Easy Problems, Tough Solutions…

Below is the “Tip of the Week” transcript from the Podcast Episode 7:  Angel Groups… why investors join them and what value they provide  (feat. Michael Gruber)

The vast majority of startups will be addressing an unmet need or a problem with their product or service.  In addressing a problem, they remove pain, frustration or wasted time and thus are creating value for their customer.   A traditional misstep with entrepreneurs is developing a solution to a problem that really doesn’t exist.  You’ve probably heard many of these stories… the founders build a product… it’s slick, fast and well-branded, but nobody buys it b/c it’s solving a problem that doesn’t exist.  While there is an important lesson there, I want to address a different, often overlooked issue related to problems and solutions.  Yes, appropriately identifying the problem is the first step and it is critical… but it’s also pretty easy.

Serial entrepreneurs and investors are often optimistic contrarians, walking through life seeing problems all around them and imagining solutions.  But there in lies the trap.  Problems are easy to identify, but solutions are hard.  Just b/c you’ve done an excellent job with problem identification, doesn’t mean that the proposed solution appropriately addresses that problem.  It is actually very difficult to create wonderfully appropriate solutions that are readily adopted by the target market.  Often it takes many iterations and product testing before the solution is right.

In a recent Cornerstone Angels meeting, we had a founder pitch us on a software platform that significantly disrupted a very large, antiquated market.  It was brilliant idea and the product was beautiful.  It was quite clear that this or something like this should exist to remove an enormous amount of wasted cost and time with the traditional approach.  And the entrepreneur had a robust and thoughtful onboarding process that reduced the learning curve for customers and allowed them to ramp up on the new platform easily and quickly.

However, the question was asked, “What percentage of your customers, that have been onboarded, use your product on a regular basis?” and the answer was 3%.  Now, as an investor, I can not immediately identify Why his customers are not adopting the platform… but I can definitively say that the current embodiment of his solution is not appropriately addressing the problem… b/c if it was, he’d see a heck of a lot more regularly engaged users than 3%.  So, before making an investment, consider if the solution is, in fact, addressing the problem and don’t hesitate to ask the founder questions that will reveal if they’ve built a square peg for a round hole.