Does every startup need to solve a problem?

The number one reason that startups fail is because they have no market need. If nobody wants your product, you don't have a business.

But how do you know if there is a market need before building your product?

If your product is solving a painful, frequent and replicable problem for enough people, then you've got a market need. If not, then you're probably in trouble. It really is that simple.

By the end of this post, you'll be able to look at your list of product or feature ideas with the same lens that the most successful startup founders use to build great companies. Let's dive in...

Your startup needs to solve a problem, but not all problems are created equal.

You can easily find a corner of the internet like Quora full of people debating whether products really do need to solve a problem. Most examples from the anti-problem side are social media companies like Facebook or consumer goods like alcohol (whether vodka solves or creates more problems is an entirely different question).

When looking at Facebook from today (with its $528 billion valuation), it can be hard to identify the problem Mark Zuckerberg set out to solve initially — but the problem was obvious to Zuckerberg from the start. "You could find music; you could find news; you could find information, but you couldn’t find and connect with the people that you cared about, which as people is actually the most important thing. So that seemed like a pretty big hole that needed to get filled."



All products need to solve a problem, but not all problems are well suited for startups. Understanding how to identify problems that are worth solving is a key skill for every product builder. Problems worth solving share three common characteristics:

1) The problem must be important.

Every product sits at a point between burning problem and mild inconvenience. The best products solve hair on fire problems.

People don't go searching for solutions for mild inconveniences. Hundreds of mild inconveniences are tolerated every day. Burning problems, on the other hand, send people searching for solutions with cash in hand.

Take Stripe for example. "In early 2010 John and Patrick Collison began working on Stripe together. At the time, Patrick was working on several side projects and they debated why it was so difficult to accept payments on the web. They sought to solve the problem and see if it was possible to make it simple - really simple." (via Startup Grind).

Looking at Stripe's website today, it's easy to think that their giant vision of "Increasing the GDP of the Internet" couldn't have started with one clear problem solved for one specific segment of people (software developers) — but like most startups, that's exactly how Stripe started.

Stripe offered a product for an unsolved burning problem. Many successful companies start by solving problems better than existing alternatives. The presence of those alternatives can make a burning problem harder to spot.

Take Dropbox as an example. In founder Drew Houston's original HackerNews launch, he recognized two core problems with existing solutions for cloud storage that Dropbox could outcompete alternatives on, "The problem is that the user experience (on Windows at least) with online drives generally sucks and you don't have disconnected access." Cloud storage solutions existed, but they hadn't yet eliminated all of the burning problems.

2) The problem must be frequent.

To scale, a startup must be able to earn more money from each customer than it spent acquiring that customer (about 3 times as much, aka 3x LTV:CAC ratio).

Customer acquisition cost is often a lot higher than you'd expect. When Hubspot IPOed in 2014, they were spending $12,000 on each new customer (Revenue & Associates, 2017). Each new customer added an average of ~$8,500 in revenue that same year.

Asking each of these customers to pay $36,000 upfront for the Hubspot product seems pretty insane... Instead, companies rely on two things to fill in that gap; keeping each of those customers for a number of years ("retention") and adding additional ways to increase the amount those customers pay overtime to fill the losses created by churned customers ("net revenue retention").

How do you build a product that a customer will use for years so that you can earn back that acquisition cost? You solve a problem that they have to deal with all the time. The more often that a problem appears, the easier it is to retain that customer.

Stripe and Amazon Web Services are perfect examples here. The more successful your product is, the more often you have to deal with problems related to payments and hosting. That means that you're more likely to stay and that the amount these companies earn from their customers increases over time.

Intercom Founder Des Traynor uses a super simple quadrant to explain why you need frequency to build a good product:

"It’s the [bottom left] quadrant where the risk lies. Small, rare problems might be desirable and feasible, but just not that viable. People won’t pay you a lot for it (if anything at all) and you can’t easily monetize through ads or sponsorship because by definition your engagement is quite rare. Ultimately, you can succeed as a product but still fail as a business if you find yourself in this trap. Some problems persist because they’re quite simply not worth solving."

3) The problem must be replicable.

Unless you can sell your product for hundreds of thousands of dollars to each customer (eg. Palantir's top 20 customers each pay an average of $24.8 million per year), then you're going to need to find a lot of people to buy your product.

To serve a large number of customers profitably, you need to be able to sell the same product to many people. This is especially important in the early stages of your product when you have a very limited amount of time and money. Therefore, your aim is to find one problem that lots of people have so that you can create a single solution for all of them.

This is where the third characteristic of a good problem appears; replicability. If you find 100 target customers who all experience the same problem but in different ways, then you'll end up building 100 different products. That's a service business, not a product.

The perfect example of this is the graveyard of apps for logging your gym workouts. While other areas of fitness have been conquered — Strava with outdoor cardio, Freeletics for fitness newbies, Peleton for spin classes — the workout tracker remains an open opportunity.

Every consistent gym-goer will tell you that logging their workouts and progress is a pain, yet the most common solutions are still pen and paper, spreadsheets and note-taking apps. A quick search on the Google Play Store reveals thousands of almost identical workout logging apps for weightlifting. Why are they not used?

Because there's almost no replicability of the problem between customers. Every weightlifter has their own workout structure plus a different set of equipment, goals, and current solutions for tracking progress. As a result, every workout logging app tries to cater to all these needs with a complicated mess of features that no user loves.

It's not good enough for your target customers to have a burning and frequent problem — if they can't all solve the problem with the same solution, your product won't work for any of them.

Why you need to pick your target customer segment before your problem...

You can find a burning and frequent problem by starting with a product idea, but replicability becomes the biggest challenge for startups as they attempt to scale.

By starting with the idea, you will end up picking a problem to solve for multiple customer segments. Your initial product may solve all of their problems, but as you grow your feature set, you'll get pulled in different directions by each segment. In the end, startups are always forced to pick one segment to build for in order to reach scale.

The best example of the important of specific customer segmentation is WeatherBill — their 2010 pivot turned a failing startup into a $930M acquisition in just 3 years.

So, how do you pick the right problem to solve as a startup?

Once you've picked a target customer segment to focus on, the best characteristic to start with is problem importance.

Identifying an important problem in theory is quite easy → figure out all the problems that your target users face and stack rank them to see which is the most important to them.

When it comes to doing this, however, there are pitfalls everywhere; creating a multiple choice survey risks missing a big problem that you hadn't thought about; distinguishing burning problems from mild inconveniences in open-ended survey responses is guesswork at best; asking the right questions in user interviews without introducing your own biases is misleadingly difficult.

Instead, leading product builders at companies like Canva, Adidas and Google use our tool OpinionX to stack rank the most important problems their customers are trying to solve. On OpinionX, participants can also add new problems to your list as you go, helping you to fill in the blind spots you missed at the start.

Create your own stack ranking survey for free in under 4 minutes today to find the most important, frequent and replicable problems that your customers are dying to solve.