- What is the problem the product or service is intended to solve?
- Who is the customer who considers this a priority problem (besides yourself)?
- Is the customer willing to pay, in cold hard cash, to have this problem solved?
- How many customers are out there, in the real world?
Too many of today’s business entrepreneurs are focused on the viral social media hype that they hope will attract advertisers whom they (again) hope will pay for the eyeballs from a Tower of Babel frenzy. As Facebook is learning, the costs to sustain a “give it away for free marketplace” have only one trajectory and that is upward. If there is no viable problem, solution, customer, or market, then there is no viable revenue model to sustain the business for the long term. If there is no viable revenue model, then focusing on branding, marketing, sales, promotion constitutes a focus on the costs the business inevitably will need to self-underwrite.
What does it take to “start from the very beginning?” What is a worthy problem vs. a trivial problem? A worthy problem is something that people value enough and for which they are willing to separate themselves from the money they possess. Either the customer, directly, has the problem and is willing to pay for “a solution” or an intermediary is willing to pay to access customers with a problem the intermediary’s product can solve.
The most successful customer-based problem is one based on essentials: the need to eat, clothe oneself, educate oneself, find employment, or find housing. Secondarily, customers with more discretionary earnings tend to be willing to pay for higher levels of comfort, convenience, safety, or personal satisfaction.
Customers are willing to pay for food. When customers have more discretionary income, they are willing to dine out (pay an intermediary) to increase the variety of food or to add the ambience of dining out.
Some companies will access customers by paying for advertisements for THEIR products or services. When a business has no essential product or service, but only relies on revenues through advertising, that would be “the ad revenue model.” In the case of a real business, payment for ads is a cost of business compared to a primary revenue model (diners’ purchases of meals). In the case of too many online businesses, ads have become the hoped-for total source of income.
The focus on ad revenue models presumes that companies have an infinite desire to pay for access to customers. Ad revenues from traditional sources (print, radio, TV) have fallen precipitously. Therefore, companies are searching for alternative methods to access customers. The Internet, email, mobile phones, and social media all represent potential or alternative access points. But, companies have metrics to test the viability of their ad dollar expenditures, as GM’s withdrawal of its ad support of Facebook would testify. If Facebook customers are not clicking on GM ads, (i.e., therefore are not using Facebook to buy the primary product that GM considers its essential source of revenue – auto sales), then that means Facebook is not delivering the customers who have an essential need or interest in buying cars. GM has no incentive to continue to throw good ad money at Facebook if social media doesn’t deliver the customers. The same is true for Google ads or Yahoo ads.
What are real problems for which customers are willing to pay money to get the solution which an entrepreneur might provide? Customers buy phones to solve the problem of communicating anywhere. They buy clothing that presents them as professionally- or socially-desirable beings. They pay health insurance premiums now to reduce the risk of having to pay more exorbitant health care costs without insurance. They buy auto insurance to avoid losing the privilege of driving should they be found not to own insurance. They pay for over-the-counter or prescription drugs in the belief that these products will relieve some symptoms which they consider undesirable. They pay Internet service providers to give them email addresses; software to send, receive, and save communications; and access to additional applications for which they are willing to pay additional amounts. They are willing to pay to acquire music, movies, and books digitally that heretofore they were only able to access offline. Some customers are willing to pay to arrange dates. Some customers are willing to grocery shop online – but apparently not enough compared to offline grocery shopping.
Where do customers draw the line between real problems vs. not real problems? It might depend on whether customers have a reliable stream of income themselves – how much discretionary resources they have. If large numbers of customers are out of work, they will forego solutions to their current problems until or unless they can increase their incomes or else somebody gives them their solutions for free.
Alternatively, it might depend on how much the online services “save” them elsewhere – time to search and locate a product, time to access or purchase it, time to deliver it, or the cost of gasoline and auto wear and tear vs. online access.
Would people really be willing to pay to access Google maps if there were a fee? Not likely. But, a few people (or more likely companies) are willing to pay to access greater functionality of Microsoft mapping software or sophisticated geo-mapping software from ESRI or SAS. The problems these companies address with the purchase of greater functionality means they can increase revenue streams from THEIR paying customers – which is why they are willing to pay.
There is an old advertising adage: you can have something fast, cheap, or good – choose any two. That tends to define the nature of real world business problems for which people are willing to pay cold hard cash for solutions. Can you save the customer substantive time (fast)? Can you save the customer costs (cheap)? Can you provide the customer with more or better features or functionality (good)?
We need to do a better job of bringing potential entrepreneurs back to earth to evaluate and dissect what are the real world problems that contemporary businesses potentially could solve. Not every business person needs to be a brain surgeon or rocket scientist – for which we as a nation are willing to pay significant funds to attain the solutions to problems as they provide. But, could we walk down the food chain a little bit and try to define real work scale problems that are at least a bit more worthy of solution than an incessant desire to view cute kitten video clips, baby pictures, or digitally destroy animated vehicles and their occupants?
The definition of substantive, value-laden problems worthy of addressing with real world business solutions constitutes a bottom up approach to entrepreneurship. If we can’t start there, starting anywhere higher on the spectrum of entrepreneurial activity is simply a formula for failure as a business.