The Value of Doing Something Intrinsically Hard
Difficult challenges create barriers to entry, competitive advantage, and value. Seek them out.
Many aspiring entrepreneurs are looking for a great idea to build a company on. With the benefit of hindsight, they look around and see companies that have become breakthrough successes, and the core ideas of those companies appear simple. So the presumption grows that they can build the next ‘insert-famous-startup-success-here’ adapted slightly to a different market opportunity. This is the very definition of a “me, too” company – and generally, it is difficult to find the magic combination that will ultimately provide the platform for future success.
A better approach that is more likely to result in significant success is focusing first on identifying a critical problem that causes a significantly large group of potential customers significant difficulty. The operative words here are “significant.” It is a word that is a bit subjective; however, larger and/or most costly problems, if successfully solved at a good value, can provide the foundation of a good business. Smaller, less costly problems, if successfully solved, require a correspondingly larger potential customer base. Either approach can work. The key is to identify a problem worth solving in the eyes of a sufficient number of people for a profitable cost.
To do that, you need to solve a problem in a uniquely valuable way. Value is created when you solve hard problems. If the solution is obvious or easy, then there is not much value in solving it because many people can readily solve the same problem, creating competition that erodes the value you can extract. For example, think of cleaning service businesses. Many families and businesses desire to hire someone to keep their premises clean, so the large number of potential customers box is checked. However, learning the skills of basic cleaning or janitorial work is not particularly difficult. The equipment required to do the job is either provided by the customers or does not cost much to acquire, and you can start by simple word of mouth client acquisition. Starting one of these businesses has low barriers to entry – and, consequently, many can develop such service businesses using various albeit broadly similar approaches. Competition drives the cleaning service pricing into a reasonably narrow band, and since the work has little technology-based leverage, the profit margins are capped. These are businesses where the problems are straightforward to solve, and therefore, yield only limited returns to their owners. The same principles can be applied to many typical businesses – and are why venture investors usually shy away from such companies since they are unlikely to drive the extraordinary value creation and the level of return on investment they are seeking.
In contrast, if you seek to build a venture-investable business, you need to seek out hard problems to solve. Look for problems that make a significant difference in the potential customer’s world by solving a significant problem cost-effectively. Such solutions often use extraordinary technological inventions and advances to solve the problem in an extraordinarily unique and valuable way. Solving these problems is hard – and if you believe your team has the capability and insight to solve such fundamentally hard problems, you have the makings of a valuable solution. This is one reason why I get excited when there are hard problems to solve in the course of building a start-up. If the problems were easy, anyone could do it. Only the hard problems will result in extraordinary value creation, supporting the pattern that many venture-investable businesses fail (problems proved too hard). Yet, those that succeed can return great value.
As an example of tackling hard problems, when we co-founded Accuri Cytometers, we were trying to do something that everyone we talked to agreed was “impossible.” It often seemed they reached that conclusion because no one had done it before (a hallmark of a potentially valuable problem to solve…). Yet, our team broke the problem into at least five critical parts, each hard, and ultimately worked out exceptional solutions to each. We heard from a global company who wanted to know how we had achieved six decades of dynamic range with parts that should not have supported it. We found a way to use inexpensive pumps to produce smooth laminar flow by using electrical engineering concepts. We solved tricky laser and optics problems in a way that could survive cross-country shipping without coming out of alignment. We found a way to sell our product at a fixed price rather than negotiate every deal, leading to much more efficient sales processes. We solved nuanced manufacturing challenges that proved quite tricky for our strategic acquirer to transfer. The combination of those solutions resulted in a product that is still being successfully sold globally 15 years after launch. Each one was hard. One tell-tale sign that what we were doing was hard was that some of our biggest competitors launched internal efforts to try and build competing products – and ultimately abandoned those efforts. When it came time to sell the company to a strategic acquirer, there was no question that we had created an extraordinary product that opened a whole new market segment and was outperforming market leaders at much higher price points. Success was built on solving hard problems that others could not – and ultimately, a strategic acquirer paid well to own those answers.
As another in-process example, we have just received an FDA De Novo grant at Fifth Eye, which means that there is nothing like what we have been developing for the past several years. To create this novel analytic, the innovative data and computer scientists had to eliminate complicated noisy signal issues that are inherent in the ECGs of sick patients to extract a meaningful streaming signal. They had to collaborate with creative mathematicians to find ways to speed up the calculations to allow the generation of near-real-time results to produce a continuous, non-invasive monitor that tracked hemodynamic status in a breakthrough way. We had to condense the problem down into one data-rich signal and avoid the tempting trap of adding more and more variables that reduce the number of patients who can benefit. We had to solve a cascade of distributed cloud computing problems in a very cost-effective way to enable a business model that would deliver exceptional value to hospitals. Once again, we know of many others trying to solve the problem of detecting and predicting patient deterioration because it is such a costly and troublesome problem for hospitals, and existing solutions are not working well enough. We see many trying to cobble together dozens of variables, which can show something retrospectively, but practically end up making their solutions hard to translate into actual clinical practice. The common (obvious) solutions do not readily translate into real-world practical solutions. We are now collaborating with multiple hospitals to learn together the best application approaches for this innovative new monitoring technology. We all have much to learn; however, as we solve these details, together with our leading clinical customers, we stand to seize the opportunity of creating a new standard-of-care that will leverage our solutions to hard problems and work its way into being used for a majority of hospital patients’ care.
The key takeaway is that when you realize you have to solve hard problems, that is great news! Now you have the chance to build real intrinsic value in your start-up. When you hear stories about how others have tried – and failed – to solve the same problem successfully, rather than agreeing with the doubters, that means that when you do solve it, you will be creating extraordinary value. While you do have to know when to yield that the problems might be too hard to solve (I have had to do that as well!), generally, I get excited when the problems take significant work and insight to solve. That is the crucible in which great start-ups develop!
