What’s your problem? The importance of problem focused entrepreneurship.
What will attract and motivate your 21st employee — after you have no more stock options, or cofounder titles to give out? What reason do they have for working late, or sacrificing their weekend, to further the goals of your company, when they may easily find a position somewhere with a higher salary? Or many more competitive benefits? That motivation will almost certainly fall on your company’s Big Hairy Audacious Goal (BHAG) and Massive Transformational Purpose (MTP). You’ll find that the BHAG or MTP effectively acts as the soul of your startup; the fuel driving the deceptively powerful engine of passion that will propel your startup forward.
I’ve said it before and I’ll say it again: No one cares what you are building. They care about the problem you are solving. Why is this important? Your 21st employee. If you create a successful business and start hiring, you are going to hire up to 20 people to start. They will each get a crappy salary, but to mitigate that, they will also get a portion of your company and the right to call themselves “co founders.” Your 21st employee won’t get anything. They will get a low salary and little (or no) benefits. They could likely get the same salary at Starbucks, with better benefits. So why are they going to choose to work at your company? Because they are going to help change the world. Why does the press want to write stories about you? Because you are going to change the world. Why does that investor want to invest in you? Because their investment dollar will… change the world. No I’m kidding they don’t care about that, they want to make money. They want to know you are going to solve a major problem because they know there is a lot of money in solving problems.
In case you disagree and think I’m crazier than a ring tailed tooter (sorry my wife’s Texan and her phrases wear off on me), I’m not the only one saying this. Mark Benioff (Founder of Salesforce.com) said, “The business of business isn’t just about creating profits for shareholders — It’s also about improving the state of the world,” and Simon Sinek’s TED Talk summarizing his book “Start with Why” (on the subject of starting with why you are doing something) has been viewed over 28 million times. In the book “Corporate Culture And Performance,” John Kotter and James Heskett show that over a decade-long period, purposeful, value-driven companies outperform their counterparts in stock price by a factor of 12.
Given all this focus on the problem as the key to success, you would think the first thing a startup founder would do is identify the problem they want to solve and work at clearly understanding and articulating it, right? You might be surprised to learn that easily 90% of the startups I meet with can not effectively communicate the problem they are setting out to solve, but they’ve already spent untold hours selecting clever company names and cute logos (that no one but their girlfriend/boyfriend/mother/father may ever see), and untold energy researching the perfect domain name (that no one but their web designer may ever visit). In the excitement of creating something tangible, the temptation is to jump four steps ahead — similar to putting a shiny custom paint job on a car that has no engine. You have to start with understanding your problem and clearly articulating that as a driving factor in your mission. This is often known as your Big Hairy Audacious Goal (BHAG) or Your Massive Transformational Purpose (MTP).
Big Hairy Audacious Goal from the book “Good to Great” by Jim Collins versus the Massive Transformational Purpose from the book “Exponential Organizations” by Salim Malik — The terms basically encapsulate the answer to the question “Are you solving a problem that is going to have a 10x to 1000x effect on the world and can you explain it in a way that is compelling?”
The term “Big Hairy Audacious Goal” was coined in 1995 and popularized in 2001 and the term “Massive Transformational Purpose” was coined in 2014. They were both based off of in-depth studies to identify what factors made the most successful companies. While the majority of their findings are based on unique companies and detail various success factors, they had one commonality: a “messianic” purpose that allowed them to organize and vet all activity, employees, and strategies of the organization.
“Big Hairy Audacious Goal”
In the book Good to Great, published in 2001, Collins and his research team sorted through a list of 1,435 companies and identified a set of elite companies that made the leap to great results and sustained those results for at least fifteen years. How great? After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the world’s greatest companies, including Coca-Cola, Intel, General Electric, and Merck. Along with a number of other key characteristics all of these top performers had a Big Hairy Audacious Goal.
“Massive Transformational Purpose”
In Salim Ismail’s Exponential Organizations, he analyzed the 100 fastest growing organizations (at the point of publication, which was 2014) and looked for common themes or characteristics. He discovered every single company on the list had a massive transformative purpose.
How does this connect with the Logic Gateways:
Your Big Hairy Audacious Goal / Massive Transformational Purpose or problem statement frames everything. It drives every step of the build out and explanation of your business to your stakeholders. In an interview of Vinod Khosla (co-founder Sun Microsystems and CEO Khosla Ventures) by Sam Altman (of Y-Combinator) Vinod reinforced this, “The only recipe I’ve ever seen work for making really impactful companies is both the giant vision and a good step one, two, and three. You have to have both, and neither without the other will work. I have had the following conversation. That’s ambitious. That’s awesome. Build the team for it. Now, what is step one, two and three?…”
If done correctly, your BHAG should be effectively messianic. Your startup will gain followers and champions drawn to your BHAG by something they find to be a fundamental part of themselves. The Global Talent Trends 2019 study by Mercer found that overall high performing employees are three times more likely to work for a company with a strong sense of purpose. These are the people who will stick with you and your company in times of crisis. It has been observed time and time again that employees driven by a mission heavily outperform employees driven solely by personal motivations (such as the next paycheck). This phenomenon is often seen in startups, which are typically comprised of very mission driven employees and often progress quickly through various iterations of development and evolution; as opposed to a typical older and larger (non-exponential) company that operates at a relatively slow pace.
Now you don’t need a “save the world” social mission to get investment or employees and you shouldn’t “paste” one onto your startup just to get people to think that you are socially conscious. Aytekin Tank just published an excellent article on this; I highly recommend reading it. The TL;DR is don’t paste onto a social movement to seem socially conscious. I should point out that I 100% disagree with him on his point that you don’t need a social mission. I absolutely agree that you shouldn’t simply “paste one on,” but I feel strongly that if you are going to spend the next 5–10 years solving a problem, focusing on a problem that doesn’t make the world 5% better is a selfish use of both your time and talent.
Being able to explain the problem you want to solve in an inspirational way, sets the tone for the rest of your conversation. An investor can then judge all of the other logic gateways based on that problem set. Prospective employees can judge whether your company is well suited to solve this problem, and if they want to join your organization. Reporters can judge whether you are solving something their readers would be interested in reading about.
The logic gateways are set up to be run in order. If you don’t have a Big Hairy Audacious Goal how can I judge if you are personally motivated to solve it? If you don’t have a BHAG how can I trust you have validated whether your customers even have this problem? How can I judge if you truly know what your customers need in a solution? If I don’t understand the problem you are solving, how can I determine whether anyone else is solving this problem better than you? How can I know that you have a good plan to create the solution to this problem? That’s 5 of the 8 logic gateways I will not be able to vet because you couldn’t clearly articulate the problem you are going to solve. As Vinod said, you need a vision and then a great step 1, 2, 3. No vision, no steps. It’s as simple as that.
If you are between the ages of 18 and 35, you are the next “greatest generation”. My generation developed rampant consumerism, MTV, and the throw away culture. We broke the world. It’s not fair. But you have the opportunity to fix it. If it was the 1940s, you would be storming Normandy Beach or breaking the Enigma Code, saving the world from fascism. If you are not in that age range but plan on hiring people who are, note the Deloitte Global Millennial Survey 2019 found that 32% of Millennials feel companies should try to improve society (e.g., education, reducing inequality, diversity initiatives). This is equal to the number who feel that a company should be about making a profit (28%) or innovating: developing new products and services, generating new ideas, etc. (30%). If you’re having a tough time recruiting millennials to work at your company maybe this is why.
There is no shame in making money, but if you have the opportunity to make money AND make the world better, why wouldn’t you? Why not find a unique problem that actually needs solving? Why spend your invaluable time and resources to reconfigure the millionth dating app or devise yet another way to get your food delivered when you could blaze your own trail? Identify an overlooked under-served issue, solve the problem, and make money from the solution. Christian Hernadez said it best in his article Backing S**t that Matters: “And to be clear, this is not about “impact investing.” This is still about optimising for Venture-style power-law returns, but about realising that truly transformative ideas will have intangible secondary effects which should be taken into account.”
And investors are making money with this approach. Kapor Capital using the two best measurements at this stage of their portfolio: Internal Rate of Return (IRR) and The Total Value to Paid In (TVPI) Multiple were able to show that by both measures, Kapor Capital’s Impact Portfolio ranks in the top quartile of venture funds of comparable size.
Now if you are of looking to solve your problem with a non-profit business model and are not looking for VC dollars, your problem is #1. Find it, clearly articulate it, devise your solution and get some foundation or social impact investors to fund you to solve it. Whether you are for or non profit focused either way, go make the world AND your bank account 5% better — not ONLY your bank account. Go be our next “Greatest Generation.”
Great so now you are drinking the kool-aid. You are energized, fired up, and hell bent on crafting your BHAG… but how should you do it? In the next article, I will dive into how to identify and truly understand the problem in a way that will help you build out your BHAG / MTP, so you can clearly communicate it and use it to drive the build out of your company.
In the meantime, did you have a question about something in the article? Did you agree with it wholeheartedly? Do you disagree with me so profoundly that you can’t stop hearing a rushing sound in your ears and you are smelling lemons? Let me know in the comments below and I’ll do my best to answer your polite non trollish comments…
*********About the Logic Gateway Articles*******************
At Juntbot, I meet with hungry young startup founders every day, and every day I basically say the same thing to all of them. As opposed to having these conversations on a one on one basis (and being limited by my calendar), I decided to capture what I tell the startups I mentor in a series of articles entitled the “Logic Gateways”. This, the second article in this ten article series, is an introduction to the concept and the underlying principles behind the BHAG/MTP logic gateway mechanism for pitching your business. Each subsequent article or set of articles examines the next “gateway” in depth and suggest further reading (or in the cases where I remember exactly where the idea came from, reference that specific book, research paper or article) so that you can dive in further if you want.