Market-Problem Fit

“Market-problem fit is the only thing that matters. You can have a great product, but if you don’t have a great market-problem fit, you’re dead. And conversely, if you have a great market-problem fir, you can have a mediocre product and still succeed.” Andreessen Horowitz

A Nigerian fintech startup, Kolopay (not real name) was launched in 2018 to revolutionize bill payments in Nigeria. The founders, a team of young and ambitious entrepreneurs, believed that they could make a difference by creating a platform that allowed users to pay bills using cryptocurrencies.

KoloPay's founders assumed that the main problem with bill payments in Nigeria was the lack of convenience and high transaction fees. They thought that by using cryptocurrencies, they could eliminate these issues and make bill payments faster and cheaper.

So they developed a platform that allowed users to pay bills using Bitcoin and other cryptocurrencies. They partnered with a few billers and launched their app with great fanfare. The startup failed because the founders failed to understand the real problem with bill payments in Nigeria

Some of the factors they never considered that resulted in their failure were:

- Users didn't understand the concept of cryptocurrencies, and the complexity of using them for bill payments was a major turn-off.

- The volatility of cryptocurrency prices meant that users were unsure of the exact amount they would be paying.

- The lack of widespread adoption of cryptocurrencies in Nigeria meant that few billers accepted them as payment.

- The app's user interface was clunky, and users found it difficult to navigate.

- inability to build trust with users

They failed because they didn’t understand the problem as a result their solution added more complexities to their customers. The startup shut down in 2020 due to a lack of traction and funding.

Understanding the problem you're trying to solve is crucial to building a successful startup. This startup's failure highlights the importance of conducting thorough market research, understanding customer needs, and validating assumptions before building a solution.

People Don’t Know Their Problem

There is this quote attributed to Henry Ford that Steve Jobs loved so much. It says you should not ask your customers what their problem is or what they want. They don’t know what their problem is. They will tell you all kinds of things. And if you are trying to please them you will end up creating something they don’t like.

One of the major challenges with startups is that their founders make a lot of assumptions. They assume they know and understand what the customer is going through. They come from a place of pride. They know the technology side and as such believe that whatever they create, the customers will want.

This is more like a dictatorship in business. You don’t dictate to your customers, you serve them. To serve them you need to know and understand what problems they are going through. A problem is simply:

1. A need in their life that they want me

2. a gap that they want to be bridged

3. a capability they lacked they need to capture opportunities

4. A job they want to get done

The foundation of your startup is knowing the exact problems your customers want solved and they are willing to pay for the solution. You are not starting a charitable organization. Money is the lifeblood of a company; without it the business will die naturally.

If founders get the problem wrong, then everything they are going to do will be wrong. Founders cannot build their startups on the wrong foundation. No matter the kind of money that you raise, if your definition of the problem is wrong, it is just a matter of time before the startup shuts down.

There must be a fit between the market (your customer segment) and the problem you want to solve for them. It has to be their problem and it has to be important and valuable to them.

Understanding the Problem Isn’t Enough

When I first ventured into business, I was told that I should just look for a need and serve it and I will be making money. I believed them. However, it is just a motivational piece. You can solve the right problem and meet the right needs and still shut down your business.

When I work with founders or train founders throughout Venture Studio, I make sure they find answers to the following questions even though they get the problem right.

1.?????? Do the people want the problem solved? You must make sure that it’s a problem they want solved. Solving the problem is very important to them. People want what is important to them.

2.????? Are they willing and ready to pay for the solution to the problem? You must make sure that solving the problem is very valuable to them. People will pay any amount for something that is of high value to them.

3.???? Are the number of those with the problem who are willing and ready to pay enough to sustain profitability? You must make sure that you there are enough people who will buy what you are offering so that you can make a profit from it. They are your company's support.

If you don’t answer these questions, you may one day realize you have invested so much effort, time, and resources on a problem that will never make your startup profitable. Your economic value must be created to support your human value or your why.

I developed a tool called the Value Effect Matrix that founders use to determine whether the problem is a good enough opportunity for them to pursue. You have to validate these before you proceed to solve the problem.

Today’s Solution, Tomorrow’s Problems

The problem you are solving today will most likely become the problem of tomorrow. So it's important for you to develop a system that you are continually making sure the problems you are solving are the current problems of your customers. People change, so also does their problems.

When you solve their problems, you move them to another level of problem or needs. It's important for you to always leverage your startup capability to know the new problem they are going through and how you can meet it. Just as someone moved the cheese, so also someone may move the problem of your customers right from under your solution or product.

Achieving market-problem fit is a crucial milestone for startups and founders, as it validates the problem-solution hypothesis and sets the stage for successful market traction and growth. If you get it wrong, then your startup is skewed.

Don’t fall in love with the problem or the solution, fall in love with the people you are solving the problem for. If you fall in love with their problem, you won’t see the problem differently. If you fall in love with the solution, you won’t want to change it. However, if you fall in love with your customers, you will be flexible with both the problem and the solution. There are two ways you can determine market-problem fit:

1. Personal Experience: Some you experienced and that you know you can pay for if someone had provided the solution. You have to also be sure that there are many people out there with similar problems like you. Steve Jobs and his team created the iPhone out of their personal experience with Blackberry. They created something better for themselves while also having validated the fact that many other people want the problem solved.

2. Empathy: You decide to walk in their shoes to feel what they feel and experience what they are experiencing. Before you empathize with your customers make sure they are enough to meet your need for profitability.

At the end of the market-problem fit is the Problem Statement. Through experiments, we help our clients validate their problem statement to ensure that it is true. That way they attain the market-problem fit which is the foundation on which their business model will be built.

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