The Two Ways to Build A Company

ately, I have been thinking quite a bit about the ways to build a company — more specifically the question of, how do you find the problem you want to solve?

I see too many companies struggle with finding product/market fit, building solutions for problems which are obviously too small to justify the existence of a company singularly focused on solving them, or creating imaginary problems to fit a hypothesis held by the founders. It’s a vexing problem that, I believe, contributes greatly to the abysmal survival rate of startups.

Over the years, I have come to believe that there are largely only two ways to build a successful company (this comes with an asterisk — you can, of course, build a company with the sole purpose of being folded into another company, i.e. you build a feature for another company’s solution, but it’s typically a long shot in terms of your odds of being successful):

1. Create a new market, or
2. Identify a problem people are willing to pay for.

Both options are devilishly hard to solve for. Creating a new market is what everybody dreams of and is insanely hard to pull off. The rewards are outlandish, though — PayPal, eBay, Amazon, AirBnB, Uber, and more. They all created new markets where there were none before.

The other option is easier, but it often leads to companies that do seemingly boring stuff (nothing wrong with that!): Identifying problem spaces where people are actually willing to pay (and do so in amounts that make companies viable) more often than not leads you to B2B solutions. Solve a problem for a business, and they gladly pay you for it. Solve a problem for a consumer, and you need a lot of paying customers to make it work.

Whatever you do, take a hard, honest look at what you’re doing and ask yourself if you’re either creating a whole new market (in which case the new market needs to be big enough to sustain you) or truly solving a problem people are willing to pay for.

This originally published on Pascal’s blog.