Own the Problem, Not Just the Solution

Welcome to the first installment in A Quick Look, a VC “lab notebook” from Will McCreadie and Bilal Zuberi.

Our hope is to share some of the interesting thematic spaces we are exploring, and what we are learning about them. We’re privileged to meet incredible founders every day who share their vision of what the future could look like with us. They give us an opportunity to learn about new areas, ideas, problems, and solutions. As we take a quick look at these spaces, we learn interesting things about the market, technologies, key players, challenges and opportunities. What we want to do here is share our high-level research notes with you. Post 1, below, covers a framework we find helpful.

What + Why

Study $10B+ startups and you’ll see a common theme: many tackle an important problem from multiple angles, rather than selling a single solution.

Solutions — specific technologies and ideas — are seductive, because they’re tractable. However, sometimes they can create false clarity that leads founders to commit to technology before vetting whether it meets a real need. The reality is that users rarely care about implementation, but almost always care about results [1]. In deep tech, the difference between a science project and a science product is whether or not it solves a major problem, and if someone would be willing to pay for it.

Problems are sprawling and multifaceted. Diabetes is a trillion dollar problem. Glucose monitoring, dietary interventions, and therapeutics are useful solutions, but each addresses just one facet of the issue. Livongo studied the emotional, financial, and physical challenges of living with diabetes, and developed an “integrated model of care” that combined a novel employer-supported business model, streamlined sensors, and 24/7 coaching support. Starting with empathy, as many problem-driven approaches do, Livongo covered more angles of the problem than any standalone product could. They were rewarded with a cult following of thankful users and an $18.5B acquisition in just 7 years.

Problems can feel daunting, but their size and complexity create massive markets and motivated customers. Being problem-driven does not mean companies lose focus on productizing a singular wedge into the market. But it allows them to maintain focus on the end goal even as they work through various technological solutions, go-to-market strategies, and revenue models. Owning a problem maximizes clarity, flexibility, and scale.

Clarity

Starting with a problem lets you confirm the size of the need before committing to an approach. Autonomous container ships sound like a good idea, but if you talk to a bunch of shipping companies you’ll find they spend far more on fuel than they do on crew.

Source

Problem-driven clarity isn’t just useful for exploration, it enables strong execution. When fundraising or selling, you’re telling a story. Communicating the problem your company solves is often more powerful than describing details of the solution.

Evolv Technology is an example. Security checkpoints are frustrating, labor intensive, and tragically inept at stopping threats. Evolv makes them fast and reliable. Users don’t care whether it’s AI, metamaterials or multi-sensor fusion that makes this work, but they love that they can “just walk through” security while feeling fully protected. Evolv is now a public company, with rapidly growing revenue and global deployment because they introduced a new “normal” for how perimeter security experiences should feel to consumers.

Flexibility

Exploring a problem means embracing its complexity.

From inception, Square wanted to make it easy for small businesses to accept credit cards. Existing hardware cost thousands of dollars, payment contracts were abstruse, and accepting cards required passing a stringent credit check. Problem-driven and solution agnostic, Square approached each issue separately, and adapted as they learned more about the space. They tried OCR and multiple hardware options (including the “acorn”) to solve card reading, and upended the pricing model by giving their reader away for free.

They made it easy to sign up, and charged a simple transaction fee. Making payments accessible unlocked millions of new users — and opportunities for financial criminals. Rather than screening merchants and limiting their market, they verified individual transactions with machine learning.

Their flexible, problem-driven approach enabled growth, while rigid, myopic competitors struggled. Square’s offerings blossomed to include a suite of things that seek to make commerce easier, from P2P transfers and business financing to bitcoin payments and BNPL. Many solutions for a single need.

Solution-driven approaches can sometimes be brittle when they aim at just one specific part of a problem. Problem-driven startups aren’t chained to a single solution, giving founders and investors freedom to innovate. Without the narrative and subconscious sunk costs of pivoting as new tech or data becomes available, startups can be more nimble.

Scale

Complex problems tend to be too large for a single solution. They may require multiple approaches, which translate into different products and more shots on goal. This usually implies a larger market. In Lux’s own portfolio, Desktop Metal is making global manufacturing less centralized, more resilient, and more climate friendly. Ric Fulop, its founder and CEO, identified mass production using additive manufacturing as a problem worth solving. All existing 3D printing technologies focused on slow, but high resolution, techniques useful for prototyping. Identifying the problem allowed him to invest in a variety of technologies that attempted to solve it in different ways. When he founded the company it had 4 tenured faculty members at top universities as cofounders. The team “put more wood behind the arrows” that showed promise in development, and eventually built a portfolio of 3D printing solutions that allowed Desktop Metal to emerge as the leader, and as a standalone public company, in the additive mass manufacturing space. DM can print anything from wood to gold in applications from healthcare to heavy industry. They’re not constrained to one material or use case, so they can target the full TAM of manufacturing with many irons in the fire.

Open Questions

Clarity, flexibility, and scale are some of the benefits of a problem-driven approach. But there are also solution-driven startups that thrive, and problem-driven companies that bite off more than they can chew. In the interest of learning in public, here are some open questions:

1. Some businesses don’t seem to own a specific problem. What problem does Apple own? One argument is that at Apple’s scale, they’re addressing fundamental psychological needs by selling identity goods. They create beautiful experiences, reduce boredom, and help people feel cool (accepted). Another view is that Apple began by owning a problem (computers were inaccessible to the average person), and transcended this niche as they scaled. Opinions here are welcomed.
2. What are the pitfalls to avoid when being problem-driven? For instance, “admiring the problem” instead of actually building.
3. Is it ever better to build your company’s DNA around a solution rather than a problem? If so, which sectors, stages, or industries? For example, traditional pharma/biotechs were built around specific drug candidates and IP, but even there we are now seeing a shift towards platforms for drug discovery.
4. What is the strongest example of a problem-driven business?

Resources + Lessons From Others

Alex Danco on World Building (narrative and complex problems)

“First, complexity: for any interesting system problem, you’re not necessarily going to know exactly how to push on the system in the right way, let alone how to coordinate a large group of people all pushing on their own parts of the system, on the first try. You need to probe it and reason about it and figure out what to do.”

Michael Seibel on choosing problems to solve

“Frequency, intensity, and willingness to pay are three things that I tell founders to think about…I want a founder to have some special or different insight about the problem that they’re trying to solve. And I want to be clear, not necessarily a special or different insight about the solution. Solutions come and go. Solutions change, they get iterated. Solutions are something that really gets molded by the user. But some special or different insight about the problem I think is really important.”

Clay Christensen on Jobs to be Done (results > implementation)

Jay Zaveri’s list of the World’s Hardest Problems

Notes

[1] Unless the implementation creates problems of its own.