Version 1.0 of 04.09.17
What problem do you want to solve?
Products and Services exist in order to satisfy customer needs. Some examples of customer needs are:
- I want to spend a romantic weekend with my wife on our wedding anniversary.
- We need some qualified applicants for the open position.
- We want to achieve a high machine utilization in our factory.
A product that does not correspond to a need (or only to a weak one) will not generate customers.
Make something people want.
Motto of Y Combinator
Why Most Startups Fail
The most successful startups are created when their founders discover a valuable customer need for which they then develop an innovative solution. If, as is more often the case, the idea for a product came first, then the first question to ask is, “What customer need do we want to solve with this product?”
First-time founders tend to fall in love with their product ideas. This is understandable, because they are their own inventions and they are proud of them. But love makes you blind, and there is a danger that the founders forget that their product must please their customers and not them. This kind of myopia can be fatal for a startup.
By far the biggest mistake every new entrepreneur makes is falling in love with their idea. It’s natural, we all do it. But it will really mess you up.
The most common cause of startup failure is that the founders build a “product without a solution” – in other words, a product that nobody wants to buy.
Pain, Gain and Job-to-be-Done
There is a useful classification of customer needs into three different categories:
- Pain: A problem that the customer wishes to solve or reduce.
Example: I don’t know which university is best for me.
- Gain: An advantage or a step forward that the customer would like to have.
Example: I would like to learn Spanish.
- Job-to-be-done: An everyday task that must be carried out.
Example: Our computer data has to be backed up every week.
Companies market to each of these types of customer need differently. With a pain, they sell freedom or deliverance, whereas with a gain they sell the positive feeling of achieving the desired state. Jobs-to-be-done are usually sold on the basis of improved efficiency. Products for each type of need are sometimes likened to a painkiller, ice cream and rice respectively: the customer buys the painkiller that most effectively removes his or her headache, the ice cream that tastes best and the rice that is cheapest.
Perceived and Latent Needs
Customer needs can be either conscious (“perceived needs”) or unconscious (“latent needs”).
In most cases, people are aware of their needs and have found some kind of solution for them. In this case, a market already exists and the startup will have competition.
There is also the case that a perceived need goes unmet – for example because no solution has been developed for it yet, because customers are not aware of the solution or because they have no access to it. This is an attractive situation to be in for a startup if it can find a solution, because it will enjoy demand without competition. This is sometimes the case with new technologies. One historical example is Henry Ford’s adaptation of the assembly line for automobile production which substantially reduced costs. This enabled him to reduce the price of his cars from 835$ to less than 300$, making them affordable for millions of people.
With latent needs on the other hand, customers are not even aware that they have a problem or that they could be in a better situation. One example could be a person who sleeps badly, but thinks this normal because he or she has never known anything different. They are not aware that they could significantly improve their well-being by buying a new mattress.
Latent needs have the disadvantages that they can be difficult to detect and that customers first have to be convinced of them. On the other hand, they offer a good opportunity to surprise customers with an effective solution.
In order to be a good opportunity for a startup, a customer need must fulfil three conditions:
- Many people or organizations have it. This makes developing a solution economically attractive.
- Obtaining a solution is important to the customers. This makes it easier to convince them to buy.
- There are currently no satisfactory solutions available. This means that the competition is weak.
In their book Nail It Then Scale It, authors Nathan Furr and Paul Ahlstrom call a need with these three attributes a “Monetizable Pain”.
Facebook is a good example of a company that satisfies a valuable customer need:
- There are many companies that want to advertise to consumers.
- These companies’ success depends on efficient and effective advertising.
- Before Facebook, there was no way to target advertisements to a large number of consumers according to their tastes and preferences.
There is Usually More Than One Need
Identifying customer needs is not always easy, and the founders’ first guess at them is often not the best or the only possible answer. For example, a team of founders wants to provide a 3D printing service for plastic parts that are compatible with Lego (without infringing on Lego’s rights, of course!) These parts can have any shape, with the exception of course that they must connect to their neighbours. To work on the assumption that the customer need is “I would like to have unique Lego-compatible parts” would be too simple. It is not really clear what the customer wants and there is no indication who the target market might consist of.
The following are all potentially better guesses at customer needs:
- I want unique items for my creative hobby, for example model railways.
- I need a fun present for a small child.
- I need a replacement for a lost original part.
- I want to personalize my mini figures with innovative accessories.
Each of these variations suggests both a target market and ideas for individual products, which increases the startup’s chances of success.
This Topic’s Key Question
- Have you discovered a customer problem worth solving?
- Continue reading with Chapter 1.2 Target Market.
Working material for this chapter:
All working material is available via a password-protected page.