By Carter Cast and David Schonthal
In the haste to innovate, many companies make one of two mistakes: They try to solve a problem nobody really cares about, or they begin with a solution in mind and then go hunting for a problem. Both of these innovation traps are especially common among companies that view opportunities through the lens of their existing businesses, resulting in high-profile failures (Crystal Pepsi, Coors Water or Apple Newton, to name a few). Developing offers like these not only waste time, money and resources, they also dilute brand equity.
Lean startups attack the early stages of venture development differently, using a discovery-driven approach. They first set out to understand and validate the problem they are seeking to solve, and then — and only then — turn their attention to designing the right solution.
Illustration by Michael Morgenstern
So how do you know if you’ve identified a problem that’s worth solving? At the Kellogg School of Management, we tell business leaders that there are five clues:
Clue 1: You’re on a personal mission.
The most compelling business ideas come from people that are passionate about — if not obsessed with — the problem they are solving for the customer. This fire-in-the-belly commitment is almost impossible to manufacture, and it’s often rooted in a personal connection to the problem, customer or solution. It almost always starts with mission. It will fuel you through the inevitable ups and downs of innovation, deepen your empathy for the customer, and open your eyes to new, different and human-centered solutions.
Clue 2: You can reach your audience.
Assuming you’ve found a business-worthy problem, can you actually reach your customers? Are there barriers that stand between you and this target audience? For example, are there important distribution channels that may be hard to access? Are there high switching costs for customers to shift to your product/service? Will customers be reticent to change their behavior? (For example, in eCommerce, try prying customers away from Amazon Prime.) All of these factors could make it difficult to gain access to your target customer and offer your solution.
Clue 3: Customers will pay — right now — for your solution.
If no one’s willing to pay for your solution, you don’t have a business; you have a hobby or charity. On top of that, talk is cheap. During the research phase, potential customers may tell you that they’d buy your product; however, months later, these same customers may be less willing to part with their hard-earned money when presented with your final product.
One way to test your target market’s willingness to pay is by launching a “minimum viable product” (MVP) to see if you can convert early adopters. An MVP is the most basic product you can ship that solves a fundamental customer problem and that early adopters will pay for. If an early adopter is eager to pay for an early (and possibly incomplete) version of your product, you’ve got a pretty good clue that you are on the right track toward developing a viable venture. Another way to test is by having customers pre-pay for a solution before you are ready to ship, perhaps with a money-back guarantee if you are unable to deliver. Both techniques help you validate willingness to pay by asking customers to put their money where their mouths are.
Clue 4: You can take multiple shots on goal.
The best problems are conceptual enough to invite a number of potential solutions — and the more shots you have at the goal, the better chance you will score. For example, a concrete problem like “kids need toothpaste that tastes better,” has a finite number of solutions, all around creating, well, a better-tasting toothpaste. But a conceptual question like “How can we make brushing kids’ teeth more fun?” opens up all kinds of possible solutions, such as new toothpaste flavors, packaging innovation and experiential solutions. In fact, this conceptual problem could take you to a solution that isn’t toothpaste at all.
Clue 5: The problem is hard.
Most of the easy problems in the world have already been solved. If you find yourself saying, “I can’t believe nobody’s thought of this,” chances are good that someone has thought of it, tried it and failed to execute it for one reason or another. Resist the temptation to take the easy path. Instead, pursue problems that have clear customer pain points, where field research with potential customers illustrates an unaddressed need, and are challenging from a technical, commercial or operational perspective. This is how you create true, defensible and lasting value.
Learn more about Corporate Innovation at the Kellogg School of Management.
Carter Cast’s 30-year business career includes a variety of manager, director and executive roles in Fortune 500 corporations and multi-million dollar startups. Part of the launch team at Walmart.com, Carter later became CEO of the online platform. Now a partner at Pritzker Group Venture Capital, Carter invests in high-tech startups and coaches management teams. An award-winning entrepreneurship and marketing professor at Northwestern University's Kellogg School of Management, Carter earned an MBA from the Kellogg School, after receiving a BA from Stanford University. Carter has appeared in the Wall Street Journal and the New York Times and on Bloomberg, CNN, CNBC and FOX.
David Schonthal is a professor of innovation and entrepreneurship at Northwestern University’s Kellogg School of Management. David serves as the director of Kellogg’s Zell Scholars program – a selective venture accelerator program helping student entrepreneurs successfully launch new businesses. David is a leader in the business design practice at IDEO, an award-winning innovation consultancy. Previously, David was a co-founder of Fusion Ventures, an investment and advisory firm focused on growing technology startups in early-stage development. He was also a director of strategy and venture development at Tavistock Life Sciences, a private investment firm. David has also held numerous leadership positions at startups in the technology and life sciences sectors.
