“Build it and they will come” may have worked in the baseball fantasy movie but, in real life it is rarely an effective strategy.
You want to create a solution that you already know people want and for which you have good reason to believe they will pay a profitable price.
Pursuing anything else as a business proposition is simply a waste of your time, your most precious and most scarce resource. Focus your time and effort with purpose and have a way to know if you are achieving your goal.
Most founders believe they have a great idea, one with which they have fallen in love. Often born from a personal experience, or self-discovered insight they are convinced is an untapped revelation. So convinced are they of the rightness of their idea that they intend to force it on their customers – not that that’s what they say. Some believe that their insight is both so original and so necessary that all they need is to educate customers to need the founder’s perfect solution.
In theory, this can work. In practice, it is a very poor approach to building a business, particularly a start-up – a venture intended to scale rapidly in a rapidly growing market. The proven way to realise and succeed with your start-up is to identify an existing problem then solve it with a solution designed to appeal to the people suffering from that problem – your future customers. You do that by speaking to those folks and ensuring your solution is something they find useful, valuable and appealing.
That is Problem-Solution Fit –evidence that a product or service, solves a customer’s problem in a way that the customer values.
How do you demonstrate Problem-Solution fit?
Achieving problem-solution fit is challenging and rare but, without it your entire venture is built on quicksand. Demonstrating problem-solution fit means being able to present evidence to others, such as investors, or channel partners, of a well-defined, valuable customer segment, the desire of that segment to spend their money to address their needs for which your solution is compelling attractive to them – your value proposition.
You can see that this will take some effort, require some record keeping (data collection/analysis) and almost certainly involve many iterations. Summarising that journey in writing (and pictures) is essential to sharing it with others – that’s evidence!
When you get close with these elements, even if not perfect fit, you can expect customer purchase decisions to happen faster and more easily. If your product or service supports repeat business then problem-solution fit will drive customer retention and customer referrals.
What is a customer segment?
Notice we are talking about a customer segment; we have skipped over all the preliminary work of identifying and segmenting a market. You may have to do that for yourself if you are either trying to create a new market, or seeking to disrupt the status quo by changing the market structure. Otherwise, the chances are just a few minutes of searching on the Internet will provide you with ample data to identify and quantify your market and market segment.
Be careful here, that first search will certainly get you started and, if you pay attention to the timeliness and quality of the research data, it may get you a long way quickly. However, your job is to really, really, understand your customer, your market, market structure, buying behaviours, regulatory influences and competitive landscape. You can never know it all and certainly not at the beginning but, understanding your customer is at the very heart of your success.
Within your target customer segment, you will break down the analysis at least one step further. The classic product adoption model remains relevant and useful today.
The Innovators, those customers eager to try new things and usually with the financial resources to be able to afford mistakes. Research suggests innovators are only about 2.5% of the market, are risk takers and they are usually the youngest in age, have the highest social class, have great financial lucidity, are very social and have closest contact to scientific sources and interaction with other innovators.
The Early Adopters are about 13.5% of the market, those comfortable to take a risk and try new things. A little less individualistic than Innovators, Early Adopters usually have the highest degree of opinion leadership among the other adopter categories. Early Adopters are typically younger in age, have a higher social status, have more financial lucidity, advanced education and are more socially forward than late adopters. More discrete in adoption choices than Innovators, Early Adopters think about their adoption choices, aware that their choice of adoption will help them maintain their central position of influence and communication.
The Early Majority, about 34% of the market, are those ready to buy something new once others in the market are saying it is a good thing – the Early Adopter influence. Early Majority are slower in the adoption process, have above average social status, contact with Early Adopters and seldom hold positions of opinion leadership in a system.
The Late Majority are another 34% of the market and they adopt an innovation after the average member of the society. These individuals approach an innovation with a high degree of scepticism and typically have below average social status, very little financial lucidity, in contact with others in Late Majority and Early Majority, very little opinion leadership.
Laggards are the final 16% of the market. They the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, likely to have lowest social status, lowest financial fluidity, be oldest of all other adopters, in contact with only family and close friends.
The Innovators are where you must go for problem-solution fit, while the Early Adopters are your target for product-market fit. Success for a start-up typically requires laser focus on a single customer segment at launch. Market share is typically close to 50% cumulatively through the first three adopter segments.
Your market segment is valuable if your penetration to the Early Majority can deliver scalable, profitable revenues. There can be other measures, especially while you are working with the Early Adopters but, most often, cash is king when you reach your core market cohort.
By achieving adoption through to the Early Majority of a market big enough to be worth pursuing the company will be positioned to diversify into adjacent market segments. While by that point you will have a well-established product-market fit, if you change markets then everything must adapt including the product offering, positioning, marketing, distribution channel, pricing and value proposition.
You’ve identified your target customer segment but, why will they want to buy what you are selling?
Do they really have the problem you’ve hypothesised; do they see your solution as a benefit to them and are they willing to pay for that solution what you need to have a viable business??
These are the key questions, the answers to which define evidence of problem-solution fit.
So now it is time to listen to your target customers. A popular and effective technique is customer discovery interviews. The objective is to speak with as many and as varied a sample of prospective customers as you can to learn what they think, what they value and what they think of your solution and your value proposition. These are actual discussions, not surveys, not third-party research. It is about you the founder with the idea engaging with the people you expect to buy your product or service.
If you can’t or won’t engage directly with customers, how can you develop a commanding knowledge of your market and how can you convince others that you know what your customers want??
A key element in getting validation of problem-solution fit is to test with your customers why they will buy, what are the benefits they expect to enjoy that will motivate them. This is very different to telling them proudly about the features you envisage. Features may well enable benefits but, are rarely the benefits themselves. Customer benefits are often about time, convenience, reliability, reputation and other qualitative aspects.
When you have a robust breadth of discovery data you should be able to fashion your competitive value proposition for your customers. Keep in mind that your value proposition will be different for different customer segments, for channel partners, for suppliers and, of course, for investors. Still, all the others also care about your core customer value proposition.
The most powerful value propositions are expressed from the perspective of the customer, e.g., “I buy (solution) because it is the best way to (benefit). I really like the way it (competitive differentiator).”
Your value proposition is a succinct statement of why the customer wants and values your solution. The competitive differentiator is often called the sustainable competitive advantage. However, for many businesses today the unfair advantage they have when they first start is far from sustainable. So, constantly adapting to the changing market is essential. How to adapt is guided by that customer discovery journey (listening to customers never stops!!) with the goal of maintaining that competitive differentiator, even if it is enabled by changing competitive advantages.
Most often, it is the success of understanding, forming and adapting your competitive advantage that creates the most powerful barriers to competition.
Evidence of Problem-Solution Fit
For your own sake, as well as for other stakeholders, you must test your value proposition in market. Remember, most start-ups fail to develop a sustainable business so do yourself a favour and put in the effort early to validate your idea in the market.
There are a variety of ways to test and what works best for you will depend on the nature of your product/service and your target customer. What you need to achieve is real commitment from customers in a form that others, like investors, can see and agree is meaningful. Money may be best but, is not always possible. Look carefully at the benefit you believe your customers will buy and see if you can get commitment allied to that. That might be use/adoption, recommendation, or time.
Don’t try to sell vapourware, don’t confuse lean start-up with fraudulent practice. Don’t be afraid to ask for the answers you need. Customers in discovery who are nice but, don’t tell you what they think is wrong are not helping you. People don’t like being unkind so you need to give them permission to tell you what you need to hear, not just what you want to hear.
The evidence you need is customer commitment at a scale and of a type that is relevant and compelling for your product or service. With that evidence documented you can demonstrate problem-solution fit and an investor can have a reason to believe you might achieve product-market fit, which is the next phase and an essential precursor to scalable sales.