Crunch Point: Customer-Problem Fit

When we’re designing good businesses, we often talk about three types of “fit”:

• Customer-Problem Fit

• Product-Solution Fit

• Product-Market Fit

That last one is the most famous, but it’s not something that a founder can attain straight away.
In most scenarios, the best place to start is with the first one, Customer-Problem Fit.
This is early in the journey but it’s also a crunch point – if we don’t have customers with a particular need/interest, then this is not the right place to build a business.
Let’s dive in…

Customer-Problem Fit is when you find a deep pool of customers who genuinely care about a need or interest, so much so that they are ready to take action.
When you have it, you’ll know who to design solutions for, you’ll know who to advertise to, and your messages will arrive as good news to the customer, rather than being irrelevant or annoying.

This is not about persuasion.
We are not trying to lure, tempt or change people’s minds.
Instead we are like David Attenborough watching the customer in their natural habitats, observing the phenomena that inspires them to take a risk to get a reward (or resolution).
This has nothing to do with you, your ideas or your business.
This is not “will customers choose us over the competition?”, that comes later.
This is “will customers choose ANYTHING?”.

The reason this is so important is because we want to build a business that serves a good market.
If the market is:

• Too small

• Too scattered or fragmented

• Unmotivated

• Tight-assed with money

• Content with what they already have

Then this is not the place to build a business.
Crucially, this is not bad news.
It is inconvenient news, it involves change and repeating some steps in the design process, but it’s also saving you the expense and effort of building something that serves a disinterested or non-existent market.

Right now, we’re at a crunch point – you either have Customer-Problem Fit, or you’re still researching, or it’s time for a pivot.
No ducking the question, we can work with whichever scenario you’re in.
We are in “Information Gathering Mode”, where we look for the truth without emotional investment – as little fear and as little greed as we can manage.
No jumping to conclusions, no hiding from reality.

 
“Fit” is not a guarantee of success, it means there is strong potential here.
The conditions and the timing are right.
There’s still lots of luck, random surprises and fierce competitors, but at least we can do our homework and see what we’re working with.

Who counts as a customer?

You’ll probably encounter three types of people:

• Customers, who make decisions and pay for something (directly or indirectly)

• End Users, who end up using a particular product or service

• Beneficiaries, who are better off because of a particular product or service

In a transaction, these three might be the one person – i.e. you buy lunch, you eat lunch, you have energy all afternoon.
Or it might be two or three different people, like if you help your aunty choose a new computer, you might be one of the main customers and not the end user.
Perhaps the beneficiary is a long way away, because you’ve made sustainable choices or saved costs for someone in 20 years’ time.
Either way, we want to identify who holds power and who is assessing the options.

It’s also helpful to ask “whose money is being spent?” – is it personal, company or government money?
Maybe someone is choosing software for their new passion project.
Maybe there’s two people who have been tasked with choosing software for their company of 80 staff.
Maybe there’s a committee tasked with choosing software for their company of 40,000 staff.
All three scenarios might pick the same software, but through very different processes with different requirements.

The aim is to accurately observe and understand how people and companies make choices, irrespective of whether you think their process could be improved or scrapped.

How will we know we have it?

There’s no universal rule, but there are some consistent indicators that you’ve found and understood a good market:

You know where to find potential customers
If you can’t find customers to talk to or observe, then you definitely don’t have enough information to make a decision.
Customers tend to appear at sales channels and at “watering holes”, where they congregate, swap information and express opinions.
Crucially, you can’t invent a customer, you can only entice real people who are ready to make decisions very soon.

You keep hearing the same problems and frustrations
They say that “the plural of anecdote is not data”, and it’s dangerous to take a few stories as evidence of a significant market need.
But if you consistently hear the same pain points from customers, can see high traffic in certain search queries, see the same topics raised on lots of Reddit threads, then these are signs of a market need.
You also get some insights into how customers word their frustrations.
Are they venting, or are they showing a readiness to take action?

Evidence of customers having taken action in the past
You probably have a lot more thoughts and impulses than you have made purchases, otherwise your house would be overflowing and your bank account would be looking empty.

• You’ve talked about seeing a movie at the cinema, then ended up “too busy” and waited to catch it on streaming, and then two years later haven’t made the effort to watch it at all, even when it’s at your fingertips.

• You talked about a group holiday, but enthusiasm faded, and it never made it out of the group chat.

• You felt inspired to pick up a new hobby, maybe watched a few clips and looked at classes, then life got in the way.

Not every idea turns into action.
But by contrast, if your headphones break on the way to work, you’ll almost definitely have arranged some sort of replacement by the next day, heaven forbid you have to commute, work or exercise without them!
That’s because when we have strong motivation, action becomes inevitable or even easy.
i.e. you arrange to stop at an electronics store, you borrow spares from a friend, or you place an order with next day delivery.
We want to see that customers have felt an interest or need, then gone through the buying process and ended up with SOMETHING.
If they tend to shrug and move on with their lives, they’re not a good customer base for your startup.

Evidence of growth or sustained demand in the category
One of the most enticing and dangerous words in entrepreneurship is “fad”.
You don’t always know when you’re in them, they feel like they’re the new normal, and yet you’ve seen lots of examples of trends falling away as quickly as they emerged.
Flared jeans, rollerblades, Ed Hardy shirts, frozen yogurt, moustache stickers on cars. All of these still exist and have fans, but fewer than at their peak.
Then again, so many thing that are around today have been incorrectly labelled fads, and are instead going stronger than ever.
Cars, bikes, personal computers, social media, cryptocurrency, YouTube, matcha, working from home.
What we want to see is that the market is getting bigger at a sustainable pace, or at least not dropping away.

Clarity on dealbreakers and drawcards in past purchases
There are usually two reasons behind every decision – the good one and the real one.
You’ve probably experienced this yourself, when faced with lots of choices and alternatives, you sometimes use criteria that you may not like to say out loud:

• My child has been invited to a party, I don’t want to spend much money on some random kid’s birthday present, but I want my kid to arrive to the birthday party with a decent sized gift.

• I want to impress my boss, so I’m choosing a function space that serves their favourite drinks.

• I want to make a fast decision, so whichever one of the top 3 results on Google has the nicest website is getting picked.

• I want the best possible pet food for my dog, basically what I think I would like to eat if I were a dog.

We don’t like to admit that we choose pet food like we’re the consumer, or that we’re trying hard to impress someone, but that’s how decisions get made.
Dealbreakers are the hard boundaries or parameters, like “the event budget is $55 per head” or “it has to be on the 11th of November”.
If a venue wants $60 per head or is booked on the 11th of November, they’re out of contention, even if it’s a fabulous space.
Drawcards are the incentives or perks that motivate a choice, like “ooh, if I can do a longer layover on this flight and spend an extra $110, I can afford a better type of seat!”.
These drawcards are not essential, but they sway a decision and feel a bit exciting.
Luckily, when you ask customers about these, they tend to laugh at themselves and their situation.

Clarity on budgets and how people measure value
Earlier we asked “whose money is being spent?”, and this continues into the question of how customers process value for money.

• Are different customers price sensitive?

• Will they change their decision making based on cost?

• Is cheaper a good thing, or a red flag?

• How much do they want to spend? How much are they able to spend?

What stories do they tell themselves about this field and how options are priced?
Do people measure price based on the upfront cost, the total cost, or the net benefit?
e.g. if they are buying a coffee pod machine for $300, is this expensive or a bargain?
Some people would hesitate at spending $300 + $30 worth of pods, as this may feel like a big cash purchase.
Some people would see the new setup as a good deal, spending 90c on pods and milk per serve rather than $5 at a café.
Some people will even calculate when the setup “breaks even” for them.
It’s an expense and a saving, depending on how you look at it.
What’s the equivalent story for your customers?

Quantifying the size of the total, available and obtainable markets
We mentioned headphones earlier, and they’re a good example of the three types of markets.
Total Addressable Market (TAM): the total amount people spend on headphones
Serviceable Addressable Market (SAM): the amount people spend on a certain type of headphone, like “headphone for joggers”.
Serviceable Obtainable Market (SOM): the amount of people we could reach who are currently interested in buying “headphones for joggers”.

You usually see these in slide decks, as three concentric circles with big, impressive figures in them.

So in this case, the total market (TAM) will be some incredible number like $150B, but that includes everyone who buys totally incomparable products, like those cheap flimsy ones you get on planes, or high-end audiophile monitors that cost $2,000.
Yes, most people on the planet have headphones, but that doesn’t necessarily mean that this is a big opportunity for your niche of the market.

The available market (SAM) describes all of the people who have bought headphones for use in jogging, but again this is in a wide range of locations, with a wide range of budgets, lots of different priorities, but most importantly, lots of people who are already content with their headphones.
i.e. they are not looking for new ones any time soon.

That’s why the obtainable number (SOM) is so important, it describes the people who are in your target market now.
They are open to learning more, intrigued or motivated to try something better than what they already have.
The joggers you can reach (in person or online) who are wearing headphones that jiggle, or have a dodgy left channel, or which block out too much noise making them a safety risk.
How many of THOSE people can we reach?

This research does not need to be precise, you can find each of those figures online through secondary research (people love citing IBISWorld), or do your own analysis through Google Trends and company sales figures.

Looking for direct and indirect substitutes currently used to address this need/interest
Let’s say you’re looking at vacuum cleaners.
You might find:

• A suspiciously cheap model for $200

• A clearance model heavily discounted to $279

• A decent brand base model for $399

• A decent brand’s better model for $799

• An elite brand’s model for $1,299

But then there are a few left-field options too:

• Take up your parents’ offer of their old vacuum cleaner for $0

• Keep your current one with its 6 minutes of battery life for $0

• Get a decent robot vacuum cleaner for $999

• Get a great robot vacuum cleaner for $1,699

• Hire a cleaner for $120 every two weeks

This is what customers are weighing up as they scroll through websites or browse aisles.
They are not only assessing the options in front of them, but also the “indirect substitutes”, which often includes the option to do nothing / stick with what you have, or to do the bare minimum to keep your current setup going.
Then again, some customers like to run a system into the ground, then replace it with an extremely sophisticated or luxurious substitute, so that their former irritation never has to bother them again.

Your job is to learn how customers assess these options – what gets considered and what is invisible to them?

Seeing around corners
What might be “around the corner” for these customers?
What future trends or changes might affect their circumstances, needs and desires?
Predictions are not always reliable or even precise, but it’s worth thinking now about what customers might be searching for in 2, 5 or 10 years from now.
How might they be affected by AI, or changes in global trade?
What social or environmental considerations might become more significant?

What do we ask next?

You might have a sense of whether or not you have this elusive Customer-Problem Fit.

Rather than set an arbitrary criteria, here are some good questions to ask yourself and your team to see what your next steps might be…

If you feel like you have Customer-Problem Fit:

• Where have I found to be good sources of new or existing customers? Where do they come from? What keeps them around?

• Which “watering holes” do customers usually congregate around, and what do they talk about? Can we speak to these customers about their needs and our ideas?

• What are these customers asking for someone to build? What concepts or ideas make them say “shut up and take my money”?

• What is the “expiration date” for your research? Is the market largely the same as it was 18 months ago? Even 6 months ago?

If you’re not sure if you have Customer-Problem Fit, or are in “Information Gathering Mode”:

• What would convince me that this is a good market?

• What would I need to see to feel a strong yes or a tentative yes?

• What would I need to see to feel a strong no or a tentative no?

• What would give me a conclusive result?

• Really?

• Do customers show a willingness and ability to pay? One out of the two is not enough, unfortunately.

• Realistically, have I done the work to see who’s out there and what they care about?

If you suspect that you don’t have Customer-Problem Fit:

• Am I relieved or disappointed? A bit of both?

• Could someone else build a great business here? Would other entrepreneurs see this as a good opportunity, or a money pit?

• What does this insight now allow us to do?

• What are options B and C? What adjacent options might we explore now, perhaps for comparison?

• How might I incentivise myself to be a good scientist? If I can’t celebrate a win, can I at least celebrate good work?

Remember, your job is not to make, force or create Customer-Problem Fit.
You are an observer, what have you observed so far?
All of the above points are helpful language for describing an opportunity (or lack thereof).
There’s no use being tricky and bending the criteria to get you a “pass”, these questions are here to help you make good decisions.

Now it might be time to start designing, creating new or better solutions for these customers.
This is the realm of Product-Solution Fit.
Or it might be time to keep observing the same customers with different needs, different customers with the same needs, or some totally different part of the market.
Be a good observer.