What Is Problem-Solution Fit?
A startup goes through three distinct stages
Stage 1: Problem/Solution Fit
Key question: Do I have a problem worth solving?
The first stage is about determining whether you have a problem worth solving before investing months or years of effort into building a solution.
While ideas are cheap, acting on them is quite expensive.
A problem worth solving boils down to three questions:
1. Is it something customers want? (desirable)
2. Will they pay for it? If not, who will? (viable)
3. Can it be solved? (feasible)
During this stage, we attempt to answer these questions using a combination of qualitative customer observation and interviewing techniques From there you derive the minimum feature set to address the right set of problems, which is also known as the minimum viable product (MVP).
Stage 2: Product/Market Fit
Key question: Have I built something (enough) people want?
Once you have a problem worth solving and your MVP has been built, you then test how well your solution solves the problem. In other words, you measure whether you have built something (enough) people want.
Stage 3: Scale
Key question: How do I accelerate growth?
After product/market fit, some level of success is almost always guaranteed. Your focus at this stage shifts toward growth, or scaling your business model.
Problem/Solution Fit (not Product/Market Fit) is the first significant milestone of a startup.
Getting to product/market fit (the inflection point in the hockey stick curve) takes roughly two years, and 80% of products never find it. At this rate, not counting downtime between ideas, finding a good idea could take up to 10 years!
In contrast, it takes roughly 3 months to achieve problem/solution fit. In the same 2-year period, you could fit eight Problem/Solution Fit iterations -- potentially raising your odds of finding a successful idea by 8x.
Before investing months or years of effort towards building a product, the first step is determining if your product is something worth building in the first place. You do this by validating "sufficient demand" for your product before building your product.
That is the essence of Problem/Solution Fit.
How Do You Achieve Problem/Solution Fit?
The counter-intuitive bit is that you can demonstrate demand for a product without a working product. How do you get people to buy a product before it's built? By selling them a promise of something better.
Think back to a new product launch, like the iPhone. Buying the first iPhone required a leap of faith because nothing was remotely like it. If you were one of the early adopters, like me, who stood in line to buy the first iPhone, you didn’t get to first test-drive the iPhone. You probably saw Steve Jobs demo the phone on stage, fell in love with the promise of the product, and decided to buy the product.
It follows that what customers buy isn't a product but a promise of something better. You don’t need a working product to promise something better. You need an Offer.
What is an Offer?
An offer is used to test interest for your solution before building it and should come before your MVP (Minimum Valuable Product).
Mafia offers, teaser landing pages, smoke tests, and crowd-funding campaigns are all examples of offer types you can use at this stage. You use your offer to test for customer pull and refine your initial product specification (or minimum viable product).
An offer is made up of three things:
1. Unique Value Proposition (UVP)
Getting your customer’s attention is the first battle. This is the job of your UVP which makes a promise of something better.
2. Demo
Once you have their attention, the next step is convincing your customer that you can deliver on your promised UVP. And here’s the counter-intuitive bit. This is not the job of a working product either, but a demo.
3. Call-to-action (CTA)
Once a customer buys into your demo, the last step is a specific call-to-action (CTA) that you want your customers to take. The goal here is to get as close to a paying customer as possible.
Customers then don't buy working products but an offer.
This insight is key to acquiring customers without a product. It opens the door to using a Demo-Sell-Build strategy.
Demo-Sell-Build
The old way of launching a product started with building it, then demo'ing it to customers towards making a sale: Build-Demo-Sell.
The new way of launching products flips the order where you start by first selling your demo. If you can't sell the demo, why build the product?
This is the Demo-Sell-Build approach.
Not convinced yet?
- If you've ever backed a crowd-funding campaign, you bought an offer, not a finished product.
- Selling an offer vs. a finished product isn't just relegated to smaller purchases. Tesla sold their initial cars using an offer that required a $5,000 down payment and a $45,000 wire transfer within ten days to reserve the car.
- Selling an offer isn't just relegated to B2C products either. As much as you'd like to close a big B2B deal immediately, the more complex the sale, the more complex the sales process. You have to first sell the UVP, then the demo to multiple parties, and finally have a pricing discussion with the right buyer. This can take several weeks to several months. If you don't manage to sell the offer, your product never reaches the pilot stage.
Contrary to popular belief, you never need a finished product to close a sale with an early adopter. Depending on your product’s technical risk (feasibility) level, you may sometimes need a working prototype for your demo but don’t assume this unless your customers specifically ask.
How Do You Build an Offer?
There are several different ways you can assemble and test offers. I’ve listed some of the most commonly used offer campaign recipes below:
- Smoke Test
- Landing Page
- Webinar
- Preorder
- Crowdfunding
- Direct Sales
- Mafia Offer
I recommend everyone start with a Mafia Offer.
What is a Mafia Offer?
A mafia offer is an offer your customers cannot refuse — not because you strong-arm them but because you create a compelling offer that
- nails your customer’s top problem(s),
- breaks their old way (existing alternatives),
- promises a better outcome,
- demonstrates how your solution delivers a better outcome,
- provides a clear way for them to get started.
You can expect an 80+% conversion from sales-qualified leads to customers.
How do you build a Mafia Offer?
Here's the high-level process I cover in my Demand Validation Playbook:
Building a mafia offer is a three-step process:
1. Problem Discovery - Understand your customers better than they do.
2. Solution Design -Design a solution to cause a switch
3. Offer Delivery -Assemble an offer they cannot refuse
How do you know when you have achieved Problem/Solution Fit?
You have Problem/Solution Fit when you can demonstrate
- sufficient and repeatable demand through sales
- for a product you know you can build,
- at a price point that makes your business model work,
Qualitatively, it's when you go from hoping people will buy your product to knowing they will.
To measure sufficient demand you should chart out a Traction Roadmap.
All Articles on Problem/Solution Fit
This is a complete list of articles I have written on Problem/Solution Fit.