The Empirical Praxis Approach.

Every week, a new startup entrepreneur surfaces to change the world in the banking and payments space; every week, another failed startup has to close its doors.

Identifying the gaping holes in their business model is so easy that you have to wonder what would make these would-be-entrepreneurs look outside their comfort zones.

It is extremely easy to get a high by drinking your own Kool-Aid, hence the need for a reality check.

1. What is the problem you are trying to solve?

Most entrepreneurs are trying to solve a problem. Somewhere in time, they had an epiphany — about not only a problem, but also a solution and a business model around it. This is all fine. Here are a couple of questions for them when they say they are trying to solve this problem.

  • How did you determine that this is a problem?
  • Removing yourself from the equation, did you go into the field and do a survey or talk to other subject matter experts &/or ordinary people and statistically validate that this is, indeed, a problem?

Unless you go out and talk to a decent number of people (200? 500? 1000?), your proposed problem remains questionable. Some problems are meant notto be solved today; some problems are not worth solving; while some are not even problems at all. That is all okay.

Action Item: Determine via surveys &/or focus groups that the problem is indeed a problem worth solving.

2. Solution in Search of a Problem?

Sometimes, entrepreneurs are slightly crafty. They have a product or a service, which they think is great, so they go into the market trying to build it. Tens of thousands of innovations are being defined in the world right now. These are great products or services, but sadly, they will never see the light of day, and that’s okay. To give an analogous example, look at Yanko Design — a large percentage of what you see on their website will nevermake it to market, despite the seemingly strong conviction that there is a market for it and the few that do make it to market, have an extremely limited scope. Maybe 1 in 10,000 designs featured on Yanko goes for mass production.

Just because you have a kick-ass solution to something, doesn’t necessarily imply that the problem is big-enough to pursue. Market size should be an extremely crucial element to consider. Always be thinking on a larger scale.

Action Item: A solution in search of a problem is a red-flag in most cases. If you forcefully try to juxtapose your solution to a problem, in all likelihood, your business case would be weak.

3. What is your solution edge?

Any time an entrepreneur tells me that their edge is pricing or technology, I immediately lose interest.

Pricing and Technology, are both temporary advantages. If your business model hinges on these two elements, then sadly, you’ve lost already but just don’t know it. In extremely rare cases do these two elements offer an advantage.

Within the banking & payments space, behavior is the differentiator. If you are able to build a product that disrupts behavior or speed, offers superior experience, etc. you may have an edge. Stellar banking/payment products usually end up being costlier, not cheaper.

The choice triangle can validate this for you:

Action Item: If a competitor matches price or lowers price, would you be able to sustain? If technology clones pop up, then what will you do? Validate your solution with more than just pricing and/or technology edge.

Despite having the best resources and talent, it is ultimately the market that will decide the fate of your project.

At any given time, you control two aspects of your startup:

1. You must have the right ingredients (talent, team, money, domain knowledge, etc.) — this is something you control.

2. You must have the time (time to research, time to develop, time to market, etc.) — again, this is something you control.

3. It must be the right time (is the market ready for it) — this is something you do not control. Sometimes you could be too early, or too late, or just arrive at the right time, but the traction is taken away by someone else.

4. The 5 Ps

Keep in mind: 5Ps = Prior Planning Prevents Poor Performance! Don’t you forget it. Companies that spend money (and time) on researching their problems thoroughly, divorcing themselves from the equation and paying close attention to what the market is saying have a higher probability of success versus those who don’t.

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