An example: one hour delivery of videos, games, DVDs, magazines, books, food, and even coffee from Starbucks. A premise quite familiar to 2019, but revolutionary in 1998. Kozmo.com built its business model based on delivery of products by bicycle, car, truck or even public transportation, within the hour, in major american cities. And with no delivery charge. They were out of business by 2001 - but not before raising about $250 million and having more than 3.000 employees at the highest point of their history.
Today, we see Uber Eats and similar companies experiencing immense growth over what seems to be the same idea - delivery of items (food, groceries, drinks, packages, medicine), for convenience, directly to the client’s door. People lead busy lives, sometimes with gruelling schedules that make it harder to go shopping for fresh produce, cook a meal or pick up that prescription. What failed Kozmo? Some analysts were always doubtful about the absence of a delivery fee at the start of the company; thin profit margins played a part. Delivering small objects within the hour throughout metropolitan cities was expensive, and the client didn’t pay for the service. At the end of its lifespan, Kozmo was delivering products with higher margins than cans of Coke or coffee from Starbucks (a chain with which it had a co-marketing agreement of $150 million) and turning a small profit, but not enough. Same day delivery did not deliver margins that reached the investors’ expectations.
Webvan is another example. Ordering groceries online is an everyday staple that most retailers offer. But 10 years ago, distrust was still a factor. Webvan’s founder was Louis Border, already with experience in creating businesses (Borders Bookstores). Investors trusted him enough to part with over $800 million in investment. The company started operating in 1999 and went under in 2001. Lack of experience was a motive (selling books is not the same as selling fresh produce), lack of customer knowledge another (people like choosing their fruits and vegetables, and when in grocery stores they end up buying other things not originally planned). Webvan also chose to build infrastructure from scratch, instead of using what was already available, a high cost to start a business.
Every superhero has an origin story
Untested dreams are still untested, even if they are funded. And validation is a vital part of a startup’s strategy, even more important than execution at the beginning. If you don’t pick the right problem or the right solution you’re setting yourself up to delays. A great idea is an amazing thing to have, but it doesn’t mean you’re ready to build an amazing and valid product. But if you have that one idea that you think can change the paradigm, let’s get you on the road to Problem-Solution Fit.
Rather than being on the lookout for an amazing product, we look for entrepreneurs who are addressing an interesting enough problem. When we assess whether to take a company into our portfolio, the key question we ask is whether the problem is big enough and painful enough for the target market.
A Problem-Solution fit basically validates that you found the solution that gives an answer to your customer’s problem. To get here, you may need to deviate from the original idea. Don’t invest months or even years building a product that you did not determine for certain is worth building. Although finding Problem-Solution Fit doesn’t mean you have a finished product, it means you have a valuable answer or feature, something future clients would like to pay for - in short, a viable business prospect.
Let’s imagine you have an idea about an Uber-like solution for tow trucks.
A first step is making sure you understand your target as a client group, as well as their problems and limitations. What stops them from achieving what they are looking for and what are they willing to give in order to overcome that barrier? What did they try in the past and why did it not work? Who is your competition? Valid answers lead to a certainty that the problem is actually valuable. But is the number of people affected and willing to use this solution enough to form a viable and scalable market? Will this solution help set you in the way of a sustainable business? You may ask yourself these questions:
People use Uber on a near daily basis. Do people need tow trucks that often?
When they do, what percentage of them would use an app and how many of them would call their insurance partners via phone?
We would need to have alliances with the main insurers in every country we would want to operate. Is that possible?
What type of app would we build? And what resources would we need to do it right?
Is there any other way we could make the process of calling a tow truck easier? Do we really need an app for that?
Ultimately, Uber-like businesses are built on conveniency and on demand requests. How frequent would those be for our idea?
To get here, brainstorm possible customers. Find out which channels to use: you can send surveys to a sample target, or set up problem interviews with your audience and actionable focus groups. Find out who the early adopters would be, and ask them to refer your solution. Talking with prospective customers will help you confirm you’ve reached something truly viable and innovative - because only after this will you be able to truly understand the problem you’re solving.
Draft a proposal, or set up a landing page, to test interest. A next step would be building a demo, testing different hypothesis, and going back to those prospective clients for solution interviews. This development stage is a key step in the road to a Minimum Viable Product, a go to market strategy and ultimately, Product-Market Fit. Here, you are actually prototyping what your product could be. Too often founders are so involved in their initial ideas that it’s hard to have an outside perspective to coldy assess them and seek their potential value.
A good idea is a great start to a Problem-Solution Fit - but you need to take the next steps (want to take them with us?).