Times of rapid and dramatic change can shift the tectonic plates of opportunity. The current pandemic is such a time — meaning that leaders should looking for suddenly-surfaced opportunities around which tobuild a new business.
How can you decide which of these new opportunities is the right one for you? I offer students In my Foundations of Entrepreneurial Management course at Babson College a way to think about this question. The most important principle to keep in mind is that most startup ideas people pitch to me don’t work because the founders are trying to solve the wrong problem.
Here are the four tests potential founders should apply to make sure their new venture idea is solving the right problem:
1. Compelling evidence of ‘customer pain.’
I have interviewed hundreds of company founders over the last 10 years and I’ve found that the most common reason they started their company was to solve a painful problem they faced in their own lives.
Many founders have told me that when they failed to find a company offering a solution to that problem, they started a company aiming to provide such a solution. If after a diligent search, you can’t find a solution to your problem, you can be fairly comfortable that you will not face initial competition from a large, more financially-solid rival.
Consider how the pandemic has destroyed old opportunities and created new ones. A fitness trainer saw that Covid-19 would slash demand for his business but with people riding bikes instead would create a need for bike repair.
According to the Wall Street Journal, that fitness trainer, “Ian Oestreich realized by early March that the coronavirus meant his days as a fitness trainer were numbered. So he began hawking his knack for fixing bikes, leading to the formation of a new mobile bike-repair business in Madison, Wis.”
2. Winning industry knowledge and skills.
Passing the customer pain test is not enough. You must also have the industry knowledge and skills needed to envision and build a product or service that will solve the problem.
Consider the idea that a team of students from India proposed a few years ago — a universal SIM card. The students who came to campus in the U.S. were annoyed that they needed to purchase a U.S. SIM card to operate their smart phones. Sadly for this team, none of its members had the semiconductor engineering skills needed to build such a universal SIM card.
To be sure, there are some successful entrepreneurs who have learned what they needed on the job or could hire people with the needed skills. However, unless you have extraordinary leadership skills or access to a huge pool of investment capital, it is unlikely you will be able to hire and motivate such world class talent.
3. Drive to surmount startup obstacles.
To turn an idea into a successful company, you must identify and overcome a sea of problems. What’s more, unless you solve all the problems that arise between the initial idea and a successful exit, you will be living off Ramen noodles.
Without an overwhelming passion to solve all these problems, you will become discouraged and fall short of reaching your goal. One way to keep motivated is to pick a problem to solve — the solution to which continues to be of paramount importance to you. The need to solve that problem will sustain the drive to keep overcoming all the obstacles.
4. Sufficient cash to launch and operate the business.
There is a limit to how much sweat equity can be used to launch and operate a business. Capital is essential for you to hire people, purchase inventory and equipment, and pay for office space and all the other resources needed to run your company.
Where you look for capital depends on the stage of your venture. Before you win your first customers, seek out funds from friends and family, apply for grants, or try crowd sourcing. If that does not work, you might borrow money on your credit card
Once you’ve proven that you can attract and retain customers, you should consider raising money from angel investors — wealthy individuals who can offer your business capital and advice. And if you get to the point where you can sprint to liquidity, you will be in a stronger position to raise venture capital.
Oestreich was able to get his bike repair business off the ground by using $1,000 in personal savings and savvy social media marketing. He has become so successful that he is fixing 18 bikes a day and turned down the chance to go back to his old fitness training job.