2 Most Important Questions to Ask Yourself When Starting a New Business
Before funneling any funds into a new business venture, invest time and energy into evaluating whether you’re addressing a real user need or not.
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As a serial entrepreneur and venture capitalist investor, I have witnessed the inception of hundreds of businesses and enjoy analyzing what leads to their success or failure. Through this leisurely study, I have found that a business's fate often depends on whether the entrepreneur has asked themselves these questions:
Am I solving a real need or just a perceived need? And if it's real, does the value of solving the problem outweigh the behavior changes required by the customer?
Entrepreneurs, by definition, all have at least two distinguishing qualities: A passion for starting businesses and a passion for solving problems. Unfortunately, sometimes the former usurps the latter, and businesses are formed under the wrong pre-tense.
Especially in tech, it can be much too tempting to effectively take any service and "digitize" it. These endeavors usually start with a thought like, "Wouldn't it be cool if..." and then months later--there's an app for that.
The problem is, while the sheer utility of something could be interesting or cool, a lot of entrepreneurs never put in the work to identify if they're addressing a real user need or simply a perceived need crafted by an imaginative entrepreneur.
Real User Need vs. Perceived User Need
Real user needs are pain points or difficulties that can be qualitatively and quantitatively defined and proven by a large sample of users. They can be something obvious, like how much of a hassle it was to rent and return movies at a store, or something non-obvious that a user only retroactively defines as a need once there is already a solution. A good example of the latter is the iPhone--we didn't realize how much we would need it until we had it.
In both cases, research can be done to define these as distinguishable, significant pain points that currently do not have acceptable solutions. But more importantly, the solution must have a value that grossly outweighs any disadvantages and behavior changes from the user--this evaluation is what is so often skipped and leads to a company's peril. Here is an example.
To Evolve or Not to Evolve
I lived in downtown Chicago for almost a decade where there was at least one dry cleaner in every three block radius. Some were marginally better than others, but they were all easily accessible, consistent and similarly priced.
Could service have been improved? Sure. Sped up? Fine. But at the end of the day, I did not have a burning need to change my experience with my chosen cleaner. I had built a pattern to drop off my shirts on the walk to work, and then pick them up two days later on the way home.
While I was perfectly content with my service as it was, I watched no less than five "on-demand dry cleaning" apps launch around me. Some raised tens of millions in venture funding, and they were all the same: Download this app, enter your credit card details, tell us when to come pick up your clothes, and we'll tell you when we are coming to drop them back off.
The problem was, they hadn't really thought through whether this was a real user need or, more importantly, if customers would make the behavior changes it would require.
Was it marginally more convenient to order cleaning service while wearing pajamas? Why not. Would it be nice if my clothes would just magically return? Sure--but then I would have had to arrange a time to be home, which is tough when you're busy. For me, it was easier to grab my clothes on my walk.
And then there were all the potential predicaments: What if I had a unique request? What if there was a problem with the service? What if I enjoyed that brief early morning human interaction on my walk to work? What if I misplaced the generic bag they gave me to leave my clothing in?
The "need" these companies were built upon was arguable at best, and the behavior changes it required of me didn't nearly make up for the benefits.
All five of those dry cleaning services went out of business as quickly as they opened. Doing a quick search, it looks like a few have taken their place since I left. They have either figured out how to tackle these two questions, or they will be right behind their predecessors on the way to the startup graveyard.
Validate Before You Venture
When considering a new venture--tech or otherwise--it is critical to take the time to dig into the substance of the real user need and validate through user research that there is outsized value compared to any disadvantages and required behavior changes. This is the recipe to success.