Fall in Love with the Problem, Not the Solution

1. Fall in Love with the Problem, Not the Solution

If you don't fall in love with the problem, you simply will not be able to get through the point when it feels like nothing is working and you're ready to give up.

Identify a big problem. Start by thinking of a problem—a BIG problem—that is worth solving and affects many people. Speak with potential users to understand their perception of the problem. This approach increases the likelihood of creating value and building a successful start-up.

Focus on the problem, not the solution. A problem-focused story starts with "We solve the ... problem," while a solution-focused story starts with "My company does ..." or "My system does ..." By focusing on the problem, you can better engage potential investors and users. Remember that your passion for solving the problem must be greater than your fear of failure and the alternative cost.

2. Embrace Failure as a Learning Opportunity

If you've never failed, you've never tried anything new.

Failure is inevitable and necessary. Building a start-up is a journey of failures, with many iterations until you get it right. Embrace failure as a learning opportunity and a way to increase your likelihood of success. The key is to fail fast and recover quickly.

Create a culture of experimentation. Encourage your team to try new things and learn from failures. Celebrate small successes along the way, but also celebrate major events that seem negative, such as a patent infringement lawsuit, as they indicate you're making an impact. Remember:

• Make decisions with conviction
• Operate in phases
• Focus on one thing at a time
• Learn from each failure and iteration

3. Disrupt or Be Disrupted: The Power of Innovation

Disruption has little to do with technology. It's about changing behavior and market equilibrium—that is, the way we do business.

Understand true disruption. Disruption is not about technology, but about changing behavior and market equilibrium. It often involves introducing transparency, creating a new business model, or significantly expanding the market size.

Be the disruptor. Disruptors are usually newcomers with nothing to lose. Established companies often struggle to disrupt themselves due to:

• DNA limitations
• Lack of entrepreneurs
• Ego management issues

To become a disruptor:

• Look for markets with missing information or inefficiencies
• Create transparency or introduce a new business model
• Be prepared for initial dismissal or resistance
• Focus on changing user behavior, not just introducing new technology

4. Focus on One Thing at a Time: The Power of Phases

The main thing is to keep the main thing the main thing.

Operate in phases. Start-ups should focus on one critical phase at a time, usually in this order:

1. Product-Market Fit (PMF)
2. Business Model
3. Growth
4. Scaling/Going Global

Maintain laser focus. During each phase, concentrate all efforts on achieving the primary goal. Avoid distractions and temptations to work on multiple phases simultaneously. This focus allows for faster progress and more efficient use of resources.

Adapt your team. As you move through phases, be prepared to change your team structure and focus. Some roles may become less critical, while others become more important. Be willing to make difficult decisions about team composition to ensure success in each phase.

5. Master the Art of Fundraising and Investor Relations

If building a start-up is like a roller-coaster ride, then fundraising is like a roller coaster in the dark—you don't even know what's coming!

Prepare for the "Dance of One Hundred Noes." Expect to hear many rejections before securing funding. Use this process to improve your pitch and build resilience. Remember that investors typically invest in only 1-2% of the companies they see.

Perfect your storytelling. Create an emotionally engaging story that makes investors imagine themselves as part of it. Start with your strongest point, as investors often form impressions within seconds.

Key elements of successful fundraising:

• Craft a compelling, authentic story
• Focus on the problem you're solving
• Demonstrate a large market opportunity
• Show traction and progress
• Be prepared to negotiate term sheets
• Manage investor relations post-funding

6. Build a Strong Team Through Strategic Hiring and Firing

Knowing what you know today, would you hire this guy?

Hire slow, fire fast. After hiring someone, give yourself 30 days to evaluate if you would hire them again knowing what you know now. If the answer is no, let them go immediately. Every day they remain creates more damage to your team.

Create the right DNA. Define your company's values and culture from day one. This DNA should include:

• Support for employees and users
• Alignment among founders
• Quick decision-making, especially for difficult choices
• Transparency and willingness to fail fast

Use sociometric exams. Regularly ask team members who they would want to work with on a new project and who they wouldn't. This feedback helps identify top performers and those who may not be a good fit.

7. Understand Your Users: You Are Only a Sample of One

To understand users, you have to start with the humble approach—you're an amazing sample of ONE person.

Recognize user diversity. Users fall into different categories:

1. Innovators
2. Early adopters
3. Early majority
4. Late majority

Each group has different behaviors and needs. Your product must eventually cater to the early majority to achieve mass adoption.

Observe and listen. Watch new users interact with your product without guidance. Ask them why they do certain things or why they don't do others. This insight is crucial for improving your product and achieving product-market fit.

Simplify your product. Remember that simplicity is key, especially for early majority users. Focus on a few core features that deliver the most value, rather than overwhelming users with too many options.

8. Achieve Product-Market Fit or Die Trying

If you figure out product-market fit, you are on the path toward success. If you don't figure it out, you will die.

Focus on retention. The single most important metric for product-market fit is retention. If users keep coming back, you're creating value. Aim for at least 30% retention after three months for products used a few times a month or more.

Iterate rapidly. Launch your product early, even if you're embarrassed by its quality. This allows you to gather real user feedback and improve faster. Make changes based on user behavior and feedback, focusing on removing barriers to adoption and increasing retention.

Measure and analyze. Use cohort analysis to track retention over time. Focus on:

• Conversion rates at each step of the user journey
• Retention rates over time
• Frequency of use
• User feedback and behavior patterns

Remember that achieving product-market fit is an iterative process that may take years and multiple pivots.

9. Develop a Sustainable Business Model

At the end of the day, you can tell a different story to support the same product, so which one should you tell?

Align your business model with value creation. Your pricing should reflect 10-25% of the value you create for customers. Ensure your model is sustainable and scalable.

Common business models:

• Consumer apps: Free with ads, paid, or freemium
• B2B SaaS: Subscription-based, per-seat, or usage-based
• Hardware: One-time purchase or subscription with subsidized hardware

Focus on recurring revenue. Whenever possible, opt for subscription-based models that provide predictable, recurring revenue. This approach often leads to higher customer lifetime value and more stable business growth.

Experiment and iterate. Be prepared to adjust your business model based on market feedback and customer behavior. Use A/B testing to optimize pricing and offers. Remember that the journey to finding the right business model can be long and may require multiple iterations.

10. Scale Your Start-up Globally

Choose a significant market that is easy to win.

Timing is crucial. If you're from a small country, think global from day one. If you're in a large market like the US, focus on domestic growth first. For other large countries, be cautious of waiting too long to go global.

Select markets strategically. Consider factors such as:

• Market size and potential
• Ease of entry and competition
• Cultural and regulatory similarities
• Potential for rapid growth

Establish local presence. Use a combination of:

• Boots on the ground (local partners or country managers)
• Founder support and involvement
• Localization of product and marketing efforts

Avoid joint ventures, as they can be inefficient and hard to exit. Instead, focus on partnerships or direct market entry with clear objectives and exit strategies.

11. Navigate the Exit: IPO or M&A

The end is just the beginning of a new journey.

Prepare for emotional intensity. An exit is a life-changing event that brings a mix of emotions, including pride, concern, excitement, and uncertainty. Be prepared for the emotional roller coaster and seek support from mentors who have been through the process.

Consider all stakeholders. When evaluating an exit opportunity, consider the impact on:

1. Yourself
2. Your family
3. Your employees
4. Your investors

Evaluate exit options carefully. Consider factors such as:

• The potential for a life-changing event for you and your employees
• Your vision for the company's future
• Your willingness to commit to a new organization (in case of M&A)
• The potential for continued growth and impact

Remember that an IPO is often the default path, while M&A is an opportunity that may arise. Be prepared to negotiate and consider bringing in investment bankers to help create competitive offers and navigate the process.

Last updated: September 5, 2024