This is an excerpt from my ebook How To Find Product-Market Fit.
For the rest of my guide on how to find Product-Market Fit head to my shop to buy the full book, including all the worksheets to help you work through your own Problem Statement.
Chapter 1: What Is Product-Market Fit?
If you’ve done any research at all into what it takes to build a successful business, it’s likely you’ve heard of Product-Market Fit.
It’s ubiquitous. It’s sort of like cash, in that everyone wants it, only some people seem to know how to find it, and you can never seem to have enough of it.
35% of all business failures are due to a lack of Product-Market Fit. Only lack of cash, responsible for 38% of all business failures, scuppers more businesses than Product-Market Fit failure.*
So what actually is Product-Market Fit?
Let’s start with a little background. Like most great concepts, the debate over who created the idea of Product-Market Fit is ongoing.
Some credit Don Valentine, founder of Sequoia Capital (early investors in Apple, Instagram, LinkedIn among others), with its creation, and Mark Andreessen of Andreessen Horowitz (Skype, Twitter, Airbnb) with bringing it to popular use.
I’ll leave the full debate to the business historians; wherever it came from, as a concept it’s here and it’s something you need to be on top of if you want to build a successful business.
In a nutshell, Product-Market Fit is exactly what its name suggests - it’s a measure of the ‘fit’ between your product and its market, of how suitable the solution you’ve built is for the people for whom you’re aiming to solve a problem.
Build a solution that satisfies a need and finds a demand for itself amongst customers and you’ve got Product-Market Fit.
Build a solution that’s misaligned with customer need or want and you’ll find yourself struggling to generate demand - you won’t have Product-Market Fit because your product doesn’t fit in with the market’s needs and wants.
How do I find Product-Market Fit?
I believe that any part of building a business can be easily broken down into the lowest common denominator, into its most basic component parts.
From these basic parts, we can build, step-by-step, into a robust and successful business.
For Product-Market Fit, the most basic component parts are the problem that you’re trying to solve and the potential for demand for that solution.
The most basic and simple thing that you can do to find Product-Market Fit is find a problem that exists in the market, understand that problem from all angles and across all dimensions (very specifically including the fact that enough people care about the problem and want a solution), build a solution that really works, and bingo, you have it - your product fits the market and you have Product-Market Fit.
What could possibly go wrong? If finding product-market fit really is as simple as it sounds, you just build a product that’s right for the market, then surely it’s hard to go wrong?
Unfortunately not. Lots of companies start with a solution, become so passionate about the solution after months of work that they forget about the market need, and then have to try to find a problem and market that fit it retrospectively.
This is very very rarely successful. You are so much more likely to find success by identifying a problem and building a solution to fix it than you are if you have a solution and you try to convince yourself that there’s a problem it’s perfect for.
If you were building a piece of furniture you’d want the screws and nails to be designed to exactly fit the places where they needed to go, you wouldn’t just shove any old screws into the joints and expect it to hold up.
The same would be true if you were putting a jigsaw together - sure, a piece may be the right shape to fit in your jigsaw even if it comes from another puzzle, but the completed jigsaw’s image would be wrong - it wouldn’t fit and people wouldn’t want it.
To find Product-Market Fit, you have to start with the problem that you’re solving, but that isn’t the full extent of the equation.
You also have to have enough of a market to make building the product worthwhile. You might have the perfect solution for a very specific problem, but if only one person cares about the problem, you don’t have a business.
How do I find the right problem?
In this excerpt, and in the full ebook - available here, I'm going to go into depth on a key puzzle piece for your business - the Problem Statement - and how it can bring your your Product-Market Fit.
We‘ll look at what a Problem Statement is, what is isn‘t, and I‘ll introduce a really simple framework (called 5W2H - because it asks 5 questions that start with a ‘w‘ and 2 that start with an ‘h‘) to help you write your Problem Statement so that you‘re always building towards Product Market Fit. Then, in the Supplementary Materials at the end of the book and in the final article, I‘ll give you a worksheet to help you write your own Problem Statement using 5W2H.
If you find yourself in need of some additional help to write your Problem Statement, why not check out my Pay As You Go COO services? From as little as £400 (plus VAT), you can access an expert COO to help you build your business for success.
Book a free, no-commitment Discovery Call to learn more:
In the next chapter, we’ll dive into the first task in finding Product-Market Fit: understanding your Problem Statement.
*via CB Insights
Keep reading for Chapters 2 & 3 or buy the full book now.
Chapter 2: What Is A Problem Statement And Why Is It Important?
Successful businesses truly understand the customer problem that they’re trying to solve.
Before you take any other step to set up your new business, before you choose a name or buy a website or imagine yourself retiring to a private island with the proceeds from your inevitable success, you have to spend more time than you might initially think identifying and defining the problem that you’re trying to solve for your customers.
Your Problem Statement is the clear and detailed description of this problem, of the customer you’re solving for, and of the benefits available to them when your business solves it. It clearly describes the gap between where the customer is now and where the customer wants to be - and it’s this gap that you’re bridging with the solution that you’re selling.
A properly-written Problem Statement will help you maximise returns from the effort you put into bridging this gap by pointing you towards the most impactful actions and providing the foundation for really effective marketing and internal communications. If you attempt to skip the Problem Statement and head straight into developing your product or service you risk feature overload, missing product-market fit, incurring high costs, and damaging your reputation.
These articles are designed to walk you, step-by-step, through the easiest path from a blank page to your finalised Problem Statement.
I’ll break down the best structure for a Problem Statement and how to get the information that you need to write it. By following the steps I’ll lay out, you’ll be able to accurately describe where the customer is now, where they want to get to, and the consequences of not getting there, and you’ll be able to go on to very specifically build your solution to meet this gap and thus provide yourself with a really solid foundation for success.
Firstly, what actually is a Problem Statement and why should you care about it?
As I touched on briefly above, a Problem Statement is a really clear and detailed description of the problem your business is aiming to solve, including the customers that it’s aiming to solve it for, and the specific details of why it’s important that that problem be resolved. I’ll illustrate this by borrowing a classic framework from Business Analysis (the process that determines if a company is running effectively and efficiently) that can be used as the first step in breaking down any problem and its accompanying solution.
The framework is a simple one, split into four sections:
The first section, ‘Ideal’, is the detailed description of where the customer wants to be; if your aim is to get your customers from A to B, then the ‘Ideal’ section would describe where point B is - in an ideal world, what is it that your potential customers would have or be able do?
‘Reality’, on the other hand, would be A - the point at which the customers currently are, their reality.
The ‘Consequences’ section describes the negative consequences that the customer suffers if they remain at A rather than getting to B.
Finally, the ‘Proposal’ section is the part of the framework in which you describe the solution you’ve created that gets them from Reality A to Ideal B so that they can avoid Consequences - what are you proposing they do to get from their reality of today to what they ideally want?
A super simple example of this structure could look like this:
Ideal | The customers are workers who want to get into their offices each weekday morning before 9am. The offices are in the centre of town, and the workers want to get there without driving and without spending too much money. |
Reality | The customers are currently at their homes, which are in the suburbs, and are without effective public transport or affordable taxis. |
Consequences | If the customer does not get into their office, they will lose their job. If they drive to their office there is nowhere to park the car. If they take a taxi they will spend too much money and be unable to pay their bills. |
Proposal | We will book a minibus for every weekday. It will arrive at the centre of town before 9am and we will split the cost between the customers. It will take them where they want to go, at the times and on the days that they want to be there. They won’t have to worry about parking, and the cost will be minimal because we’re splitting it between a lot of people. |
In a structure like this, your Problem Statement is the first three sections - Ideal, Reality, and Consequences - and your Solution Statement is the final one - Proposal.
It’s not enough for your Problem Statement to be clearly written. For it to be really useful, the data contained within it must be as accurate as possible - otherwise you risk building a solution that’s not as effective or as efficient as it could be, which will impact your journey to Product-Market Fit and, subsequently, your sales and your profits.
For example, if you know your office worker customers need to get to the centre of town but you forget to find out what time they need to be there, you can easily end up booking the bus for the wrong time and it stops being an effective solution that your potential customers want to buy.
Likewise, if you forget to note that your customers don’t need the bus on the weekends, you’ll end up spending more money on the bus than you need to.
To get the most accurate data possible for your Problem Statement, I utilise the powerful framework I mentioned in the Introduction - commonly known as 5W2H - so named because it’s built from 7 questions, 5 that start with the letter ‘w’, and 2 that start with the letter ‘h’.
Chapter 4 breaks these steps down into manageable pieces, so in this chapter I’ll cover just a quick history lesson on 5W2H that will give extra context.
This extra context to what you’re doing will allow you to talk confidently about your Problem Statement and show anyone analysing your business that you’ve put in the work and are serious about what you’re building.
5W2H has roots that stretch as far back as 2,500 years ago, to the start of what we now know as Ethics or Moral Philosophy but it’s more recently associated with the system of continuous improvement known in the business world as Lean Six Sigma.
Lean Six Sigma is two business philosophies joined together - Lean Management and Six Sigma.
Six Sigma (the name is taken from the mathematical discipline of Statistics) is a system for improving tools and technologies that was formalised at Motorola in the mid 1980s (and is heavily-influenced by Japanese business culture).
It focuses on the belief that by standardising processes (i.e. building and following the same clear frameworks each time) and making data-driven decisions (i.e. doing your research, rather than focussing on gut-feel), companies can see significant and consistent financial improvements.
Lean Management is similar to Six Sigma, in that it is also influenced by Japanese business culture, it’s data-driven, and it and strives for consistent financial improvements, but with an added emphasis on removing inefficiencies - i.e. only doing the things that are driving you towards the goals you’ve set and not wasting any efforts (hence the name - it promotes the idea that you should ‘trim the fat’ from what you’re doing and focus only on the lean, quality parts).
Essentially, the two systems combine to promote a provable belief that by using data and working with focus, you can improve your results.
5W2H is a clear and consistent process that takes you step-by-step through the data that you need to collect to build your Problem Statement and thus point yourself towards Product-Market Fit with the best possible solution for your customers.
What happens if I don’t have a Problem Statement?
My decades of experience leading progress at successful high-growth companies have taught us to firmly believe in taking a data-driven approach and using objective decision-making frameworks to focus on the things that I believe are going to drive a business forward.
My approach to writing a Problem Statement is no different; I’ve seen the benefits that companies can get from deeply (and in a data-driven way) breaking down a customer’s problem in order to build the most effective solution possible.
Companies that put their customers’ wants and needs at the heart of everything they do enjoy increased levels of engagement from those customers, and better customer engagement means better customer acquisition and retention - which, in turn, means more opportunities to drive revenue for your business.
But, before any of that happens, before you can engage even a single customer and give them the great customer experience that makes them stay, you need to be really, really clear about what problem you’re solving for them.
If you ignore this and start to build without a clear, well-researched Problem Statement you’d be setting yourself on the path away from success and towards a confusing business model, reduced customer engagement, lower revenues, a damaged reputation, and, ultimately, failure.
62% of the 800,000 new businesses that are started in the UK each year fail before they reach year 5.
35% of those failures happen because the company failed to find a market for their product - in other words, nearly 175,000 businesses are opened every year that will fail to do the research needed to launch a product or service into the market successfully.
Without a proper Problem Statement, your business will very likely fall into that bucket.
Here’s how that could play-out:
1. Lack of clarity | Without a clear Problem Statement, the purpose and goals of the business become harder to see. This can create confusion among employees and customers about what the business is trying to do. You and your team will start making the wrong choices and your customers won’t know what you’re selling and won’t engage with you - both of which will end up costing you money without bringing in any revenue |
2. Unclear Value Proposition | A Problem Statement is crucial for defining what’s known as the Value Proposition of a business. A Value Proposition is what explains to your customers why they should give you their hard-earned cash for your product or service by conveying the value it will deliver. If customers don’t feel that what you’re offering can help them, they won’t care enough to give you their money, no matter how much work you’ve put into building your product or service |
3. Weak market validation | When starting a new business, it's crucial to understand the size of the demand for the product or service - you need to be sure that there’s enough interest in what you’re offering to make building it worth your time and money. A well-defined Problem Statement helps you to assess market needs and preferences, so that you can build a solution that really solves what customers are struggling with and addresses an issue they care enough about to bother fixing it. Without this, your business can easily waste time building products or services that customers don’t want or need and thus won’t buy. |
4. Reduced investor interest | Investors are interested in businesses that address real-world problems with a viable solution - put simply, they want something that can make them money. |
5. Difficulty in directing your marketing Efforts | Your marketing is most effective when it addresses a specific problem faced by your Target Market - i.e. you’re able to make them feel like you understand them and you’re here for them. Without a Problem Statement, you can’t be clear on what you’re selling or who you’re selling it to. It becomes impossible to get the message saying the right thing at the right time and in the right place. You miss out on customers that could have been yours. |
In short, if you don’t write a Problem Statement you end up focussing on the wrong things and missing out on revenue that could have been yours.
We covered in this chapter an introduction to the concept of a Problem Statement, that it’s a document that clearly defines the issue that your customers have and the benefits that they’ll get if they work with you to solve it.
I also introduced the framework that will be the focus of Chapter 3, 5W2H, which asks 5 questions starting with the letter ‘w’ and 2 questions starting with the letter ‘h’ to really dig into the details of the problem.
Before I introduce each of the 7 stages of that framework, now that we’re clear on what a Problem Statement is, we’re going to look quickly at what it’s not.
Keep reading for Chapter 3 or buy the full book now.
Chapter 3: What A Problem Statement Is NOT
In the last chapter, I introduced the Problem Statement and discussed what it is and why it’s important, including what the consequences are of not creating one for your new business. In the next chapter I'll be breaking down the 7 questions you need to ask to get to the data that will make up your Problem Statement effective.
First, though, let’s quickly consider, now that we know what a Problem Statement is, what it is not.
1. The Problem Statement is not a list of the symptoms.
When looking for a problem to solve, one key mistake I see Founders making is confusing the symptoms of a problem for the problem itself.
This is a common trap to fall into, so common that customers even do it themselves - they look for solutions to the acute symptoms that they’re experiencing when fixing the underlying chronic problem would provide a much better long-term resolution.
This can create huge knock-on difficulties for you as the person trying to sell them a solution - how do you market something to someone when they don’t even know they need it, let alone want it because they’re too busy looking elsewhere? By learning the difference.
Let’s break down the differences between problems and symptoms.
1. Symptoms are the outward manifestations or indicators of the customer's problem.
If we go back to the Ideal/Reality/Consequences/Purpose framework, the symptoms are the Consequences.
In our earlier example, the customers who can’t get to the town centre to their offices will feel stressed about potentially losing their jobs - the problem here that you’d be aiming to fix isn’t ‘job insecurity’ it’s a transport issue.
The symptoms of the problem are significant (the customer feels stressed and worried about their job), but you’re not giving the customer real and lasting value if you alleviate those symptoms instead of fixing the problem. What they really need is a way to get into work, not a chamomile tea.
2. The problem is underneath the symptoms, it’s the underlying cause of the things that the customer is feeling. This is the thing that you can actually fix for them with lasting results.
Where symptoms are Consequences, the problem is the gap that exists between the Ideal and the Reality.
A big source of difficulty here is that the customer may not even be able to link the problem to the symptoms/consequences themselves, especially if the symptoms are severe.
A great example here: if you’re someone who gets grumpy when you’re hungry, you clearly feel the grumpiness - so much so that it can prevent you from being able to take a step back and realising you’re just hungry. If you ask the grumpy person what’s wrong, they might tell you that they’re grumpy - you could spend a lot of time and money trying to build a solution for grumpiness when what they really need is a sandwich.
To deliver a really effective and lasting solution for a customer, you need to keep digging past the symptoms to get to the underlying problem, where you’ll find something you can fix.
Chapter 4, which asks the 7 questions of the 5W2H framework, will help you get there. First, two more things that the Problem Statement is not.
2. The Problem Statement is not the Solution Statement.
We touched on this briefly in the last chapter but it’s so important that it bears repeating. Got a really great idea for a product or service and absolutely certain it’s going to make a great business idea? This isn’t always a great starting point for a business.
A solution is only a solution if it’s solving something - otherwise it’s just a product or service that cost you money to build but that you can’t market and can’t make money from.
A great idea poorly-researched can be beaten by what seems like a lesser idea but is really well-researched.
I speak to a lot of Founders who’ve built a product or a service and are looking for a market for it and the first thing I do in these situations is to encourage them to ignore the solution as much as possible whilst they go back to the start and look for a problem to solve.
The key to a successful business is in finding a problem that is really bothering a decent group of people and building a cost-effective solution that you can sell at a price that is both acceptable to the people who could buy it and enough to cover your costs of making it.
It’s the most basic but important business equation you’ll ever need to know. If demand multiplied by price doesn’t equal an amount that’s higher than the cost of the supply needed to meet that demand, you will lose money.
The reason I split out the Proposal section from the Ideal → Reality → Consequences → Proposal framework is because you need to think about the first three in isolation (the Problem part), before you start to consider the fourth (the Solution part).
Let’s look at an example, featuring two businesses that look quite similar from the outset but are really very different because one spent time on the Ideal → Reality → Consequences stages first (the Problem) and the other started with the Proposal stage (the Solution).
Business A, “Solutions Ltd”, and Business B, “Problems Ltd”, are, on the surface, both in the tech industry.
Business A, “Solutions Ltd” was founded by a group of tech enthusiasts who were excited about wearable technology and the potential it offered to revolutionise the health and fitness industry. They were confident that their engineering skills and creativity would allow them to create an innovative product that would capture the market's attention.
Solutions Ltd: A Solution-First Approach The team immediately got to work on designing a feature-rich smartwatch with advanced fitness tracking capabilities, health monitoring sensors, a sleek design, and integration with various smartphone apps. They were enthusiastic about incorporating the latest technology trends and aimed to launch a product that would surpass their competitors. |
Consequences of the Approach:
Unclear Target Audience | Without a clear understanding of the problem they were solving, the company struggled to define their target audience properly. They believed that their product would appeal to a wide range of consumers interested in health and fitness. However, they failed to narrow down specific user needs and preferences, making it challenging to tailor their marketing efforts effectively. |
Feature Overload | Since the team didn't have a clear Problem Statement, they ended up adding numerous features to the smartwatch, hoping it would attract more customers. However, the product became bloated with functionalities, leading to increased complexity and a steep learning curve for users. This not only drove up production costs but also made the user experience confusing and overwhelming. |
Lack of Market Fit | The smartwatch hit the market with much fanfare, but it failed to gain significant traction. The lack of a well-defined problem to solve meant that they couldn't clearly communicate the unique Value Proposition of their product to potential customers. As a result, consumers didn't see a compelling reason to choose their smartwatch over other, more focused alternatives on the market. |
High Development Costs | Building a feature-rich product without a clear Problem Statement also meant investing a substantial amount of time and money in the development process. Solutions Ltd. had to allocate resources to create and maintain features that ultimately didn't resonate with users, leading to a poor return on investment. |
Reputation Damage | Launching a product that didn't meet customers' expectations tarnished the company's reputation in the market. Negative reviews and word-of-mouth spread, making it even harder to gain customer trust and recover from the initial setback. |
Lesson Learned:
The consequences of building a solution without a clear understanding of the problem highlight the importance of conducting thorough market research, identifying user pain points, and validating product ideas before diving into development. By taking the time to define and understand the problem they aimed to solve, Solutions Ltd. could have tailored their solution to meet specific customer needs, improving their chances of success in the competitive wearable technology market. |
On the other side of the example, Business B, “Problems Ltd”, was founded by a group of fitness enthusiasts who noticed a growing trend of people struggling to maintain healthy lifestyles due to sedentary jobs and busy schedules.
They identified a problem - the lack of a user-friendly and effective fitness tool that could seamlessly integrate into people's daily routines and motivate them to stay active.
Problems Ltd: A Problem-First Approach The team conducted extensive market research and surveys to understand the pain points of their target audience. They found that many individuals found it challenging to stay consistent with their fitness goals, primarily due to the following reasons: Limited Time: Busy work schedules and family responsibilities left little time for dedicated exercise routines. Lack of Motivation: Many people lacked the motivation to stay active regularly, leading to a sedentary lifestyle. Overwhelming Fitness Options: The abundance of fitness apps and devices created confusion, making it hard to find a solution that truly suited their needs. |
Solution: Armed with a clear understanding of the problem, Problems Ltd. embarked on designing a practical solution that would address the identified pain points. They created a user-friendly fitness app that integrated seamlessly into users' daily lives. The app offered the following features: Quick Workouts: Short, effective workouts tailored for busy individuals that could be easily completed during short breaks or before/after work. Gamification: The app used gamification elements, such as rewards, challenges, and achievements, to motivate users and make fitness fun. Personalised Recommendations: The app used data from users' daily activities to provide personalised fitness recommendations, ensuring relevance and convenience. Simple User Interface: The user interface was intuitive and straightforward, eliminating any confusion and making the app accessible to users of all ages. |
Consequences of the Approach:
Clear Value Proposition | By identifying the problem first, Problems Ltd was able to communicate a clear Value Proposition to their Target Market. Users saw the app as a tailored solution to their specific challenges, increasing its appeal. |
Market Fit | The fitness app gained significant traction in the market. Users appreciated its simplicity, effectiveness, and relevance to their lifestyles, leading to positive reviews and word-of-mouth referrals. |
Cost-Effective Development | Since the team focused on building features that directly addressed the identified problem, development costs were streamlined, and resources were efficiently utilised. |
Enhanced Reputation | The positive user experiences and glowing reviews helped build a strong reputation for Problems Ltd. as a company that understood its customers and provided meaningful solutions. |
Lesson Learned:
Identifying the problem before building a solution allowed Problems Ltd to create a fitness app that resonated with users and addressed their specific needs. By conducting thorough research and understanding their Target Market's pain points, the company was better equipped to develop a successful product that made a positive impact on people's lives and stood out in the competitive fitness market. |
One final example of what a Problem Statement is not and then the next Chapter will dive into the seven questions you’ll ask in the 5W2H framework so that you can be a “Problems Ltd” in a sea of “Solutions Ltd”s.
3. The Problem Statement is not the Mission Statement
As you're figuring out what your business is going to do, you’ll be writing a few key documents. After you’ve finished this ebook, you’ll know why your Problem Statement is one of those and how to write it, but you’re probably already familiar with another kind of statement - your Mission Statement.
As I’ve covered in earlier pages, your Problem Statement is a really clear and detailed description of the problem your business is aiming to solve, including the customers that it’s aiming to solve it for, and the specific details of why it’s important that that problem be resolved.
It’s data-driven, it’s objective, and it’s actionable - it makes it clear that you’re taking action to solve a specific problem, and it highlights the clear gap between the Ideal and the Reality.
For example, back to our workers from earlier:
“Ideal: The customers are workers who want to get into their offices each weekday morning before 9am. The offices are in the centre of town, and the workers want to get there without driving and without spending too much money.
Reality: The customers are currently at their homes, which are in the suburbs, and are without effective public transport or affordable taxis.”
The Problem Statement is the gap between these two states, and the details of who is affected by that gap, including when, why, where, how, and how much.
On the other hand, a Mission Statement is a broad declaration of your company's purpose, the reason why it exists, and how it’s, at its core, different to your competitors.
The Mission Statement more inspirational than objective, it’s there to get your team and your customers excited about your solution via your values, your vision, your aspirations.
It tells customers how they’ll feel after they engage with your business and it tells your team why they should be proud to be working for you. If we were writing a Mission Statement for our workers in the transportation example, we might write something like:
"Our mission is to empower people in our town to live happier and more fulfilling lives by providing innovative, reliable, high-quality transport options at accessible prices, taking the stress out of every weekday morning."
As you can see, while the Problem Statement defines specific issues that require attention and resolution, the Mission Statement articulates the company's broader purpose and serves as a guiding principle for its actions and aspirations. You need both, but it’s in the differences between the two that you unlock the capacity to both really effectively solve problems and delight and inspire everyone your business interacts with.
If you want to spend some time exploring your own Mission Statement, I’ve written an ebook on how to dig deep and understand what’s motivating you and why you’re building this business.
In this chapter we looked at what a Problem Statement is not - specifically, that a Problem Statement is not a description of the solution that you’re proposing, nor is it a description of the symptoms of the problem as opposed to the problem itself, nor is it a Mission Statement.
In the next chapter, I’ll break down the 5W2H model, the framework that asks 5 questions starting with the letter ‘w’ and 2 questions starting with the letter ‘h’ to dig into what the problem that you’re solving actually looks like.
I’ll do this step-by-step so that you can get started writing your own Problem Statement and building towards Product-Market Fit.
If you've enjoyed this content and want to start working on your own Problem Statement, why not check out my Pay As You Go COO services? From as little as £400 (plus VAT), you can access an expert COO to help you build your business for success.
Book a free, no-commitment Discovery Call to learn more:
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