We covered the basics of ‘the problem-solving factor' in this article - a crucial first step in deciding where to place your precious first-time investment funds.
Now we’re ready to look at the next step: how the company is solving the problem.
Once you’ve assessed whether a company is solving a problem, and how many people its solution will be relevant to, it’s time to look at how it’s solving it, and how it creates value for their customers. In other words: its ‘value proposition’.
This step involves two simple questions.
1. What makes the solution unique, or different to competitors?
The most successful startups are often the ones who have found a new way to solve an old problem. They’ve managed to break away from the status quo and the ‘this is how it’s always been done’ mentality.
An easy way to spot these companies is to look for patents or registrations of Intellectual Property. These legal protections give the company a distinct competitive advantage, and make it difficult for a competitor to imitate their solution.
But the uniqueness of the solution doesn’t have to be patented, or even technical. It can also lie in things like outstanding customer service or an innovative payment model.
If you can clearly express what makes a company different from others, they’ll have a better chance of cutting through the competition, and you’ll have a better chance of making a good ROI.
2. How sustainable is the solution? How scalable?
A great idea can only be implemented with the right resources, equipment, and people power.
If the product the company is selling is bio-based, will they be able to acquire more land in order to scale up production? What are the geopolitical constraints? What about ecological or climate impacts? What about the ethics?
If the operation is highly technical or scientific, what is the experience or education level of the leadership team? What is their hiring policy? Is the company culture appealing enough to retain highly talented staff?
Usually, the company’s business plan should be your first port of call for answering these questions. Here, they’ll address operations and logistics, timescales, plans for expansion, and the funding required. It’s also worth doing your own research into the leadership team. Google news articles, LinkedIn profiles, and even Twitter can be goldmines of information (although take intel found on the latter with a pinch of salt).
Identifying the problems a company is solving and how valuable those solutions are shouldn’t take up too much of your due diligence. It just requires a little research and some critical thinking.