From my perspective, one of the most difficult things about being an entrepreneur is having the creativity and fortitude to search one’s way to a working business model. To be fair, this approach is not a given. I’ve certainly seen entrepreneurs develop concepts and execute with an “all or nothing” mindset. In other words, a single idea + business model is created and launched with the expectation that it will be “the right answer.”
Although some opportunities require this type of strategy—I don’t imagine one can take a completely experimental approach to starting a winery or digging a mine. You either growth the grapes (or excavate the land) or you don’t. However, when you’re dealing with underserved populations, the real challenge is figuring out whether a market exists for your product or service. What does it mean to have a market? Well, on some level it’s just the difference between “nice to have” and “need to have.” The latter implies that you’ll have paying customers. The former? Maybe, but it depends on the values, priorities, and income of your customers.
The key components of “need to have” are 1) you are fixing a problem your customers have; and 2) they can and will pay for your solution. For example, although people in low-income communities are used to paying (often at a higher rate) for services that their more affluent get for free as a government service, it could still be quite challenging to translate a public good into a private one.
What does this mean? Essentially, a market exists when there are people willing to pay to have a problem solved. In the same vein, a need isn’t necessarily a market, particularly if it, and a solution that would alleviate it, are not obvious to potential customers. I mean, were m-pesa users clamoring for a mobile-enabled payment service before one existed? I doubt it, simply because the solution wasn’t apparent before it actually appeared. That’s the job of the entrepreneur—to identify an unmet need and translate it into a profitable market opportunity.
Of course sorting out who the payer should be, which is a critical element of any business model, is another thorny issue. Many app-centered businesses boast a freemium model for users and expect to make a profit from the advertising ecosystem. In this scenario, users and payers are not the same. However, as we’ve just seen with Facebook’s acquisition of Instagram, if you solve a cash-rich competitor’s problem (In this case it was Facebook’s lackluster mobile picture-sharing capabilities), your ability to create a network of users renders the search for paying customers obsolete—if you’re very first, and very lucky. However for the average start-up, I would imagine that the challenge of finding or creating a market for its product or service remains a compelling one.
Note: My thoughts on market creation are informed by the work of Erik Simanis, Managing Director of Market Creation Strategies at the Center for Sustainable Global Enterprise at Cornell University, where I earned an MBA.