Problem-Solution Fit: The First Milestone for Your Startup

By Graham Horton and Jana Görs

Before investing months or years of effort towards building a product, the first step is determining if this product is something worth doing.

Ash Maurya

The most common mistake first-time founders make is to develop a product for which there is no market demand. Problem-Solution Fit is the component of the Lean Startup approach that helps founders to avoid building a “solution for which there is no problem”.

Startup Ideas Are Based on Assumptions

The most basic requirement for any product is that somebody needs it; if there is no demand for a product, then it is guaranteed to fail. This is not an issue if you are founding an existing type of company like a software studio or a dentist’s surgery, because both the customer need and the corresponding product or service are already well-understood and sometimes even standardized.

However, if you are founding a startup, the situation is very different; you have an innovative product which solves a customer problem in an unusual way, or you might even be solving a completely new customer problem. It is therefore not at all clear who your future customers will be and whether or not they will accept your solution. There may also be unseen obstacles that prevent them from adopting your solution.

Imagine it is the year 2008, and you have just had the idea for Airbnb. Three fundamental questions you need to find answers for are:

  • Will business travelers be willing to stay in private accommodations?
  • Will people with unused bedrooms be willing to rent them out to strangers?
  • Will travelers and hosts be prepared to use an online marketplace?

Of course, 12 years later on, we know that the answer to all three questions is yes, and Airbnb has become very successful. But back in 2008 this was not obvious at all, and if any of the answers had been no, then Airbnb would not have been possible.

To a greater or lesser extent, every startup is like Airbnb, so it makes sense for the founders to test their basic assumptions before they start to develop and market their products.

An Unnecessary Risk

20 years ago, startups received financing based solely on their founders’ ideas. The founders would then spend their investors’ money developing and marketing precisely that idea. In doing so, they were gambling on whether the market would adopt their product or not.

This led to some spectacular flops. Two well-known examples are the startups Segway and Webvan, who spent around 100M$ and 1Bn$ respectively to bring products to market that hardly anyone wanted to buy.

And then in 2011/2012 everything changed. Eric Ries wrote The Lean Startup and Steve Blank wrote The Startup Owner’s Manual. These two books proposed a new approach which emphasized the importance of validating the assumptions on which the business was going to depend before entering into any major commitments.

Lean Startup proved to be very effective, and it spread quickly. Nowadays, many respected university Entrepreneurship programs, startup accelerators and venture capital companies all favor the new approach. And yet, even today, startup founders continue to be convinced that they understand what their customers need and then devote all their energies towards developing untested product concepts. In most cases, this is little different to them going into a casino and gambling all their money on the roulette table.

Problem-Solution Fit is the first major milestone in the Lean Startup approach, and its objective is to prevent you from making this mistake.

What is Problem-Solution Fit?

In its simplest form, Problem-Solution Fit (PSF) asks three questions:

  • Does the customer problem you want to solve actually exist?
  • Does your planned solution solve that problem better? (in the eyes of your customers!)
  • Would your future customers prefer a solution like the one you are planning to the alternatives?

Since all of these questions refer to your future customers, Problem-Solution Fit automatically implies a fourth question, namely,

  • Who will your customers be?

Problem-Solution Fit delivers the first half of the answer to the question, is it worth developing a solution for this problem? (The second half of the answer involves estimating how valuable the customer problem is, but that topic requires an article of its own.) It is the first milestone for founders, because every other activity – including product development – depends on it.

Problem-Solution Fit asks whether your startup’s proposed solution could be successful in theory. The question of whether your product will be successful in practice is called Product-Market Fit, which begins once PSF has been established.

Your Problem-Solution Fit Assumptions

In order to test Problem-Solution Fit, you first write down all the assumptions you have made regarding the four questions in the previous section. For example, some of the assumptions on which Airbnb was originally based might have been:

  • Sometimes, out-of-town visitors to large conferences cannot find accommodation.
  • For some of these conference visitors, accommodation is too expensive.
  • Homeowners in cities with large conference centers would be prepared to rent out spare rooms to conference guests.
  • These homeowners would be prepared to pay a fee in order to have their accommodations listed on an online marketplace.

Once you have listed all your critical assumptions, you can then start to validate them. The founders of Airbnb famously started their PSF validation process by building a simple website to advertise their apartment during a conference in their home town.

Obstacles to Fit

There are many potential obstacles to a good Fit that often have little to do with the solution itself. This is particularly true for B2B products, because companies can have all sorts of restrictions and conditions that are invisible to outsiders:

  • The customer has a requirement that your solution does not meet.
  • There is a legal or regulatory restriction that you did not know about.
  • The customer is not prepared make the change to a business process that your solution requires.
  • There is an existing opinion or cultural barrier to your solution.

Issues like these can cause prospective customers to reject your solution, even if it would provide them with significant benefits. Unfortunately, you cannot anticipate them; you can only discover them by getting to know your prospective customers as well as you can.

Talking to Prospective Customers

There is only one way to validate Problem-Solution Fit, and that is to talk to prospective customers. A PSF interview centers around the situation for which your planned solution is intended to provide a benefit. Here are some typical questions that you might ask (where X refers to the solution you are planning to build):

  • What do you like or dislike about the way you perform this task/solve this problem at the moment?
  • How important would it be to you to get a better solution?
  • What might a better solution look like?
  • How would you feel about X as a solution?
  • Do you foresee any obstacles to adopting a solution like X?

The main goal of these interviews is to confirm the customer problem and the attractiveness of your planned solution. However, they can have several other valuable benefits:

  • You discover a more valuable customer need.
  • You uncover an obstacle to a good Fit.
  • You can improve the specification of your target market.
  • You get ideas for improving your solution.

Your business idea will probably change after your first interview. After 20 interviews, it may well be almost unrecognizable compared to your first version. But it will also be significantly better.

The Need for Speed

There are always several startups working on the same customer problem at the same time, and the first one to devise a good solution has a huge advantage over the others. For this reason, the only thing that matters for your founder team in the initial phase of your project is the speed at which you learn from your future customers.

If you have a good founder team, you can establish Problem-Solution Fit in about six weeks. This means talking to at least one potential customer every day (and, of course, adapting your plans in accordance with the feedback you receive!) Being able to present a convincing Problem-Solution Fit for your startup is an essential step towards getting pre-seed funding and for being accepted into a program such as the Founders Foundation’s Accelerator.

 

The authors:

Jana Görs and Graham Horton are founders of the consulting company Zephram, which supports companies from startups to corporations in their innovation activities. They also teach the Startup Engineering courses at the University of Magdeburg and have been lecturers at the Founders Startup School and Founders Accelerator programs for years. This article contains excerpts from the online Problem-Solution Fit workshop that they gave at the Founders Startup School in May 2020.

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