Gate 1 For Making Your Startup a Success: Define the Problem

It took me 35 years to discover these five simple principles, or gates, to becoming a successful entrepreneur. If you enjoy this series, share it with a friend. To catch up, go to paparelli.com.

“Yes. That is a big problem,” I said to myself. I was at Flashpoint presentation day. Flashpoint is an accelerator here in Atlanta located just off the Georgia Tech campus. It was founded by GT professor Merrick Furst.

Merrick is relentless in his pursuit of helping startup entrepreneurs discover the market which, in his words, “cannot not buy.” His research proves startups which sell to markets what they are inclined to buy will succeed.

He calls this authentic demand.

In other words, discover what the customer already wants to buy, then stand in front of him with the product. How simple is that!

For instance, “Apartment owners are being overwhelmed with packages ordered online by their residents,” said Jim Grady, founder of Hello Package.

When he made this statement, I knew he was on to something. The problem he defined just made sense to me. Like it was an obvious no brainer. I started thinking about these huge apartment complexes which are being built in Atlanta. Some of them have over a thousand residents. What does the apartment complex lobby look like on a typical day? Packages ordered online must be everywhere. That’s a big mess being thrust upon the apartment owner’s staff. This is a crazy big problem which is growing each and every day, I thought.

Merrick defines this as “authentic demand.” I think of it as “the problem.”

This first became clear to me when I attended Kevin Sandlin’s Pitch Practice at the Atlanta Tech Village. He facilitates this session every Friday after Startup Chowdown. I think this is one of the most valuable learning experiences for first time entrepreneurs.

When I attended, Kevin started the session by telling everyone they would be doing a one-minute pitch. He called it “your spiel.” He then wrote the outline on the whiteboard:

Your name and company name
The problem you address
How your company solves the problem
The help you are asking for right now

One of the first spiels I heard was from Christian Zimmerman. He said, “I’m Christian Zimmerman of Qoins with a Q.

“People in their twenties are overwhelmed with the thought of paying back their student debt. Now they can pay it back with every purchase they make.”

He had me. I remembered him. He gave that spiel two years ago, and it stuck with me. From that point on, Zimmerman became the student debt guy in my mind.

As I listened to the spiels, I realized the genius of the problem definition as the first gate on the path to a business.

This is the definition of authentic demand. From that moment on, I began to think of the problem definition a lot. Here are some of my thoughts.

  • A clear problem definition makes you memorable. It is the beginning of brand development.
  • The market remembers businesses based on the problems they solve. I think, I’ve got a problem. I wonder who can solve it. I never think, What he does is interesting. I wonder how I can use it.
  • I don’t remember Zimmerman because he provides a fintech solution to pay down debt. When I was writing this, I had to search the web for what he does. But I clearly remembered the problem he addresses. He’s the student debt guy. So when I was talking to a recent graduate who is bemoaning his student debt, I sent him to Zimmerman at Qoins.
  • A clear problem definition keeps the entrepreneur market-focused and not product-focused. So many entrepreneurs are product-focused. The entrepreneur thinks, Build in new ideas and features people can use. It will make the product cooler and maybe even more robust. But product ideas and features should be focused on solving market-problems. And it all begins with release 1.0.
  • The base product must solve the big problem you defined.
  • Then, over time, the smaller problems are addressed with features which surround the big market problem. Early markets buy to solve the problem. Mature markets buy on price and features. Stay focused on the problem.

When Bill Clinton was running for office, his campaign manager hung a sign on the wall of his campaign headquarters: “It’s the economy, stupid.” That’s problem definition.

A clear problem definition is the key to finding the real problem. The kind of problem people will pay to solve.

There are three ways entrepreneurs discover the market problem.

  1. They worked in the market and couldn’t find a good solution to address the problem their company was experiencing.
  2. They experienced the problem in their own life.
  3. They talked to someone who was complaining about the problem, and they didn’t know what to do or who to turn to.

My experience taught me the best people to define a market problem are the people who have worked in the market they intend to serve.

Charlie

My first startup was MCS. It was started by Richard Brock who worked for a CPA firm in Baton Rouge, LA. He saw all the inefficiencies in capturing time which resulted in lost revenue. Richard designed and programmed a computer solution on his own time. He called it Practice Management.

When completed, he presented it to the partners of his CPA firm. They said, “Not interested.” So Richard started MCS and became the biggest software company serving the CPA marketplace nationwide. Richard knew CPAs.

People who work in the markets they serve know how their market thinks, functions, and behaves.

They know the DNA of the market, and they know all the players and providers.

They know how problems are solved and who pays to solve them.

They know if the market is innovation oriented or slow to adopt new solutions to problems.

The further down the list you go as the definer of the problem, the more assumptions you are making about the problem. All the market insider information I listed above is not known. How would you know if you have never worked in the market?

So it is critical for any entrepreneur to test each and every assumption after defining the problem.

Talk to the market.
Talk to the market.
Talk to the market.

By addressing your biases head-on, you will get to a clearer problem and definition. The closer you get to this definition, the better your chances of starting a business which will succeed.

Defining the problem in the market apart from your solution is the first gate you must go through. It will give you the market familiarity, relationships, brand, and focus necessary to progress to the next gate. Who actually owns the problem?

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