In the midst of all the craziness associated with being in a fast-paced startup, it’s easy to get sidetracked.  Money comes in, expectations get set, people are hired, and craziness ensues.  In many ways, it’s this frenetic pace of play that attracts people to startups – a lot of folks get off on dealing with the unexpected.  The allure of chaos versus the doldrums of the mundane is a major reason why talented people will take a risk on a startup instead of staying put in their boring, but often economically stable, careers.

Startups are started for a reason – they have a mission.  (At least normally, anyway.  Wildly successful Riverbed had some thoughts, but no substantive idea initially.  They didn’t know what problem they were going to solve, only that they knew they wanted to solve one.)  They get funded based on that mission, and start the ball rolling towards executing on that mission.

There are two things that tend to happen to almost every company on a “mission”:

First, the company develops a planned “solution” necessary to fulfill the mission.  They more often than not spend far too little time validating that the mission deserves to be executed at all, instead taking what they “know” as gospel and moving full steam ahead. They don’t bother spending the time nor money to truly investigate the legitimacy of the PROBLEM that their mission intends on solving, and instead move right to step 2: building the solution.  In many cases, the next 18 months of the company’s chaotic life will be in support of creating and marketing a solution to a problem that turns out to have never existed, or no longer exists as it once did.

Then secondly, the company goes looking for a problem that fits their solution.

It’s really hard to create a problem.  It’s even harder to create a problem that fits nicely with a solution you happen to have.

Here is how a proper market looks:

A:  There is a “legitimate” problem.  I define legitimate as a problem that people/companies will be willing to pay money to solve – or to alter their behavior patterns in order to solve it.  In other words, a legitimate problem is one that causes the market enough pain to make them do something differently.  You must remember, markets will almost never move en masse to a solution willingly – or because it’s the “right” thing to do.  They will only do so when they have no other choice.  Nice to have versus need to have.  People are lazy creatures of habit.  The devil we know is better than the one we don’t.  I estimate that less than 5% of any industrial/technology market buyers act within the same 24 months as the “hype” peak of that market.  In IT, most of the world does things the same way it did 20 years ago.

B: The problem is ubiquitous.  It is not limited to a small niche.

C:  The problem is going to get worse naturally.  You don’t have to create or exacerbate the problem, you just need to intersect it. For example, in IT there are a ton of problems that are exacerbated by data growth.  If you can’t fit your data on what you have today, you need to do something differently.  If you know that there will be more data to contend with tomorrow, then whatever problem you were dealing with yesterday will only get worse.  You don’t have to be the one who creates the data growth problem, you need to intersect that problem with your solution to that worsening problem.

This is what we refer to as a long term secular trend.  Problems that can only get worse over time create opportunities for “hyper-markets.”  VMware intersected a hyper-market.  Data Domain intersected a hyper-market.  Microsoft intersected a hyper-market.  Cisco intersected a hyper-market.  NetApp intersected a hyper-market.

Apple created a hyper-market.  Much rarer, much harder.  Same result.

Hyper-markets are startup nirvana.  Why?  Because he who is in position and intersects a long term secular problematic trend that turns into a hyper-market first – wins.  The first guy – not necessarily the best guy – takes home the prizes – and no one, no matter how much better they are, will ever take away those prizes until the market itself has dried up or marginalized/commoditized itself.

Companies spend too much time focusing on the solution without fully vetting out the problem.  Is it legitimate?  Does it have the opportunity to become a hyper-market?  What would have to happen in order for it to become one?

Without the advent and adoption of the PC/Workstation way back when, there was nothing to network, and thus if it never happened, Cisco would have dominated the router market of approximately 12.  Because it did happen, without their involvement, they were in the right place at the right time with the right solution – and intersected that market as it exploded. They have never looked back.  Microsoft was an enabler for Cisco, not that Microsoft cared about networking at the time. Networking’s success created/exposed a new long-term secular trend in backup/recovery.  No one had ever thought about backing up a million little machines connected to a network because there was no such thing.  Since networking and PC/Workstation (distributed computing) markets appeared to not be a fad, then clearly the network backup market wasn’t going to be a fad either.

We never know how big a hyper-market can be, but we should be able to spot the genesis of one, and we should be able to prove/disprove the legitimacy of the market opportunity created by one.

Environmental shifts can be enormously important to pay attention to, and yet most startups don’t.  If they had a solution to a legitimate problem, and the environment altered in such a way that it no longer was going to be a legitimate problem, you would think the company would recognize this and alter their strategy.  Most don’t.  Most act like the black knight in Monty Python’s Holy Grail and presume that the problem (and thus their mission) is invincible.  For the last 50 years in the IT business, storage capacity has been a big, expensive, legitimate problem that has created opportunities for hundreds of companies and created billions of dollars in value.  Today, I would argue, capacity is no longer a legitimate problem.  Storage capacity is effectively free. Thus, if you continue to build a business based on solving this problem, you will inevitably die.  You have to acknowledge this fact, and hope you can find a legitimate problem that merits your solution in order to sustain you.  Most will realize this too late. They will die because they react in the following stages:

A:  denial – they refuse to acknowledge the realities of the situation.  They are the ones who turn “hope” into their strategy.

B:  panic – they change their business plan quarterly or worse, desperate to force their agenda.  They often can be successful in short bursts, simply because they can sell better to individual weaker “opponents.”  This is not sustainable, of course.  This is where mercenaries rule.

C: collapse – often the slowest and most painful.  By the time they acknowledge that the landscape has changed, it’s often too late to logically determine what parts of their solution might be applicable to other problem areas.

For many, these end up being fire sales of IP or just wind down.  Most of those deserve their fate – as they truly don’t have anything to offer to a legitimate problem area and as such, the natural order works.  Some really do have great things but will never get any significant value for it, simply because they waited too long to come to grips with reality.

It is very rare to succeed in business long term.  It is much rarer to succeed with a model based on hope or luck when you are playing in an illegitimate market.  It simply can’t happen.  So, knowing this, why is it smart people will bury the facts into the deepest recesses of their minds and instead push forward in a no-win effort?  I think it’s the human factors.  As people, we don’t ever want to be wrong.  We want to be right, and will go to great lengths to prove it even when the factors that make us wrong are entirely outside of our control.  It is hard for a human, who believed in something so strongly only yesterday, to come to grips intellectually (and emotionally) with the fact that those beliefs are now wrong.  It makes us feel like less of a person, perhaps.

Spock would never have this issue.  If only logic and reason were ever applied, 95% of the companies who fail for these reasons would not do so.  They may fail for other reasons, but not because they ignored the realities of the problem/market.  How many would successfully be able to adapt to those new realities?  I don’t know.  I do know that any company that has sustained itself and prospered over many years cannot do so without that ability.  It is why many juggernauts are now dead – they couldn’t adapt to the environmental realities they faced.  Thus, this issue is not only faced by startups, but goliaths alike.  Startups just flame out faster because of them, but goliaths who perish in this way do so far more spectacularly.

In summary, my advice is to focus far more on the problem than you do on the solution.  You can always adapt a solution, but you can’t control a problem.  Companies that succeed long term have people who think about the problems full time.  Everyone has people who think about solutions, but not everyone thinks about the problems – constantly.  As soon as you stop focusing on the problem and move to focusing on the solution, the problem has a tendency to shift, change, or alter – usually subtly at first.  Then one day you wake up with your solution complete only to find that the problem isn’t where it was when we started.

There is money in problems.  Solutions are a dime a dozen.

Related posts:

1. Fail Factors – Why Startups Die: Solution Marketing vs. Problem Marketing
2. Fail Factors – Why Startups Die: Launch Now!
3. Fail Factors – Why Startups Die: The Market of One
4. Fail Factors – Why Startups Die: My Personal Failure(s)
5. Fail Factors–Why Startups Die: Negative Inertia and the Anti-”Why?” Culture