Wanna Win? Solve a Boring Problem

There are big problems everywhere, you just need to know where to look. (#26)

She makes crazy bank solving boring problems that others ignore!

A few years ago we heard, “Blockchain is going to solve every problem and disrupt every industry.” And we’re still waiting.

Shortly after that, “If you’re not in web3, what’s the point?” Oh boy.

Last year, “The future is in the metaverse.” (You mean, the Internet?)

Today, “Are you an AI startup? That’s all that matters now.”

The hype cycle is very real.

We are in the midst of a Cambrian explosion of AI startups. The combination of ChatGPT going mainstream crazy fast and the ease of building atop LLMs with AI has led to a tsunami of new startups, and older startups (and big companies!) pivoting into the field. Literally everyone is doing something in AI. And that’s very cool. It feels like a massive and sudden burst of technology innovation similar to when the iPhone emerged and everyone built a mobile app. Granted, we don’t need a thousand apps on our phone, but still, the iPhone changed the game completely.

I have no doubt that this new wave of AI is here to stay. But there’ll be a sizeable graveyard of startups as well; most of which won’t survive long enough to even become fossils, they’ll just “poof” out of existence.

People like chasing shiny objects. Many see the potential to build a reputation and make a quick buck. The web3 mob was one of the loudest on social media for awhile, until web3 fell out of fashion, and suddenly…crickets.

Founders chase shiny objects too. In a quest to stay relevant, build something that matters and create value, it’s easy to get distracted by the latest trend and think, “I better jump on that.” Remember subscription e-commerce? For awhile we were led to believe we’d buy everything on subscription. It’s a big market but for many products and services it made no sense. For some, chasing shiny objects is intended to capitalize on where venture capital dollars are going. AI startups are raising lots of money right now, because it’s one of the few things in StartupLand that’s cool.

You know what I think is cool? Boring problems and boring solutions.

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While Everyone Runs Left, You Go Right

While everyone is chasing the next ChatGPT-inspired AI bot, I prefer to explore less popular niches and problems that aren’t considered “exciting.” Painful, yes. Exciting? Shrugs. Depends how you look at it.

1. For me, it starts with solving a problem that actually matters. Most of the AI startups I’ve seen are doing a decent job of this (whereas those that were playing in crypto, web3, blockchain and metaverse didn’t really hit the bar.) But that’s not enough to get really excited.

2. You need to solve the problem in a way that’s differentiated from competition, ideally in an under-served market that’s not awash with options. This is where AI startups fall flat. There are so many AI startups or tools already (with hundreds of new ones launching daily) that it’s impossible to tell them apart. It’s unlikely that any were built with meaningful user insights that would suggest they will win over others. And most are going after obvious problems; i.e. accessing data in a CRM, automating operational tasks, auto-generating content, etc. Many of these use cases are already overwhelmed with options.

One of the questions I like to ask founders when they’re pitching me is this, “What do you know about this problem or market that others don’t?”

I ask this question because I’m trying to figure out if the founders have done any meaningful research into the space/opportunity or if they’ve simply jumped on the bandwagon. If it’s the latter I’m less interested—because everyone is doing that. The bandwagon is full, people! Where’s the unique insight? Where’s the ‘huh…I didn’t think about it that way’ tidbit that could become part of your startup’s foundation?

I’ve tried building startups in giant, broken markets that seem ripe for disruption (i.e. the recruitment space) and got my ass handed to me. I didn’t understand the market deeply enough. I won’t make that mistake again. Unfortunately, many are making that mistake now because of the AI hype machine, and the ease with which the technology can be leveraged.

Never Fear! There are Problems Everywhere Worth Solving

This superhero detective is ready to find hidden problems!

You just need to know where to look.

This is where domain expertise is interesting. There are lots of people out there with years of experience in different areas, who as a result, have very specific expertise. They’re actual experts in something, and that expertise can help them identify real problems worth solving.

Bruce Hodges is CEO and co-founder of Parachute, which helps people consolidate high-interest debt, save money and improve their financial well-being (disclosure: Highline Beta is an investor.) Bruce has over two decades of experience in banking and financial services. He saw the challenges firsthand—customers saddled with too much debt struggling to get out of difficult situations. His expertise in the space and desire to solve the problem led him to start Parachute. Lots of people can see the problem (it’s obvious and there’s plenty of media attention about it), but that’s not enough. You have to figure out how to solve it, and often in highly regulated industries with massive incumbents and lots of inertia, domain expertise allows you to navigate more effectively.

I believe founders come in all shapes and sizes, all nationalities, genders and ages. But younger founders, with less experience, are often attracted to a smaller set of problems. This leads them to chasing the same things as everyone else or things they know little about, because they see a big opportunity. Unfortunately they don’t understand the inner-workings of the industry, etc. There is something to be said for outsiders coming in and disrupting things—and this does happen—but it’s much harder to get there.

The best analogy is comedians. The diversity amongst comics is quite high—if you’re funny, you have a shot. (I know there’s real discrimination in comedy, but the diversity is also apparent.) And comedians make jokes about what they know. Trying to make someone else’s experiences funny or joking about stuff you don’t really understand falls flat.

So you can look to your own experience to find problems, but where else?

There are many industries and verticals that aren’t considered “cool” which deserve attention. They’re hard to figure out and get into, without someone on the inside, but if you can get in, you may uncover painful problems worth solving. In some cases, the industries are so outdated that the solutions needed aren’t that complex or sophisticated. If you’re staying on-trend with what’s happening in tech, it’s easy to assume everyone else is too, but that’s far from true.

In 2019, my company Highline Beta, was working with an insurance company in the U.S. We were brought in to explore new opportunities in the insurance space with the goal of spinning out a startup. At the time, blockchain was considered a disruptive technology that had the insurance industry in its sights.

But blockchain isn’t a problem. It’s an enabling technology. And finding a problem for an existing solution is a tough road to hoe. So we started looking for problems worth solving in the insurance space (that we thought could be solved with blockchain.) We explored dozens of different things and learned a lot, looking at small business insurance, parametric insurance and more.

We ended up, through conversations with internal domain experts at this insurer, landing on an opportunity in reinsurance. Reinsurance is a massive market, but if you’re not in the insurance business you might not know much about it. In simple terms, reinsurance is insurance for insurers. An insurance carrier holds a bunch of policies (for its end customers), and a portion of that is covered by reinsurers.

We eventually created a startup, Relay Platform, focused on improving workflows between reinsurers and insurers. Four years later, the company was acquired by At-Bay. (And btw, the solution didn’t use blockchain at all. 😄)

• We never would have found this problem and opportunity if we weren’t working with an insurer. We had an “all access pass” to poke around at everything.

• We found all kinds of obvious or superficial problems in the insurance industry. Instead of chasing the obvious, we landed in a place that may seem very niche and specific (to outsiders), but with massive potential.

• Working with a willing corporate partner gave us our first customer. They were also incentivized to promote Relay Platform to others.

It turns out you can find problems in all kinds of places, but some times you have to flip over a lot of rocks and look very carefully. Domain experts and willing partners (that have valuable assets to use; i.e. know-how, distribution, data, etc.) can help you uncover opportunities that otherwise you’d never know existed.

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Boring, FTW

Boring problems are often the most interesting.

• There’s a huge pain point, but finding it is hard (which is good)

• No one else is paying attention

• Often the business model is easier to understand and faster to achieve (think: more B2B SaaS than B2C)

• The markets are often enormous

Boring solutions are A-OK.

• I love tech, but it’s only useful in the context of building a company if it’s solving a real problem. You can build all kinds of crazy technology but if no one uses it or gets value from it, does it matter?

• Boring solutions are usually easier to get to market and validate. The feasibility risk is lessened, and adoption should be higher. (Getting insurers to even use blockchain technology is complex!)

• You can sprinkle a bit of “magic” into a boring solution and blow people’s minds. This is the perfect use case for AI—use it in a small way to simplify boring stuff and users will be amazed, especially if the solutions they’re using right now are legacy (which they likely will be.)

Two of Highline Beta’s most recent investments fit into these categories very nicely. Both startups are solving real problems, but they’re not the types of problems you’ll see a bunch of startups in Y Combinator chasing (and that’s totally fine!) The founders saw the opportunities through their own experiences and the competition is legacy technology and the status quo.

Warning: Don’t ignore the power of “good enough”

It can be easy to look at an old school market and think, “Geez, all these solutions are so dated and lame. We can build something brand new, with the latest tech and lots of great features, and we’ll definitely win.”

Please don’t do this.

So many startups try and compete on building a “better” solution. Maybe it’s a better user interface and/or experience. Maybe they’re leveraging more advanced technology. They see clunky, old software and think, “I can do better than that.” They often lose.

The solution may be better, but is it so much better that it causes a switch from what’s already being used? Do you even know how to make it that much better?

The better solution doesn’t always win.

“Good enough” is an incredibly powerful force.

I’ve heard this a million times, “What we’re doing is slow, painful and clunky, but it’s what we’ve done for a long time. It works. I’ve tried a bunch of other solutions, but we always go back to how we’ve done things.”

Changing people’s behaviour is very tough.

People will accept a large amount of nonsense with their existing solutions before feeling compelled to change. In a B2B context this is worse (than B2C) because the buyer (who may not be user) doesn’t always feel the pain. They may hear complaints from employees dealing with Web 1.0 enterprise software, but does it really matter? Ripping out old systems to put new ones in is a massive pain in the ass, and often a sizeable investment (even if your pitch is, ‘We’re less expensive!’ — the switching cost is significant, re-training everyone, etc. and you shouldn’t do that any way, it diminishes the value you create; competing on price isn’t a good move.)

Do not be dismissive of entrenched incumbents. Their “good enough” solutions are there for a reason. The bar to replace them is going to be very high, even if you think switching to your “better” solution is an obvious choice.

Founders Still Need to Care Deeply About What They’re Chasing

Long live the Care Bears

I love boring problems that are flying under the hype radar. But that doesn’t mean you can take a boring problem/solution and find anyone to run that business. Founders need to care. When things get tough (and they always do), the founders that stick around are those that care deeply about the user/customer and the problem they’re solving.

Founders win when they have purpose and they believe in what they’re doing. You can’t take a founder passionate about A and drop them into B or vice versa. I strongly believe in “Founder-Purpose” match. Founders need a real reason to get out of bed in the morning to “fight the good fight.”

You can’t simple decide, “I want to find a boring problem in a hidden away space, within a giant market, that’s underserved.” You’re looking for less obvious problems in an industry you may not understand. You’re going to have to dig…a lot.

The best approach is to remain curious.

I find the best founders are a curious bunch, always trying to figure out what’s around the corner. They hear someone complain about something and their first reaction is, “Interesting, I wonder why that’s a problem?” They naturally ask a ton of questions—”Why? Why? Why? Why? Why?”

Founders are like 3-year old children, insatiably curious, incredibly determined, but easily distracted. And even when they get an answer (founders and children), they’re usually unsatisfied with it, and dig further. Ultimately if a founder dismisses what the market is telling them and ploughs ahead blindly, they’ll likely fail, but the best founders don’t give up after the first rebuttal. They ask questions, and scratch away at things trying to understand what’s going on.

Through this exercise of digging, founders find opportunities—hidden gems that others didn’t bother to look for, or didn’t have the perseverance to pursue. They get excited to help others (often with relatively simple solutions too) and find a passion for the creation of something net new, even if it’s in an industry or vertical they’re not experts in. Founders can eventually become experts in an industry through the sheer effort of exploration, or at least “dangerous enough” to find meaningful solutions.

I often say, “Don’t start a company on a level playing field.”

Today, that’s exactly where most AI startups are created, making it near-impossible to pick winners from losers, or even predict who will be around when the hype cycle matures.

Chasing a boring problem that’s overlooked by the hype machine could be the advantage you need to building something great and winning. At minimum there’ll be fewer people on the field, and less attention isn’t a bad thing. You can focus on the fundamentals: find a real and painful problem, solve it in a way that creates value, get customers, have an actual business model…and win.