New Venture Lab: Equipping Christian Entrepreneurs

During a recent lunch with the New Venture Lab apprentices, one of them brought up an idea he was working on based on informal market research he had conducted by striking up conversations with members of his target industry.

He was zeroing in on the process that the most frustrating part of the life of his customer prospect - what I would call his customer's "pain."  If there is sufficient "pain" in the life of a customer, they will usually seek a solution to that pain and if there are enough such customers with the same problem, then there is a potential business idea in the works.

While sufficient customer pain will usually lead to customer action, it does not necessary mean they will not attempt to solve the problem themselves.  This is where our conversation turned next: to sub-scale processes.  If the process that was giving the customer fits was a strategic, core process that was a large enough issue for the customer to invest in themselves, then the likelihood of them outsourcing the process to a third-party is low.  If, however, the process was "sub-scale" -- that is to say too small for the customer to get a meaningful return out of by creating their own custom solution -- then they are likely to seek out an outside provider for a solution.

One example of this is to compare the business model of software as a service vs. licensed "on-premise" software.  In the 1980's and 1990's, the prevalent method for companies to purchase and use software, was to buy a software license, install the software on a local server and hire the staff to support and maintain the software.  In many cases, the staff also supported many other servers and software applications and did not have the time to become expert at any of them as they were jacks of all trades.  In the late 1990's the idea was reborn (similar to the old days of mainframe and dumb terminals and information processing service bureaus) to offer software as a hosted service.  Importantly this model had broad appeal for organizations that realized they could leverage the bandwidth, computing power and expertise of a highly-skilled provider and simply log on to use the service on demand.  This enabled customers to find the solution to their pain in a faster, cheaper and better way since they were tapping into a larger "at-scale" provider for their pain than they could ever hold to build and manage themselves.  It also allowed the customers to avoid the large investment risk of buying all of the gear, hiring all of the staff and paying for the software, only to be disappointed by what the ended up with.  In the hosted software business model, such as SalesForce.com, users only pay a monthly software "rental" fee and thereby reduce their risk while gaining a valuable best-practice solution to their problem.

So, two relevant questions that need to be asked:

1. Is there sufficient customer pain that would force them to search for a solution?; and
2. Does it make more sense for the customer to build their own solution or buy it from a provider based on the scale economies of the solution?

See our Venture Analysis for the 50 most important questions to be answered prior to launching a business.