What must young entrepreneurs know before they build a company?

Published May 31, 2013 by rudraprajapati

Answer by Cody Rapp:

It is the very first lesson they teach about entrepreneurship. And yet, it is also the lesson that most modern-day, young entrepreneurs ignore. It goes something like: "Businesses solve problems. So find a problem and solve it." Sounds simple enough, but there is a subtle nuance that they aren't teaching that makes all the difference: The best entrepreneurs design solutions to problems they understand better than anyone else in the world. Here's how:

Business from a Scientific Perspective:

Whether they know it or not, many entrepreneurs have begun to approach business from a scientific perspective. Personally, at an early age, I wanted to be a doctor. I consumed a plethora of books about medicine, and signed up for as many science classes as I could. In EVERY, science class I have taken, the very first lesson has been: the scientific method. Pounded into our psyche, year after year, was the following process: ask a question, do research, form a hypothesis, test the hypothesis, and then either draw conclusions or reframe the hypothesis.

What occurred to me a few months ago is that I have been subconsciously  applying the same methodology to business and entrepreneurship. I have looked at an industry, done a bit of research, made a hypothesis in the form of a unique business model or novel solution (which typically connect otherwise disjointed industries or, perhaps, which fill a void), and then I go out and test that hypothesis.

After testing it and seeing how people, entrepreneurs, customers, investors, and clients respond, we either draw a positive conclusion and push forward or, in entrepreneurship lingo, we iterate. We iterate like crazy. We don't stop iterating, ever. All we do is iterate, and its becoming a bit of a joke.

Business is about designing solutions, not theorizing…

While I acknowledge now that this method can work (and has worked), I also acknowledge that it is a circuitous, roundabout, time-consuming, and somewhat stressful path as compared to the alternative approach that I'm about to explain. Not only that, but it is also a path that relies more on luck than that with which any knowledgable businessman should ever feel comfortable.

So what's the alternative? Business, they say, is about "finding and solving problems". True, but that's not the half of it. They don't really teach you how to find the problems. And I'd even argue that anybody looking for a problem, rather than observing/perceiving a problem, is fundamentally misguided. Its a subtle difference, but an extremely important one.

Business is about UNDERSTANDING an industry or a domain so well that you UNDERSTAND the pain points within that industry or domain. Its about becoming an expert in something, typically by accumulating a wealth of experience in that 'thing' (but there are other ways), and then KNOWING exactly what it will take to fix it, make it better, or create an alternative that adds enough value to a consumer or customers life such that they will CHANGE their behavior to adopt your new model/approach/solution.

It is about understanding the intrinsic motivators, be they money, prestige, simplicity, or ease-of-use of a product, of EVERY single player in a transaction. It is about understanding who in the transaction is unhappy or in desperate need of change, and then it is about modeling a solution that not only fits, but exceeds, the expectations of every one of those players.

Then, on top of all of that, this perceived, understood, felt problem demands a profoundly simple solution. Notice too that I say "felt". Logic goes a long way in science. Logic IS science. Math = logic = the scientific method. But in business, the only way thusfar to understand the intrinsic motivations of every player in a game or transaction is to either feel them for yourself or fundamentally understand psychology, behavioral economics, and why people make decisions. The latter is much harder to find, much less robust and concrete, and typically involves a scientific approach which lacks the following element…

   You have to feel the pain. It sounds cliche, but not only is it fundamentally important to the perception and design of the solution, but it is also THE motivator that pushes driven entrepreneurs through the massively fluctuating turmoils of a start-up. The pain is what grounds you during the highs, and it is also the thing that keeps you going during the lows.

Creating a business is not just about understanding the rules and the weaknesses of the status-quo, its about feeling the limitations that those weaknesses impose and acting on them.
The Puzzle Metaphor

    Metaphorically, its like a 1000-piece puzzle that is missing its last piece. It takes a while to put together, but in the process of putting it together you see and understand the picture you are trying to complete. As you build it, you notice certain pieces act as the edges of the puzzle, and others can be grouped by their shapes and colors. You enjoy putting it together, a lot of times with people that you respect and with whose time you value.

And then, to your utter dismay, you can't find that last piece. You get frustrated, search desperately, maybe whine and complain a little bit, and then you do one of two things: one, you could give up and say that you completed the puzzle "for all intents and purposes" and move on, or two, you can grab a piece of cardboard and some scissors and cut a piece that fits perfectly into, and completes, the puzzle. You know exactly what the piece has to look like, you know exactly why it will fit, and it is this realization that powers the development of really great companies.

The tricky part (and the reason timing is everything) is that every time a new piece is added to the board, all the pieces change shape and sometimes a few pieces pop out of the puzzle because they can't keep up. The puzzle will never be finished. The name of the game is which player can have the most, biggest, fastest growing pieces (or sets of pieces) on the board…

One qualification of this argument:

   That being said, there are numerous examples of companies started by young entrepreneurs who take the "hypothesis-based" approach from the get go. This approach absolutely can work. You can start with a framework, dive into a field that you find fascinating, understand the motivations of all of the chess pieces involved, and iterate until you find your model. Doing so is, after all, a noble pursuit.

But I would argue that it is also the reason why there is a less than 10% chance of success for young entrepreneurs today. We spend our time and money iterating until we get it right, and even with this approach, only 1 in 10 of us makes it big (ie. exits with a larger than 10x return). My theory is that quite a bit of this 10%, which is actually closer to 5%, is absolutely dependent on luck and timing. Just as so many of our significant scientific discoveries happen by accident (which you could call luck), so too do our ideas, models, and hypotheses follow a chaotic, unpredictable, and chance-dependent path.

   Just to be clear, I am also not bashing the scientific method, at all. Instead, I am suggesting that entrepreneurs should wait to apply a similar method to business until AFTER they fundamentally understand a problem and the players in its space. Starting with a theory, without understanding its context or being emotionally invested in that context, is the wrong approach.

For all of the young entrepreneurs out there…

Don't stop. Keep hustling. Just focus. Don't seek a problem out, but instead seek to understand the problems worth solving. Start with asking yourself: "What frustrates you, right now?" But beyond that, ask: "What do I know more about than anyone else in the world, and how can I use my knowledge to design the puzzle piece that everyone else desperately needs." If the answer to the previous question is that you don't know anything better than anyone else in the world, then focus your attention on how to get there. Choose something you're deeply passionate about, and dive in, with the intent of understanding that field, those players, and the problems that make their life and your life difficult. THEN start a company.

Or, if you are a student, or a PhD. candidate, or have a great job with a little time to spare, and if, like me, you can't help but dream up a plethora of fascinating, disruptive (unvalidated) new business models or industry shaping/inventing solutions, then by all means try them out! Instead of playing video games or partying, go out and buy the start-up lotto ticket and take your chances. You have absolutely nothing to lose and everything to gain. Just make sure that you do so with the intention of learning and absorbing absolutely everything about a particular field. Then, when you've positioned yourself appropriately and validated your model consistently, take the real leap (not the dramatized leap that young entrepreneurs who have nothing to lose think they are taking). I'm happy to help here too (email me at cody@theupexperience.com).

   Or, if none of this is for you, you could just add to the mix and continue trying to be the next "Instagram". But before you go out and do that, ask yourself this: If you are starting a company and you aren't really solving a problem or don't know what problem you are solving, what are you really doing for the world? How does your solution drive progress and innovation? What value are you really adding to people's lives? There are so many urgent problems that need to be solved, so do the world a favor and devote at least some of your resources to solving them. We revert to finding profound meaning in life when we lose ourselves in pointless pursuits, so… instead, seek out that meaning now and don't pursue the pointless.

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