What's your Problem?
Why the problem is so important + a simple 3-step tool to make understanding it easy
A Day in the Life
During the average week, I meet 1 on 1 with anywhere from 5-10 entrepreneurs.
I’ll listen to their pitch, ask some questions, and take notes.
Where do my questions usually begin?
By making sure I understand the problem.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
My definition of “problem”: A problem is the pain, discomfort, or dissatisfaction that comes from a human need or desire going unfulfilled.
3 reasons why understanding the problem is so important.
The 3-Step Problem Confirmation Tool:
Listen
Restate the problem
Repeat until the entrepreneur approves
Example from a LatAm FinTech startup interview.
Good problems are personal, specific, and focused.
Good startup problems to solve (according to Y Combinator) are popular, growing, urgent, expensive, mandatory, or frequent.
What is a Problem?
Dictionary.com defines the word problem as “any question or matter involving doubt, uncertainty, or difficulty.”
“Doubt, uncertainty,” and “difficulty” sound like very human-focused words to me. And I think that’s a key point - problems are relative, and they’re typically centered around the wants and needs of humans.
There are plenty of smart people who have researched this concept deeply (more on that in a second), so we won’t dig too far today. Here’s my current operating definition for a problem:
A problem is the pain, discomfort, or dissatisfaction that comes from a human need or desire going unfulfilled.
Now that we’re clear on what I mean by “problem”, let’s talk about why it’s so important to understand when considering a startup investment.
3 Benefits of Understanding the Problem
The problem a startup is focused on solving provides context for everything they do.
By understanding the problem well, we can…
Establish a baseline for defining who the target customer is, what their motivations are, and how frequently they experience said problem.
Critically evaluate whether the solution being delivered and the supporting mechanism for that solution (the business itself) is appropriate.
Quickly assess the focus, personal buy-in, and level of research (AKA customer discovery) the leadership team has performed. More on that in a minute.
For these reasons, I generally ask as many questions as necessary to make sure I clearly understand what that problem is before moving on to any other discussion topics.
The 3-Step Problem Confirmation Tool
Here’s a simple 3 step tool I use to confirm I’ve got the problem right.
Listen to the pitch.
Take good notes, paying specific attention to the problem it sounds like they’re solving. The strongest presenters will have a very clear, concise problem statement that tends to make this fairly straightforward.Restate the problem + “Is that right?”
Repeat back to the founder the central problem it sounds like they’re solving as your very first question. The ideal response is “Yes, that’s right.” However, this approach provides them an opportunity to correct if anything got lost in translation, and verbalization of the core problem helps cement understanding.Repeat until the entrepreneur is satisfied.
If there’s any adjustment, repeat back the new and improved problem statement, until the entrepreneur gives a resounding “yes, that’s exactly right” or something similar.
Here’s a real example from a conversation I had this week.
LatAm FinTech Startup Interview
Me: “Thanks Sarah (not the founder’s real name), it sounds like the main problem you’re solving is that 35% of Latin Americans have little or no access to credit, is that right?”
Sarah: “Yes, that’s right, and we’re working on that larger problem by specifically addressing the reality that large financial institutions struggle with credit decisioning and loan management for the underbanked population.”
Me: “Interesting, so the problem is that 35% of Latin Americans have little or no access to credit, in part because large institutions have insufficient credit decisioning and loan management facilities, is that right?”
Sarah: “Yes, that’s exactly right.”
See how this approach enhanced my understanding of the problem? I wasn’t wrong at first, but by asking the question, Sarah was able to help me quickly refine my understanding of the core issue.
Thus far, we’ve just been focused on understanding the problem. Now that we’ve got that down, how do we begin to evaluate if the problem is a good problem to build a company around solving?
A Good Problem
The world is full of problems to solve. However, not all problems are a good fit to solve through a startup. I believe a great problem worth solving has 3 key features: it’s specific, concise, and personal.
Specific
A great problem is specific. I deeply believe that problem breadth = startup death. A large, well-established corporation may have the resources to take on one huge problem or even multiple problems, but for a startup with extremely limited resources, picking as specific a problem as possible to start is essential. Who faces it? What is painful about it? When does it happen? Where does it take place? Why does it happen?
Concise
On a similar note, a good problem is simple and focused enough to communicate clearly to customers, investors, team members, and everyone in between. If it takes 3 pages of text or 2 hours to explain, the entrepreneur has some work to do. While it’s great to be able to talk about a problem for 2 hours, the capacity to boil things down to a 1-3 sentence core is a fundamental feature of a great problem.
Personal
An entrepreneur will generally spend years of their life focused on creating a solution to this problem, so I believe having some level of natural interest or passion for the space is important. I’m not saying that it must be particularly deep, but entrepreneurship is tough stuff, and having a personal connection to the problem can provide that extra bit of motivation needed to push through the inevitable doldrums.
The YC Problem Framework
If you’re looking for more frameworks around evaluating a problem well, I recommend spending some time with Kevin Hale at Y Combinator (YouTube). The whole video is worth a watch, but if you’re short on time, the 4 best minutes are 6:46 - 10:49.
According to Kevin, good problems contain one or more of these features:
Popular: A lot of people have it.
Growing: More people have it today than had it yesterday.
Urgent: It needs to be solved quickly.
Expensive: It’s worth spending a lot of money on.
Mandatory: It must be solved.
Frequent: It’s encountered again and again.
Final Thoughts
Understanding a startup’s problem gives context for everything else they do. There are real benefits to spending time here, and the 3-Step Problem Confirmation tool is designed to help. A good problem is specific, concise, and personal, and YC’s framework for identifying great problems is worth a look.
What do you think?
What tools have you used to identify great problems? Where do you most often see investors and entrepreneurs miss the mark when it comes to identifying the problem?
Weekly Observations: 3 Lessons Learned
New hypothesis: HR professionals make great VCs.🦲
Over the last 2 weeks, I reviewed more than 600 applications and conducted at least 24 interviews across a few different roles. I learned a lot from condensing that much recruitment into such a short period, but one of the things that struck me was how similar the whole process feels to Venture Capital. There are a limited amount of resources to distribute (HR: roles, VC: capital). There is limited time to make a decision (HR: business need, VC: limited period for deploying capital). The best opportunities aren’t available for long (HR: candidates get hired, VC: rounds get filled). Decisions must be made with limited information (HR: application, interviews, reference and background check, VC: application, interviews, reference and background check). So my latest hypothesis is that a recruiting pro would probably make a great GP.
Working with people who are better than you at a thing is insanely freeing.🆓
This week, two of our new team members got up to speed on their respective work areas, and it was so freeing to spend my time teaching instead of doing. And, since they’re both solid A players, the “teaching” process was very limited - they’re both far more skilled at their work areas than I’ll ever hope to be, so I’m pumped about what this will allow us to achieve in the years ahead.
What’s the Most Important Thing (MIT)? 🎯
Every year, I pick a word. My word for 2024 is “Focus,” which is weird because I’m generally terrible at this. One of the things I’ve come to understand about myself is that I’m curious, and enjoy variety, change, and exploring new things. While that lends itself to some major strengths and benefits as a business leader, it also involves some real weaknesses and challenges. I’m learning the value of focusing each day, week, month, and year on the few most important things and letting the things that are less important fall by the wayside. That said, I know I can’t do this alone, so I’m trusting several close friends, advisors, and teammates to keep me accountable.
Weekly Links: 3 Things I Found Interesting
Thanks for reading, have a great week.
-Andrew
If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.
P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.