- June
2017
Posted By : Badri
Investor Expectation 3. Is the Problem real?

Even if the Strong Founders are clear about the customers, they may still be attempting to solve  a non-existent or a very weak problem.

Investors normally try to ascertain if the problem is serious enough to get the customers to show interest in the offering, let alone paying for it.

When I first came across a report that mentioned No Market Need as being the single largest cause of startup failures, I was curious to know why so many intelligent and talented Founders make this basic mistake.  After interacting with many Founders at a few fora, I believe that I have a plausible answer to this mystery.

Many of these Founders had experienced a problem at their workplace or in their lives and they could not find a solution at that time.  Because they experienced a hardship, they had assumed that there would be others like them and hence set out to build a solution.

And perhaps they would have paid a reasonable amount for a solution that solved that problem when they faced it and so they again assumed that others would too.

In many a case, unfortunately after the offering was launched, it turned out that there weren’t many people who were facing that problem and for those who did, it was not so much of a problem but only an irritant that they have learned to live with.

Ergo, there was not a sizable market and even the little market that was would not pay a penny for the so-called solution.

Makes sense, eh!!

Now that we have a reasonably satisfactory answer to the situation of working on a non-existent market need, let us come back to the Investor scenario.

Typically, an Investor would like to know whether your offering is a pain-killer or a vitamin.  If you are a Founder who is flummoxed by that question, you may get some insights by reading this article of mine.

Why is addressing a real problem an important consideration for Investors?

Investors know that their exit would depend on the startup showing consistent growth and thereby attracting the interest of other investors.  If the problem is not serious enough to get customers take the desired action, then the startup would sputter and die despite the Investors backing it with money.

(If one were to look at many of the funded startups, it is very difficult to notice the problem they are solving and I’m curious as you are as to what Investors saw in them but that’s another story)

And it is not so much about the problem per se that Investors are interested in but the impact of the problem for the potential customer.

For example, not remembering due dates for payments can be a problem per se but only if the impact of that is paying huge penalties or running from pillar to post, will motivate the prospect from taking your reminder solution.  If there are no major consequences on account of that problem, then why would someone even look at it as a a problem?

I recently had a detailed session with a Founder who had a vague idea about the problem he is attempting to solve and even more vague as to why that problem should be solved.  It took about 30 minutes of merciless questioning for him to realize the gravity of the situation that he is trying to solve.  And let us remember that the prospect will take action only if the impact of the problem is magnified.

So if you are a Founder, ask yourself these 3 questions and answer them with just 1 sentence each without any ambiguity

  1. What is the real problem that I am trying to solve through my offering?
  2. What is the impact of this problem for my target customers?
  3. How many such potential customers face this problem?

If you are unclear, speak to a few representative members in the target segment and ask them point-blank if they are facing the problem that you are attempting to solve and how are they managing.  Don’t talk about your solution, yet and keep the conversation focussed on the problem itself.

(Obviously,  you need to define your customer segment appropriately to do this exercise.  If you have not done so yet or have a very hazy picture of your potential customer, then please read this )

If it is not a high priority problem for the people you speak to, then selling your solution to them will be an herculean task and you may not see much revenue for quite a long period, even if you manage to sell.

If  you already have a few customers, then it would be worth to call them and ask why they like your offering or why they bought your offering and you may get some fascinating answers.

Either way, this interaction can be really enlightening to you about the problem you are addressing.

If you are unable to state the problem in a clear and precise manner like that Founder we saw earlier on, then like him, you may want to engage with ExSell Consulting Service and be able to articulate your problem statement in a way that will make enormous sense to the Investors you are pitching.

By the way, Problem Definition is just one of the 22 Vital Parameters we consider in assessing your Investor Readiness as part of the GRIP Consulting Service.

 

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