How To: Identify the Problem You are Solving

…you have to know what problem to solve. ~ Thomas Kelley with Jonathan Littman, The Ten Faces of Innovation.

My partner and I were having one of our business discussion sessions and we moved into the discussion of problems:

“I get what Gig Theory is trying to solve” he said. “Your core problem is unemployment, but what is the problem GTS is after solving? It doesn’t seem like it’s solving any problem at all.”

We were discussing one of the products that are a key part of our future offering.

As I painted the picture of how GTS was actually solving a problem, a new problem had presented itself:

The problem of not being sure of the problem that the company was after solving

Every company that exists today does so for the sole purpose of solving a customer’s problem. They become successful when the customers that are being targeted are willing to pay a sustainable price for the solution and only begins to decline when customers don’t see the company’s solution as compelling any longer.

Hence to succeed as a company, you have to:

Know the problem you are solving and know the customer you are targeting to craft the best solution that can be monetized to sustain your business

A quote from one of my favorite business books, Mavericks at Work, speaks to all of this:

People don’t have time for companies to be confused. Neiman Marcus knows it’s for rich people. Deal with it. Nike is in the business of crushing the competition. So be it. The companies that get in trouble are the ones that are mushy about who they are. ~ Roy Spence of GSD&M via Mavericks at Work

Whether you are about solving an existential problem (unemployment) or one that is perceived as trivial (boredom), as far as there is a market large enough to sustain your business that is willing to pay you for the solution in time or money and you are able to communicate your solution clearly to that market you are onto something.

So what’s the Key? The key is doing the following:

  • Know your problem
  • Know your customer
  • Define the solution
  • Know how you deliver your solution
  • Clearly communicate your solution

These items will help define your business model, and your business model defines who you are as a company.

The Business Model Canvas

The Business Model Canvas is a one page storyboard on which your business model can be articulated. It gives you a quick snapshot of your entire business no matter how complex it is. It is a top level document that can be used to generate more detailed plans with which to run your business’s day to day activities. The Canvas was created by Alexander Osterwalder and Yves Pigneur alongside “an amazing crowd of 470 practitioners in 45 countries.”1. Let’s get down to it:

The canvas is made of 9 building blocks:

Customer Segment:

Bottom Line: Who your target customers are.

One definition of a profitable customer segment is one that you can afford to serve well. By afford, I mean that satisfying this customer segment requires skills and resources that you already have or can source without breaking the bank. Satisfied customers are potential repeat buyers (depending on your model) and their positive reviews of your offering can potentially earn you more customers.

Value Proposition (VP):

Bottom Line: The benefit you offer your customers/the reason you are in business.

The value proposition breaks down the job you are doing for your customer segment in a way that the customer can understand and relate to. Crafting a winning value proposition requires that you understand the customer and the problem that you are trying to solve for this customer. In some cases it is the source of competitive advantage. One thing to keep in mind is to understand that a value proposition isn’t just talking about features; it requires that you talk about BENEFITS. A feature is something that your product has or does while a benefit is something that this feature does for the customer. A stellar value proposition is dependent on clearly communicating benefits.

Channels:

Bottom Line: What vehicles (methods) you use to reach your customer

These are the paths that you use to educate your customer about your offering and they are also the paths you use to get the offering to them. Some common channels include:

Distribution:

  • Having your own store where you sell directly to customers
  • Having a sales force that goes out to sell your product to your customer
  • Selling on the web using your website or platforms like Etsy.com
  • Selling through a wholesaler

Promotion

  • Radio and TV advertisements
  • Posters in approved posting areas/partner locations
  • Social Media

Customer Relationships:

Bottom Line: The relationships you have with your customer.

The customer relationships building block “describes the types of relationships a company establishes with specific customer segements.”1. They could be a potential source of competitive advantage i.e. your customers buy from you because the post-sale service that you provide along with the product offering you sell is the best in the industry. The relationships that you have with your customer prior to them committing to buy your product could also be a source of competitive advantage. The type of customer relationships that you have with your customer is dependent on what you are trying to achieve. There are three major goals:

  • Customer acquisition: Getting them to buy from you for the very first time. Pre-sale relationships will fall into this category.
  • Customer retention: Getting them to keep coming back for more (product) or retain your services (service).
  • Boosting Sales: Promoting add-on items/services that go with their initial purchase. For example: If you bought an iPad from an electronics supplier, the supplier might try to sell you on a speaker system to go with it so that you can enjoy the music you upload to it.

Relationships also require that you are well educated on your customer segment and their needs.

Revenue Streams:

Bottom Line: How you make your money.

Looking into your value proposition and customer relationships can give you clues to how your business can make money. The value proposition is directly tied to your offering and answering the question of how value proposition delivery mechanism can be monetized will help you fill out this block. Your customer relationships can also be a potential source of revenue, an example of this is software companies that have trainings that they hold to help customers better use their products. This is a form of support i.e. a customer relationship that can be monetized.

Key Resources:

Bottom Line: These are the resources that you need to deliver on your VP.

These are all the resources you need to execute your business model. They can be “physical, financial, intellectual, or human.”1. The resources you need usually start at the answer to the question: What do I need to deliver on my value proposition? Other questions that can help populate this building block are:

  • What resources do I need to reach my target customer segment? (Channels)
  • What resources do I need to ensure that I maintain my customer relationships? (Customer Relationships)
  • What resources do I need to ensure that my revenue stream collection systems function smoothly? (Revenue Streams?

Key Activities:

Bottom Line: The necessary activities to deliver on your VP.

Key activities are the things you must do to execute your business model. The activities are the most important actions that a company must take to operate successfully. The key activities include those that are needed to ensure that you deliver on the value proposition you make to your customers by operating your channels effectively and meeting/exceeding customer expectations in the relationship department. You also need to include the activities that will help you acquire your customers in the first place and ensure that the experiences that they have from the first interaction till money changes hands is no less than what you promised. Also don’t forget the activities you need to conduct to keep your customers.

As a business, you don’t necessarily have to conduct all the Key Activities yourself. This is especially true if there are companies out there that specialize in activities at are not core activities but are key to keeping your business model running.

Key Partners:

Bottom Line: Partnerships that help you be more efficient at doing business.

You can’t do this business thing all on your own. The Key Partners block helps you understand and articulate:

  • To whom you can divide out activities that can be outsourced
  • Who you help in the process of running your business model that isn’t your customer and that can help you in kind
  • Who helps you

Some of the key activities that you have listed out are things that you might not have the skills to execute. For instance all businesses need to have their books in order, but not all entrepreneurs are accountants so you either have to hire one as an employee (key resource) or have one look over your basic bookkeeping from time to time (key partner).

From another perspective, you might have the skills to do an activity, but your time might be best served focusing on other things e.g. You might be able to put together your own financial statements and analyze your performance, but you might be better served hiring that accountant for a small fee once every six months to look through the basic bookkeeping activities that you have kept up with. This can free up your time to talk to more customers or create your next big offering.

Partners can also be people who are totally unrelated to your day-to-day activities, but can help you achieve your business goals nonetheless. An example of such a partner is a mentor who gives you encouragement when you hit a bumpy patch; he doesn’t make you money, but he can give you priceless advice or set you up with someone who can.

Cost Structure:

Bottom Line: What it costs to run your business model.

These are all the costs that will be incurred operating your business model. Looking through each building block will help you determine what your major costs are and help you determine whether you have a business that is dependent on fixed or variable cost items.

One of the great things about the business model canvas is that you look above the line to determine your costs, and determine how much profit you can potentially make by comparing what you get to the number on the right (Revenue Streams). This gives you visual representation/quick break down of the potential profitability of your business and it helps you determine if something needs to change in the case where the initial model isn’t profitable.

1. Business Model Generation by Alexander Osterwalder and Yves Pigneur

Note: I added a link for the business model canvas download page beneath the picture, it wouldn’t hurt to explore the full page.

The Business Model

A business model tells the story of your company. It is a snapshot of:

  • Who your customers are;
  • Why you are in business;
  • How you reach and relate to your customers;
  • How you make money;
  • The things you do to make sure that you are achieving your reason for being in business;
  • Who your strategic partners are;
  • The resources that you need to execute your business;
  • And your overall cost structure.

My preferred method of crafting a business model is to use the business model canvas. It is a one page snapshot of your business model at any given time that makes it very easy to visualize all the aspects of your business.

Your business model can change from one period to the next to adapt to changing conditions in the market and in your company. Every company should have a business model, and it needs to be flexible enough to allow it to change as the company grows.  There several situations where your business model might need some changes: when it doesn’t prove profitable and you are spending more money than you make, or when it doesn’t help you achieve the goals of the company with respect to the customer and the company’s overall evolution.  The one thing on your business model that I would say might not change is the underlying reason why you are in business. An example, the business model for Gig Theory is always open to changing except for the underlying reason that this organization exists, to empower you with the information, tools, and access where possible to achieve your goals of creating whatever your dream job may be. This core reason for existence is summarized as “empowering you to create your dream job” and is at the forefront of every innovation, product, or feature decision that is made. The source of this was the answer to the underlying questions:

Why do we exist?

There are several places within yourself that you can search to come up with the answer for your organization; these include the problem that prompted you to start this journey, your personal values, and the things you are passionate about.

The book “Built to Last” by Jim Collins and Jerry I. Porras does a great job of explaining the idea of an underlying core purpose.