How to decide what problem to solve.

An organization exists to solve a problem for people that have that problem. Organizations that seek to perform and grow are wise to be thoughtful about what problem to solve.

Specifically, it is easiest for an organization to grow if the problem it solves is Important, Pervasive, and Persistent. It also helps if the solution addresses a problem that is Nearby to other problems and/or that is a Small part of Bigger Problems.  Finally, the solution needs to drive a price that is Rational given its Costs and the Value it drives.

Figure 1: The Best Problems to Solve are Important, Strategic, and Persistent

Every customer likely has many problems but is constrained in how many can be addressed at once by limited resources such as: time, money, and manpower.  The best practice is to sort problems in priority order based on the lift in performance that comes with a solution and the drag on performance if not solved. Resources are then focused almost exclusively on the top few leaving others to be addressed down the road.

Important problems are strategic to solve and get priority in terms of time, money, and manpower.  If an organization pitches to solve a problem that is strategic, the odds are good that there is a sale to be made.  The odds of a sale go way down if the pitch is to solve a problem that is not deemed to be strategic.

It facilitates growth further if the problem is Pervasive.  A pool of potential customers that have the same strategic problem define a market that might be worth going after. A problem that only one customer has might make a good project but will not likely serve well as an engine for growth.

Organizations with solutions to problems that Persist are preferred because if the problem goes away, so too will the need for those who solve it!  Organizations in the late 1990s that existed to change software systems to work properly past the year 2000 have largely disappeared unless they re-framed why they existed to address a persistent problem.

The best problems for an organization to solve also lead to new opportunities.  One path to new opportunities emerges if the problem a solution addresses is Nearby to other, similar problems that are also important to solve.

Figure 2: The best problems to solve are nearby to other problems and/or a small part of larger problems.

A solution that solves a problem nearby to others is represented by the collection of triangles in the lower- right section of Figure-2.  For example, an organization that provides a system to help with credit collections might find itself in good position to also solve problems near to collections such as credit originations, customer service, and fraud detection all of which have visibility to collections, draw on the same pool of domain and technical expertise, and likely report to the same executive who is the ultimate buyer of such solutions.

It is ideal if the problem solved happens to be a small part of a larger problem that the organization can step-up to also address.  For example, as represented by the concentric circles in Figure-2, a Credit Collections System solution sold for $150,000 may serve as the core to a Credit Management (which includes credit origination, servicing, and collections) Solution that sells for $500,000 which itself may be the core of a Retail Risk Management System that has a price tag of over a $1M and which itself may be a part of a $10M Customer Management System.  Each solution addresses a broader problem, drives more value, and requires a higher level of budget authority and scope and scale of responsibility to approve.

It is best for an organization to pitch its solution in the broadest possible context but in a way that can be fathomed by the buyer.  For example, while it may now be possible to conceive of a $10M Customer Management System it is unlikely that a sale of same could ever have been made if the Collection System had not come before it.  In general, a good strategy is to describe the full scope of potential value and then sell the largest small component in the big picture that the buyer can relate to and purchase based on their present level of thinking, budget authority, scope and scale of responsibility, and experience.

The problem addressed must justify a solution price high enough to make a fair profit after covering product development and support, cost of sale, cost of delivery, and general management and administration.  It is remarkable how many organizations suffer because their solution has to be priced so low that the revenue it generates barely covers the cost of its sale and delivery.

For example, a Collection System that improves productivity by 85% in a credit department with 110 collectors easily generates enough savings to justify a customer paying $1M over three years based on headcount reduction alone because the same work volume can be completed at 15% of the cost of 110 collectors which cost say, $80K/year, which saves over $7M/year! The market of credit operations with similar scale may be large enough to drive enough revenue using a direct sales approach to support a highly profitable and growing organization for many years.

The same solution probably does not make sense to a credit department that has just a handful of collectors because the savings do not justify the price.  If the organization lowered the price it might lose most if not all of its profit unless it also brings down costs (e.g., perhaps by selling via word of mouth rather than using a direct sales approach, delivering the software as a service instead of installing and customizing a version to operate behind each customers firewall) and if the market was very large.   On the other hand, if the organization could find prospects with collection departments that operated with higher headcount, say in the thousands instead of the hundreds, then the price may be too low.

In summary, an organization that wants to perform and grow needs a solution that solves a problem that is:

  • Important, Pervasive, and Persistent
  • Nearby to other problems and/or a Small Part of Larger Problems, and that
  • Supports a price that is rational given the costs of developing, supporting, selling, delivering, and managing it in light of the size of the market that can reasonably be captured and the value customers derive from the solution.