I’m currently in a class for computer science in developing nations. Each team in the class had an opportunity to pitch their idea to a panel of four very experienced individuals. The panel had non-profit experts, developing nation experts, and professors. They were very insightful.

I listened to six presentations that day. One of them reminded me of some things my entrepreneurship professor had said, and one shined light on the importance of analyzing competitors.

“I think …”
As expected, many of the panelists had very good questions both about the technology and about the business model. My CSE colleagues had very little problem answering the technical questions, but I noticed that many of them gave the wrong answers to the business model questions. Most people would respond to a business model question with, “I think …” That’s wrong. When designing a business, it doesn’t matter what you think; it matters what your potential users think. This is especially important in the context of this class, because most of my fellow students (me included) aren’t that aware of the social status in developing nations. You have to ask the experts, and you have to ask your users. You have to make sure that the problem you’re trying to solve is well defined, because solving a poorly researched, “I think” problem is bound for failure. To make sure the problem is well defined, you have to talk to users and you have to talk to experts. Instead of answering questions with, “I think …,” you should answer questions with another question. Ask questions, synthesize, and decide.

Competitors
One of our slides contained competitor information and how our idea would be different. A UW CSE grad student, Yaw Anokwa, asked my group if we knew that our differences were the right differences. He urged us to speak with our competitors and find out why they chose the business models that they did. Competitors are in the same business as you – they want to succeed. They probably chose their business model because they thought they could succeed with it, so by choosing a different model, you’re running a risk. It’s important to analyze the problem space by thinking about use cases and competitors to make sure that you pursue the right business model. Why did your competitor choose a different business model? What other business models did they consider? Etc.

I think a great example of varying business models can be found in the current real estate internet presence. Trulia, a San Francisco-based startup, generates leads for traditional brokerages such as Coldwell Banker and Century 21. Zillow, a Seattle-based startup, sells ads. Redfin, the Seattle-based startup that I’m a PM at, allows consumers to buy and sell houses in a new, more internet-driven way. I’m not sure why each of these companies chose their business models, but I will at least make a few claims. I think that Zillow sells ads because they launched their site right at the peak of internet marketing. It’s easy to just sell ads, and that was (is?) the cool thing to do. I think Trulia chose their business model because they thought they could improve on Zillow’s. Generating broker leads is a much more viable source of revenue, because the service they’re providing to brokers is much more powerful than just selling ads. I think Redfin chose their business model because our CEO, Glenn Kelman, is a maniac and truly, badly, desperately, wants to change the real estate industry to make it better for the consumer. The problem Redfin is attacking is much, much more complicated than ad-selling and lead-generating. Redfin has to employ agents, transaction coordinators (TC), and lots of other personnel to deal with real estate transactions, and it’s very challenging to ensure agent+TC efficiency. These business models are drastically different, and I’ll bet that each model has become more refined and better because each company has been able to learn from the others.

Think a lot about your business model. It sucks to pursue a solution to a fake problem. Make sure you have a well defined problem before you move forward with anything. Otherwise you’ll spend your time creating a solution to an imaginary problem that you thought existed.