Take a look around at the products and services you are currently using and surrounded by. Why are they there? Well, it’s because they are solving a problem or filling a need you would otherwise be experiencing.

This is how all great inventions and startup businesses are born – from a problem or need. From electricity, to the telephone, to the Internet, and more recently to PayPal and Facebook, great businesses are built on big problems.

Consider this the first question on your startup litmus test: “What problem does my startup or idea solve, and how painful is that problem?” Think critically about this question, as an honest assessment may save hours, days, weeks, months, or years of your time.

Let’s look at two recent startup examples: Dropbox and Pets.com.

Two Startups: The Difference Between Success and Failure


Dropbox is a file hosting service founded in 2007 by Drew Houston and Arash Ferdowsi. Shortly after being founded, the company was accepted into and backed by Y Combinator.

Houston, a developer by trade, began building Dropbox in 2006 while riding a bus from Boston to New York. Houston had originally planned to do some work on his laptop during the four-hour trip, but realized he didn’t have his USB memory stick. Immediately, Houston began building technology to store his own files over the Internet.[1]

“Suddenly I’m powerless. I thought, how long are we going to be doing this? I never want this to happen to me again.”[2]
Drew Houston
Founder / DropBox

Drew Houston’s problem was clear: he didn’t have his memory stick, but still wanted to work on the files stored on it. His solution: a service that stores files in the cloud and can be synchronized to or accessed from any device. Forgotten memory sticks, lost files from hardware crashes, and other related problems were no longer a risk.


During the dot-com boom of the late nineties, several companies took the scene and burned out in spectacular fashion. Pets.com was one of them.

Pets.com began in 1998 as an online retail supplier of pet supplies. The company raised nearly $300 million of investment funding and grew to over 300 employees at its peak. The problem was, the company was never profitable.

Despite a heavy advertising spend of over $11 million in its first fiscal year, a 4-story tall balloon in the Macy’s Thanksgiving Day Parade, and drawing quite a bit of media attention, the company liquidated in 2000 for one simple reason: they didn’t have customers.

Without customers, a business does not exist. And a business cannot gain customers without solving a problem or filling a need. Though it sounded nice in theory for pet supplies to be ordered online, no one was clamoring to have a squeak toy mailed directly to them, and other products, such as kitty litter, were often needed sooner than delivery would make them available.

Despite starting with a similar amount of funding, Dropbox excelled whereas Pets.com failed miserably. The difference? Dropbox solved a painful problem.

Company Name



5-hour Energy

Whether its lack of sleep, long days, or hard work, people run low on energy over the course of the day.

5-hour Energy released a small (2 oz.) energy shot to provide an extra boost without filling your stomach.


Personal computers were not affordable or available to the general public.

Apple released the Apple I, II, and Macintosh to provide individuals with computing capabilities in their own home and office.

Ford Motor Company

Despite the first modern automobile being created in 1886, there was no fast and efficient way to produce an automobile for personal use.

Henry Ford created the assembly line to much more quickly mass produce his vehicle, the Model T.


Panty hose traditionally covered the entire foot, including toes, which is not ideal for some shoe types. If the hose is cut, it rolls up the leg.

Sara Blakely developed and introduced footless pantyhose with her company, Spanx.


Files access was constrained to the hardware they were saved upon.

Drew Houston developed a system of synchronizing files via the web to be accessed from any device.

Under Armour

Clothing worn during exercise and underneath padding became soaked with sweat, heavy, and uncomfortable.

Kevin Plank (then a captain on the University of Maryland football team) noticed his compression shorts were kept dry. He used the same moisture-wicking microfiber to produce other clothing to keep athletes cool, light, and dry.


Buying books was constrained to finding a bookstore, having the correct book in stock, and traveling to that bookstore.

Jeff Bezos made it possible with Amazon to purchase any title and have it shipped directly to you from any location.


Managing a professional network is challenging – maintaining business cards, rolodexes, and relationships with contacts was a challenge.

LinkedIn offered a virtual rolodex that stores and curates your contacts’ information for you, while providing a vessel for communication as well.

Pandora Radio

Discovering new music is difficult.

Pandora keeps track of a user’s preferences and created a matrix connecting similar music to other songs, allowing the user to experience new music.


Buying goods at multiple different stores is both time and capital intensive.

Walmart gives shoppers the ability to “one-stop shop” and purchase all the goods they need in one location, at a lower price due to economies of scale and bulk ordering.

Thinking Versus Noticing

Startup founders can often find themselves working on an idea that sounds plausible, but does not provide a solution to a problem people care about in a meaningful way. Y Combinator founder and investor Paul Graham says that often, these startups are born from individuals who are simply “trying to think of startup ideas” and not looking for problems.[3]

Graham calls these ideas “made-up” or “sitcom” startup ideas, as they sound like something a writer for a television sitcom would come up with when creating a script for a character that had a business idea. The idea seems possible, even though in reality it is bad and no one would use or buy it.

“The verb you want to be using with respect to startup ideas is not ‘think up’ but ‘notice.’ At YC we call ideas that grow naturally out of the founders' own experiences ‘organic’ startup ideas. The most successful startups almost all begin this way.”[3]
Paul Graham
Founder / YCombinator

And often, these ideas begin with someone trying to solve an organic problem for his or herself (see above: Drew Houston).

 Other examples include Craigslist and Netflix. Netflix founder Reed Hastings began his service in 1997 after paying a $40 late fee for renting Apollo 13.[4] In Hastings’s mind, having to go to the store to rent and return movies, especially when late fees are involved, is a pain. The rest is history.

Getting Creative With Your Solution

 So how can you make sure your startup solves a painful problem? Well, start with the problem. Problems are everywhere; it is just an exercise in noticing (as Paul Graham said) and questioning. What is currently nagging you? What do you do in your work that you think, “I wish I could ___ instead”?

 Sadly, there is no easy formula. It is simply training your mind and your eye to pick up on problems that exist around you, question why those problems exist and for who, and then formulating a solution. If it was easy, everyone would be an entrepreneur (and then who would you hire?). By being curious and critical, you will begin to notice where readily available solutions do not exist for persistent problems.

Once you have identified a painful problem, 9 times out of 10 the solution will not be obvious or easy. Problems often necessitate creative solutions to make a business successful and enduring. Though this intuitively may sound difficult (because it is) it often creates a barrier of entry for competitors as well.

Let’s look back at the Dropbox example. During the service’s growth stage, they realized their customer acquisition was near $300/user.[1] That’s a problem. What did Dropbox do? They turned their user base itself into a sales force, offering 250 megabytes of storage space for a referral – a creative and innovative approach at the time.

One of the most creative startup stories comes from another Y Combinator company, Airbnb.


The short-term lodging service Airbnb was born out of roommates Brian Chesky and Joe Gebbia being unable to afford the rent for their San Francisco apartment, and offering floor space to individuals visiting a local conference who were unable to book hotel lodging.[5] The duo cleared their living room and served breakfast for their guests, eventually catering to more events before expanding the site, called at the time AirBedAndBreakfast.com. 

Chesky and Gebbia’s problem was their inability to pay rent, and their creativity led to a massively successful startup that has since booked over 10 million night’s stays.[6] The pair’s creativity does not stop there, though. 

During the 2008 United States presidential election, Chesky and Gebbia created and marketed “Obama O’s” and “Cap’n McCains” cereal. At $40 apiece, the team sold 800 boxes and made over $30,000 to help cover their startup costs.[7] 

Once the company was off the ground, they faced a similar user-acquisition problem to Dropbox. The startup created an automated program to email individuals posting vacation listings to Craigslist a link to Airbnb promoting the service.[8] The company has drawn some criticism and claims of spam, but it’s hard to argue with the results. 

Unfortunately, finding a painful problem and coming up with a creative solution is not enough. 

Once a problem has been identified, and a solution has been formulated, the entrepreneur must discern whether or not the solution is something the user who feels the problem will pay for. If people aren’t willing to pay for the solution, you still don’t have a business. The key for finding out if the solution is sellable is easy – talk to your users! Try to sell your solution before you even build it. In the next several chapters, we will discuss validation, traction, and selling respectively. 


[1] http://www.forbes.com/sites/victoriabarret/2011/10/18/dropbox-the-inside-story-of-techs-hottest-startup/ 

[2] http://blogs.salesforce.com/company/2013/11/entrepreneur-quotes.html 

[3] http://paulgraham.com/startupideas.html#f6n 

[4] https://twitter.com/netflix/status/2746816142 

[5] http://www.core77.com/blog/events/airbed_breakfast_for_connecting_07_7715.asp 

[6] http://www.businessweek.com/videos/2012-06-19/airbnb-celebrates-over-10-million-nights-booked 

[7] http://online.wsj.com/news/articles/SB121803424407616937 

[8] http://www.businessinsider.com/airbnb-harvested-craigslist-to-grow-its-listings-says-competitor-2011-5

Source Twitter Handles

Drew Houston – https://twitter.com/drewhouston (@drewhouston)

Paul Graham – https://twitter.com/paulg (@paulg)

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