In an interview for YCombinator, Facebook’s Founder Mark Zuckerberg implied that Facebook’s first outside investor Peter Thiel was focused on strategy of ‘Network Effects’. Mark remembers how his interest to put people at the center helped him make strategy about Facebook. Thiel is an angel investor — co-founder of PayPal & writer of the book 'Zero to One', who has invested in numerous startups. Web companies celebrated the late 1990s like a party. Their IPOs were valued massively which lasted till the dot com bubble. Back then the new life was the web and almost everything and everybody went web. While today, a few have survived — Amazon, eBay, PayPal, Google and some other small names. When the bubble burst, reality took away a lot of investors’ money.
A couple of months ago, a nation invested $3.5 billion dollars into a privately funded multinational startup. Uber might have just stolen the show from Facebook as Facebook tries to establish itself as a monopoly service company. No other company might have reimagined how mobile devices & web could change the way people used physical services. A reason Uber succeeded can be because it tapped the network effect and the right problem. Mobile devices penetration created the network while the web was open-to-all long time ago. The effect is, hence, millions of users, a $60 billion valued ‘startup’ without an IPO anytime soon, and its regional clones.
The observations of recent high-profiled startups have one thing in common — they are using mobile device users. The mobile device penetration is yet to decrease long time from now. So there is already a solution, a medium which the users will not depart from anytime soon. Now, how would a problem look like for a solution that is now so easy to develop? Of all complains that we make, of all the problems that we face — how do we find a right problem? If finding or reaching to a problem is not all that we want, how do we find a regional Uber/Facebook? After we find one, we will have got a lot done.
As of now if we have not thought about cloning Facebook or Uber or, if more daringly, Google as our next startup, let’s look at what makes Uber — Uber, Facebook — Facebook, Google — Google and a door away startup with potentials a potentially successful startup. The pie to the analysis is they have common grounds — network effect and a point where problem coincides with the solution.
In mathematical terms,
Need α 1/Availability (Problem)
- When Users’ need increases and the service’s availability decreases, that’s a typical problem.
Need α Availability (Potential Solution)
- An imaginary solution which fulfills user’s need by increasing availability.
While we think of a problem graphically, there are some resources that are going down. As of the graph between Available resources to Users and their needs, the availability is going down. In Uber’s case, it was harder to find cabs for rent in big cities — Availability of cabs going down as needs increase. Airbnb is an online platform for rental accommodations; here availability of low price hotel was decreasing. But, as a solution, we have increasing mobile devices users. A solution to a problem requires either developing new habits in users or resonating to users' basics. Due to the increasing number of mobile phone users, if the problem can be solved by mobile technology, there is a potential solution medium already available.
To solve an issue which has a behavior going down requires environment which is increasing in value.
Problems which can be solved using mobile devices will have decrease in availability to increase in need, while the mobile devices which are soaring can act as the possible solution.
An unfulfilled need requires a solution. Whenever there is a solution needed, there is a viable problem and hence, a business or startup opportunity. If we find an old problem and dive into the market, that is a business. Finding an old problem can mean getting into an already saturated market, or outsourcing technology and manpower. What innovators are found to do is, find a new problem and risk into a startup. Find a small problem, be the problem solver, but, it will not be a popular startup — a big problem allows a bigger problem solver, a popular, wealthy startup and potential business.
If I need something and it is not available, that’s my problem. If a number of people need something and it’s not available, that’s a viable problem. Solve it.
To startup a service, product or business is a determination to spend time and money. We will have to research, analyze and then decide to stick to a problem and develop a solution. How do we realize if a problem is worth a start-up or business? Following basic observations and intuitive analysis, we can consider some of the factors to decide: Market Potential, Product Span, and Market Value. We will look at these three factors graphically with respect to our previous understanding of Availability, Need, Users and Time.
Market Potential: How big the problem is based on number of Users.
Market Span: Is the problem short-lived?
Market Value: What is the business potential of the solution?
The Collision Graph can be used as a tool to analyze new startups or old businesses and their viability. Availability Crisis and Users, Need and Time Span are related in business understanding on which the imaginary solution and its graphical properties can help visualize our potential, span and value.
1. Market Potential: Availability Crisis and Users
Developing a technology or service is worth investment if there are a number of people who have a common problem and the technology efficiently solves it. While the business model might not be very clear at early stage of development, it is mandatory for us to visualize the solution solving the targeted problem.
Market potential is largely the relation of how many users are facing the availability crisis over time and in need. An Agro-solution product is an example of successful product in Nepal. We have deep geographic problems to which mobile solutions can be effective. Our agricultural upbringing in rural areas creates significant number of users seeking agricultural information.
2. Market Span: Need and Time
During recent economic blockade in Nepal, there was critical fuel crisis and users had to line for hours or even days to get fuel. To solve this national problem the government sector planned to develop and release an SMS system for Fuel Queuing System. Before the plan could be implemented, the blockade was lifted and there is no queuing for fuel at present. The problem was real, the users facing the fuel availability crisis were significant, but the problem was short-lived. Such solutions are destined to be a failure. Meanwhile, the problem of service center queues is real and there are a lot of users seeking a solution. So, a general queuing system can be a viable problem to solve.
3. Market Value: Solution and Business
Finding an everlasting problem is necessary to make solutions a hit and do good business. Even when we find a viable problem in terms of potential users and usage span, it can be a major obstacle to generate an actual business. Some of non-profit apps and services face this problem. Wikipedia asks for small scale donations to keep its foundation running. Facebook found it hard to generate revenue despite billions of users until some time now. Where most network solutions fail is in lack of product to sell, and stand-alone user engagement based ad revenue makes it difficult to survive.
There is a popular example in Nepali startup community. A news web portal with millions of daily viewers was shut down because it could not generate revenue. User engagement does not guarantee revenue. So it is still possible that with a viable problem and solution, we might not end up with a startup or a business.
Some solutions destroy the business itself when the revenue and profits are very low compared to investment. A striking example of irrelevance of solution and business prospect can be online grocery in economies like Nepal/India. Online grocery can be successful for developed economy like US because they have a fixed schedule of foods and proper storage mechanisms. In Nepal or India common households expect fresh delivery every day and bargain with different vendors. An online grocery can neither help with pricing nor accessibility.
Finding the right balance between value, span and potential can help understand if a problem rightfully needs a startup. While determination to a problem and solution can create motivation in founders, it is essential we take on a native problem than outright copy solutions. Those instances will create cases of a solution without a problem. The problems faced in US are different than what we face in Nepal, while the problems we face here in Nepal can match with that of India. Not all problems can be solved through mobile devices or web. On those which do, we can have a common coinciding point when a solution based on increasing mobile users taps the problem.
In the same YCombinator interview, Mark exclaims even at a significant stage of Facebook, he did not realize he was doing a startup. Despite interests from big companies to get involved in the then Social Network service development, it was Facebook who won because, as Mark says, they were the ones who cared deeply about the service.
A version of this article appears on our Medium Page.
First Published on Aug 6, 2016.