Startup Founders, a Good Idea Solves a Problem, A Great Idea Creates Value

We have a huge problem in the startup ecosystem; that’s that most founders have been misled by a lot of people to think in terms of Problem / Solution. That a solution to a problem is what matters foremost in a startup. And that has led to the notion that validation is a simple matter of talking to, or getting, customers for a solution to a problem — prove people will pay for your solution, and you’re set!

This drives an incredible amount of waste as founders build MVPs prematurely, focus on customers inappropriately, or take advice from investors merely because a check is dangled, and they need the money to deliver the product.

Consider, has the average rate of startup success meaningfully changed in the last 25 years of the internet era of entrepreneurship?

For as long as I can remember, we’ve been saying that about 90% of all startups fail. And I won’t try to cite if that’s actually correct or accurate; because it doesn’t matter, the conventional wisdom hasn’t changed. All these books and yet no meaningful change. Teaching entrepreneurship in schools and the rate is the same.

I refer specifically to the internet era of entrepreneurship because it’s within that that we have FREELY available knowledge, massive datasets in evidence, and immediate connection and communication to essentially everyone — one can expect that from that, we can expect a MUCH higher rate of startup success because we KNOW what causes failure as well as what creates value.

A solution to a problem is NOT a competitive, scalable company. A company that is competitive and scalable, *creates* value.

EVERY mentor, investor, and advisor out there should be preaching what creates value and how; that’s evident to drive startup success — and that not being done well, or consistently, is what continues to mislead founders and result in an exceptionally high rate of failure.

And indeed, you can have ideas that solve problems but *don’t* create value. This happens all the time with would-be founders who invest a ton of their time and resources to try starting something, but ultimately give up because their effort isn’t valued enough that they succeed. What you need to watch our for and avoid are the people (on your team), advisors trying to help, and investors, who offer ideas that might solve problems, seeming to help, but fail to actually create value. Founders you MUST challenge advice and ideas because good ideas will kill you; you need great ideas that create value.

How to Challenge Good Ideas From Others Trying To Help (and believing they are):

• Someone on the team:
• “That’s a wonderful idea, do it. Put it in place and let’s see.”
• The idea itself is merely that and if anyone’s ideas were correct, in a startup, they’d not be offering ideas — they’d be capitalizing on their certain brilliance and amassing great amounts of wealth. DO IT.
• An advisor with an opinion:
• “Thank you so much for that direction. Show me how.”
• At the VERY least, someone who claims to know what you should do, should themselves absolutely have experience with doing it, and knowing it should work. Advisors don’t WORK for you, so asking them to do it isn’t as appropriate, but you can ask them to put their experience and certainty to work by showing you how so you that you can do it rather than having to now figure it out on your dime.
• An investor dangling a check:
• “Brilliant, thank you. To do that, we’d not need nearly as much capital so let’s put together a term sheet for the capital we’d need to do what you advise.”
• I explicitly added, ‘dangling a check’ in this case because far too many founders consider investor advise more credible or valid because they have wealth, they have success, and they’re implying they’ll invest if you heed that advice. Certainly, a plausible reason to take their advice… but like people on your team who are full of suggestions but no action, if their advice was always right, they wouldn’t be giving you advice, they’d be doing it. Avoid the dangling check by accepting the terms — “Since you think we’ll be more successful if we do that, we’ll do that and be successful.”
• You’re NOT trying to catch an investor in a gotcha! You’re validating the merit of the advice, challenging it, so that you don’t waste your time on bad advice, mere good ideas, or misdirection. IF the idea is GREAT, it creates value and value correlates to CASH; unless… they don’t think their advice is great.

I want to take a moment to caveat one more time what might sound like criticism of investors, because I referred to dangling a check or implied that their advice is bad. I’m NOT being critical, I’m advising you to be diligent. The best advice I’ve heard about fundraising is to “Ask for advice;” that, if you want to raise money, ask for advice, and if you want advice, ask for funding. So obviously, you’re asking for and going to get advice from investors — don’t let the idea of funding lead you to believe that it’s valid advice. Push back.

What’s valid in modern startup development is that you DO have to solve a problem; but you can’t consider that sufficient because it must be a solution that’s needed, competitive, sustainable, and valued.

What creates value? Peter Drucker noted, I’m paraphrasing, “Only two things create value in business, innovation and marketing, everything else is a cost, and marketing is the distinguishing of the two.”

- circa 1970s and largely abandoned in teaching founders since the internet

Create value, or you’re likely wasting your time.

Originally published at https://seobrien.com on June 29, 2023.