Start-ups

There's a major mistake most aspiring entrepreneurs make, start-up investor warns

Many of us would love to found the next billion-dollar start-up. But building a business — no matter how big or small — is a difficult process, riddled with challenges and unpredictability.

Yet, there is one stumbling block you can avoid right from the outset — and it's one many founders miss, according to investor Sebastien Eckersley-Maslin.

"Understand the problem you're solving," says Eckersley-Maslin, himself an entrepreneur and founder of Australian start-up accelerator BlueChilli.

It may sound obvious, Eckersley-Maslin recently told CNBC Make It, but you'd be amazed how many people overlook it.

Maskot | Getty Images

Too often, he said, would-be entrepreneurs come up with an idea they think customers will love, only to find it meets no need — or misses the need altogether.

"Most people come up with a solution first, without thinking through the problem," noted Eckersley-Maslin.

That's troubling given that failure to solve a problem — otherwise known as poor market fit — ranked as the top start-up killer, ending 42% of businesses, according to a 2018 study by investment research firm CB Insights. Other common reasons included insufficient funding, a lack of suitable talent, market competition and poor timing.

Yet that potential issue can be overcome by validating your idea early on, said Eckersley-Maslin.

Sebastien Eckersley-Maslin, founder and CEO of Australian start-up accelerator BlueChilli.
BlueChilli

Typically, that might be done by developing a test model — famously referred to as a minimum viable product (MVP) in business book The Lean Startup — which allows you to gauge customer feedback. However, that can be an expensive and timely process. So, instead, he recommended using a "risky assumptions test" to help figure out what needs to be true for your business to succeed.

Here's how the "risky assumptions test" works:

  • Write down a list of assumptions you have made about the problem you are trying to solve.
  • Figure out which of those assumptions are the riskiest.
  • Test out the those risky assumptions, for example, by seeking customer feedback.
  • Use those insights to reach the true crux of the problem.

BlueChilli, which helps entrepreneurs build and pilot their products, recommends its applicants conduct that process by using its free idea development tool, StartupU. To date, the Sydney-headquartered accelerator has launched 132 start-ups with a combined value of around $550 million and has completed four exits.

Eckersley-Maslin is not the only one to advocate a problem-led approach to business development.

LinkedIn Learning expert Whitney Johnson in her "Entrepreneurship Foundations" course recommends aspiring founders start out by identifying "problems that need to be solved" and only then begin looking for solutions.

Meanwhile, Geoff Prentice, co-founder of telecoms platform Skype, recently told CNBC Make It that even today, as technology creates more opportunities for entrepreneurial hopefuls to start up, problem-solving should remain their core focus.

"The best start-ups are built around problem-solving, not technology," Prentice said.

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