{"id":2454,"date":"2018-02-07T08:06:37","date_gmt":"2018-02-07T13:06:37","guid":{"rendered":"https:\/\/ioipartners.vp77wsn4-liquidwebsites.com\/?p=2454"},"modified":"2018-02-07T08:06:37","modified_gmt":"2018-02-07T13:06:37","slug":"finding-fundable-opportunities-inside-customer-problems-how-to-de-risk-investor-pitches","status":"publish","type":"post","link":"https:\/\/www.ioipartners.com\/articles\/finding-fundable-opportunities-inside-customer-problems-how-to-de-risk-investor-pitches\/","title":{"rendered":"Finding Fundable Opportunities Inside Customer Problems: How to De-Risk Investor Pitches"},"content":{"rendered":"

If you\u2019re an early stage company \u2013 or introducing a new product from an established enterprise \u2013 you will invariably require a series of funding (through external or internal investment). And first and foremost, you\u2019ll have to convince investors that you have a validated opportunity \u2013 which a recent IOI Partners article<\/a> characterized as an attractive value proposition driving a revenue plan into a target market large enough to sustain growth.<\/p>\n

Investor pitches \u2013 at their core \u2013 have four essential elements: (i) Problem, (ii) Market, (iii) Solution, and (iv) Opportunity. Opportunity is the crowbar that pries open an otherwise closed market that is usually content with \u201cgood enough.\u201d We propose that unique knowledge of the problem (i.e., the customer\u2019s struggles to achieve desired job outcomes) \u2013 rather than the presence of unique science\/technologies\/products\/services \u2013 uncovers hidden opportunities<\/em> for new companies and new products to enter markets or for existing products to be reimagined.<\/p>\n

\"Finding<\/p>\n

It\u2019s no accident that elevator pitches, investor pitch decks, and business plans always start with \u201cThe Problem.\u201d Investors\u2019 appreciation of the Market (size and depth of its pain), the Solution (its fit with the problem), and the Opportunity (product-market fit in context of the technological, regulatory, and competitive landscape) all follow from how well you understand the underlying problems faced by customers in your target market.<\/span><\/p>\n

Just as precision medicine seeks to precisely characterize a target population before<\/em> drugs are developed, tested, or prescribed on the basis of genomics, IOI Partners seeks to precisely characterize a target market problem space before<\/em> investor pitches and new product initiatives are launched on the basis of desired outcomes around your customers\u2019 core job-to-be-done.<\/p><\/blockquote>\n

In a world where investors are bombarded by hyper-accelerated changes in scientific breakthroughs, technologies, regulations, and competitive landscapes, the IOI Partners \u201cwhole genome\u201d characterization of the problem space allows you to de-risk your potential investors\u2019 decisions using a stable framework that doesn\u2019t change with technologies, geography, or time using the Voice of Customer [1,2] and Jobs-to-be Done Platform [3], as we share in our recent article<\/a>.\u00a0Because your investor pitch needs to show how your company could credibly win a large market in the future<\/em>, advantages that are stable over time render your pitch more fundable [4].<\/p>\n

It\u2019s a rule of thumb that investors fund businesses they understand \u2013 but most pitches emphasize esoteric solutions that are inherently difficult for investors to evaluate relative to other similarly esoteric solutions. In stark contrast, pitches emphasizing a unique understanding of the \u201cProblem\u201d are almost universally accessible and evaluable, which increases by an order of magnitude the number of investors who can properly assess your Opportunity.<\/p>\n

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“If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”<\/p>\n

\u2014\u00a0Albert Einstein<\/p>\n<\/blockquote>\n

Why New Companies and New Products Miss Their Mark in the Eyes of Investors<\/h2>\n

Here’s a sobering \u2013 but accurate \u2013 appraisal: “The market doesn’t care about your product.” However, markets are defined by the results or outcomes obtained from using a product or service. When potential customers express interest in hearing a presentation or seeing a demo, it’s always about their problem \u2013 not your solution. That\u2019s why the product (solution) usually ranks a distant fifth<\/em> in investor weighting behind the team, problem, market, and opportunity.<\/p>\n

More generally, people hire products to get a job done better and\/or cheaper to make progress in\u00a0their<\/em>\u00a0lives. So the proper unit of analysis for innovation and marketing is the job-to-be-done. From this foundation, you can define your market and gather underlying needs, which then informs all other value creating activities in your company.<\/p>\n

\n

“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”<\/p>\n

\u2014\u00a0Theodore Levitt<\/p>\n<\/blockquote>\n

Consciously or not, the vast majority of companies adopt a product-centric, ideas-first approach to defining markets, understanding needs, and segmenting target markets. That’s natural \u2013 since they’ve often invested a large chunk of their professional lives to bringing a technology to market through the auspices of a product\/service. It\u2019s also because they struggle even to define what a customer need actually is. Very often, a need (problem) is conflated with a product requirement or feature preference (solution).<\/p>\n

But introducing a product idea to customers too early in the market\/opportunity validation process is analogous to providing an answer (solution) before<\/em> asking a question (problem). The inherent (anchoring and confirmation) biases in responses obtained from asking prospective customers questions such as\u00a0“Do you see value in this product\/service for your organization?”\u00a0are all too well known and documented.<\/p>\n

Taken to an extreme, market validation devolves into a full-blown \u201csolution in search of a problem\u201d exercise. In such cases, problems are \u201cconjured up\u201d for the express purpose of being perfectly solved by the solution at hand.<\/p>\n

Companies often fall into the trap of defining markets and segments by the core technologies underlying their solutions (e.g., liquid biopsies, health analytics, single cell NGS, etc.) \u2013 instead of a core job that customers are trying to accomplish (i.e., the Problem).<\/p>\n

For example, a virtual screening company defined their market along the lines of their computationally based drug-protein docking and scoring technology. But biopharma customers engaged in early drug discovery viewed their core job-to-be-done as finding novel compounds that could be turned into lead compounds. Viewed from that perspective, the competition and partnership opportunities for this virtual screening company included a wide variety of technologies such as:<\/p>\n

    \n
  1. experimental high throughput screening (HTS),<\/li>\n
  2. cell-based phenotypic screening,<\/li>\n
  3. natural language processing algorithms farming the scientific literature, and<\/li>\n
  4. machine learning scoring based on similarity to known drug-target interactions.<\/li>\n<\/ol>\n

    While the virtual screening company was preoccupied with endless iterations of feature-by-feature contests with other virtual screening companies, they missed the opportunity to participate in a market that was 100 times larger in revenue potential.<\/p>\n

    These inherent flaws in the way target markets are defined and needs are gathered collectively sow seeds of fear, uncertainty, and doubt among investors about your knowledge of the \u201cProblem.\u201d Because this ubiquitous defect sets the tone for most pitches, investors skip ahead and increasingly look to fund companies that have already demonstrated sufficient market traction, which is difficult for most emerging companies or new products to achieve prior<\/em> to an investment (i.e., a classic Catch-22 situation).<\/p>\n

    Why Perform Voice of Customer and Jobs-to-be-Done<\/h2>\n

    The necessary insights buried inside individual customer experiences in the context of actual jobs-to-be-done provide ground truth to pressure test your value proposition and business models at much less cost and time than traditional opportunity validation methods. It provides a stable framework against which to formulate value propositions, strategy, product ideas, marketing messages, and \u2013 of course \u2013 investor pitches.<\/p>\n

    It creates use cases and buyer personas that can be\u00a0effectively<\/em>\u00a0targeted based upon segmentation that is relevant (i.e., those struggling with similar unmet needs) [5]. Finally, focusing on a core job-to-be-done, you avoid solving a \u201cnice-to-have-fixed\u201d problem, where people use your product \u2013 but never pay for it. Collectively this demonstrates to investors that you\u2019re able to solve a real-world problem that can translate into sales beyond just early adopters.<\/p>\n

    \"\"<\/p>\n

    As an emerging company, your “why” should be defined by a core job-to-be-done by your customers. Doing an entire job … perfectly. Instead, most companies start with “what” they offer (product or service) and “how” they do what they do better than their competitors.\u00a0Investors place a premium on companies that \u201cstart with why\u201d because they realize that customers often don\u2019t buy \u201cwhat\u201d you do; they buy \u201cwhy\u201d you do it [6].<\/p>\n

    IOI Partners makes the job-to-be-done the basic unit of analysis. Defining a market by the job-to-be-done \u2013 instead of the technology used in the solution \u2013 will almost always increase the estimate of the market size as well as the accuracy of that estimate [5]. More importantly, while new products based on new technologies come and go, needs associated with a job-to-be done (e.g., finding novel compounds) remain stable over time, which furnishes a more predictable framework for de-risking investment decisions.<\/p>\n

    For example, if a core job-to-be-done is to \u201ctest for influenza,\u201d then a company would consider offering MDx influenza testing in both molecular and immunoassay formats. Then segmentation can be done by clustering unique segments that are struggling in the same way to get the job done (e.g., patient-driven versus sample-driven workflows). If, on the other hand, the core job-to-be-done is to \u201ctest for multiple infectious diseases in a low technology environment,\u201d then a molecular assay would likely not satisfy their desired outcomes.<\/p>\n

    What Our Process Looks Like<\/h2>\n

    The Opportunity Validation Process has four basic steps that combine qualitative observation with quantitative statistical analyses that reframe the investor pitch in the following way:<\/p>\n