A startup exists to solve a problem. In fact, the problem the startup is trying to solve is the most important thing about the startup. It dictates the market size, the product, the type of people the startup needs, etc. Therefore, for a startup to be successful, it needs to be solving an important problem.
How to tell if a problem is important?
A simple but effective test of whether a startup is solving an important problem is to ask the following 2 questions.
- How many people have the problem?
- How painful is it for each individual person?
If we then enumerate the possible configurations, and give them labels for easy reference, we get the following..
- Type 1: Many people have the problem and the pain for each is acute
- Type 2: Many people have the problem and the pain for each is mildly annoying
- Type 3: Few people have the problem and the pain for each is acute
- Type 4: Few people have the problem and the pain for each is mildly annoying
In table form it's..
Obviously the most important problems are Type 1 problems and the least important problems are Type 4 problems. Unfortunately, Type 1 problems are exceedingly rare and Type 4 problems are abundant.
What’s not obvious is whether Type 2 or Type 3 problems are more valuable. Personally, I’d rather be working on a Type 3 problem than a Type 2 problem for a few reasons. First, it’s easier to solve a problem for a small group of people that care about the problem being solved than a large group of people that don’t really care about it. The latter doesn’t care about the problem enough to talk to you, haven’t thought about it that deeply so their feedback isn’t as useful, etc. Second, it’s easier to find more people that care about something than it is to convince people they should care about something more.
What type of companies typically work on which type of problem?
All of the huge tech companies (Google, Apple, Amazon, etc.) work on Type 1 problems. What’s interesting is it wasn’t obvious to them (or others) that they were working on Type 1 problems when they started. When Google and Amazon started, it wasn’t obvious that the internet was going to be something that was used by everyone. When Apple started, it wasn’t obvious that everyone needed a computer. In fact, you could argue that it wasn’t until Apple started making phones that they were working on a Type 1 problem.
Type 1 problems almost never look like that way when people start working on them. Instead, they look like a Type 2 problem that turns out to be more painful than people thought or a Type 3 problem that turns out to affect more people than people thought.
Type 2 problems are what most consumer startups work on, hoping they turn into Type 1 problems.
Type 3 problems are what most B2B companies work on. Almost by definition, if you’re solving a problem for a type of business, you’re not solving a problem for a lot of people. That’s why the average person hasn’t heard of even the most valuable B2B companies.
No startup thinks they are working on a Type 4 problem but most startups die because it turns out they are.
This article first appeared in Hsu Ken's blog.