Startups are organizations that are steeped with uncertainties accompanied by certain risks attributed to high failure rates. Currently, about 90% of startups fail, with about 10% failing within the first year alone. The reasons for a startup failing have a wide range, from solving problems that no one has, to the lack of funding before they can show traction. These rates notwithstanding, achieving startup success is not impossible, and there are numerous examples of startups that have achieved success; the question is, how did they do it?
Startup success and failure
In an earlier paper, it was argued that successful startups maintain an ethos of continuous experimentation, testing, and learning. Successful startup founders recognize that nothing is certain when establishing a business. There is no certainty that the founders’ ideas are viable, about how important the problem they identified is to potential customers, on the practical feasibility of their proposed solution, and whether the business will be profitable. Rather, all they have are just conjectures.
As a result of this, founders of successful startups tend to approach the startup process as an opportunity to learn. For founders to learn, they must have a mindset that is steeped in humility as they must put aside their prior knowledge/experiences to be inquisitive, experiment, and be wrong. By continuously running multiple experiments and testing different hypotheses, founders of successful startups can learn, validate or nullify multiple hypotheses, and ultimately make decisions that have a high probability of leading to success.
Every startup passes through three stages before achieving success. These are the problem-solution fit stage, product-market fit stage, and scaling stage. The problem-solution fit and product-market fit stages are the riskiest stages, and as such, the stages where most learning occurs for startups. Once a startup can achieve a problem-solution fit, then it is on its way towards becoming successful.
Achieving problem-solution fit for startups
The problem-solution fit stage is the first stage every successful startup must pass through. In this stage, founders are concerned with looking for the best solution to address the problems that their customers have. However, to find the best solution, startup founders must ascertain that the proposed problems they have identified are important to potential customers. The stage comprises four key steps or activities that must be performed before the problem-solution fit is achieved.
- State your assumptions: Achieving problem-solution fit typically starts with founders stating what their assumptions are regarding the problem, possible solutions to address this problem, target market that is willing to pay to solve this problem, potential competitors, key channels to reaching their target market, type of market being entered, unique value proposition, and cost/revenue structure. The outcome of this activity is a single-page business model canvas (or lean canvas) that allows the founders to show and discuss their ideas with other advisors for additional insights.
- Test the problem assumptions: After this, the founders look to test their problem assumptions by organizing and running empathy interviews with potential early adopters (target customers) who are disturbed about this problem. Empathy interviews are organized to find out what problems are a source of tension and anxiety for potential customers. The interviews allow the founders to test their original problem hypothesis, find out the job to be done, and identify new problems (in the event the earlier assumed problems are found to not be a source of anxiety).
They also allow the founder to find out how the customers have tried to solve the problem and assess the difference between the customers’ current solution and their proposed solution. The outcome of this activity is a refined and validated problem statement that details what the problem is, what job needs to be done, who has the problem, and what has been done or is currently being done to address the problem.
- Design the proposed solution: Armed with a renewed clarity of the job to be done and who requires such job to be done, the founders then define a solution that best addresses the concern of the customers. Also important within this step is the realization that the solution design must incorporate a unique value proposition that will make the solution stand out and differentiate itself from competitors.
This activity, which typically signals the commencement of the product design process, is done in collaboration with the product design team who take the inputs provided from the interviews to design a demo/prototype that comprises the unique value proposition that makes it stand out and other functionalities that address the problems detailed in the problem statement. The outcome of this activity is a demo that provides a visual representation of the features attributed to the solution and other features that differentiate the solution.
- Test the proposed solution: The founders then look to test this solution design by running solution interviews where they can show the demo to the same group of early adopters. These interviews allow the founders to validate the solution features and check whether it addresses the problems raised by the customers. It also allows the founders to test the unique value proposition accompanying the solution against the existing solution being used by the customers. It also allows the founders to test the potential pricing of the solution.
The outcome of this activity is a validated solution with features that address the problems raised by customers, a validated unique value proposition, and a realistic price boundary for the solution. Following the completion of this activity, the founders achieve Problem-Solution fit, as they have been able to identify the job to be done as well as test and validate the job and their proposed solution to address such job to be done.
Problem-solution fit: starting point for success
Most startups commonly fall into the trap of designing a solution and creating a product that solves an assumed problem instead of a validated problem. While there are a few examples of startups that have succeeded by adopting this approach, the probability of startup failure is high when founders do not look to test and validate their problem and customer assumptions.
To that extent, it is important that all startup founders irrespective of whether they have developed a product or are about to design one, seek to achieve problem-solution fit by going through the processes detailed earlier to increase their chances for success.