There once was a highly motivated developer who worked at a bank. One day, they figured out a way to automatically round up decimals in banking transactions to the nearest whole number in bank accounts. They reasoned that the difference could be either taken as additional revenue to the bank or paid back to the customer in the form of a savings award. This simple solution awakened the inner entrepreneur in the developer. 

They promptly resigned from their well-paid position and set out to become a founder. They gathered a motley crew of fellow developers, built a website, raised a few million dollars in funding and as soon as the ping pong table and espresso machine were installed an unfortunate thing happened - they soon realized that their idea was not new enough. Many well-known financial institutions were already well engaged in developing similar solutions and had spent millions of dollars in doing so. Additionally, they did not regard the young founder as having enough experience to take on the solution. 

Soon the founder ran out of capital, laid off their staff, sold their ping-pong table and found themselves back at the bank. 

What happened here? It was a simple case of developing a solution then going to look for a problem.

Unpacking the above case (not a real case, although there’s many cautionary tales out there) can almost certainly fill a whole MBA case study but let’s reside in the realm of not knowing your market. Angel investment groups and venture capital firms are constantly receiving pitch proposals from founders who had the light bulb moment sitting in the cubicle or home office. They come up with a new and interesting way to solve a particular problem. They obsess about it. They dream of someday founding the next “unicorn” (A term for a fast growing highly invested in startup). Investors struggle to explain to founders that their idea or new way, although interesting, may not be enough to build a business with. They also struggle to explain to founders that what may appear as a good idea to you may not necessarily be what the market wants or is ready to accept. It could be because it is too innovative. It could be brilliant, but the market is too married to the status quo or that the economics of change (incentive) does not currently exist. 

Consider the case of the CRM (customer relationship management) software. The CRM started to hit the market in the early 2000s as the new way to electronically capture relationships between sales teams and their customers. Sales teams were the biggest group to resist CRMs. They did not want to spend their time entering their data or their rolodex of relationships into a piece of software. Many sales teams considered their customer relationships as their secret sauce and did not want to give up the control of their relationships with their customers. Companies did not want to be held hostage by senior sales teams who could easily walk to a competitor with their relationships. The economics of CRMs was not sorted out, the true value of CRMs was not fully vetted. Ultimately, what both groups came to understand was the CRMs enhanced customer relationships. The data collected became known as “customer intelligence” and sales teams learned that the more information they had on the customer, the better they were able to align products and/or services, to the benefit of both groups. But during the process, many early CRM startups failed because the market was not ready for them yet. 

The founder who left their banking job can be considered a cautionary tale of not spending enough time developing an idea. They did not spend time listening to the market, researching the economics of their solution, or testing their solution in beta groups. Sometimes that process takes months, if not years. Call it going into stealth mode - the founder developed a solution and looked for a problem to solve, but perhaps did not take the time to understand the market well enough. 

The market did not need it yet or that if he would have continued to research the industry they would have discovered a real need that the market was ready for and needed.

Steve Jobs reinvented and disrupted home computing. His folkloric rise often misses his keen read of the market. He knew what the market needed, and the market agreed and history was made.

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