What’s a Pain Point?
- Posted by Jeff Carter
- on April 27th, 2012
Whenever I talk to entrepreneurs with business ideas, my first question to them is always, “What pain point are you solving?”. A pain point is a problem, real or perceived. Entrepreneurs create opportunities for themselves by creating solutions to those pain points. Solutions create value for everyone.
The other day I was speaking with Jim Liautaud and he smiled when I said I look for pain points. When he set up his five companies that he ran successfully, that is the exact terminology he used when identifying opportunities.
Sometimes the solution can be ground breaking and disruptive. For example, the warehouse receipt that made all grain fungible back in 1865 in Chicago was a solution to a huge pain point in grain trade. That solution created warehousing, the Chicago Board of Trade, and the entire risk management business that grew up around it. You might say the city of Chicago owes the entire wealth creation around it to the creation of that warehouse receipt and the canal dug for the Chicago River.
In some cases, the pain point being solved doesn’t solve a problem, but creates a new market entirely. We had smartphones. When we were standing around, or passing time we needed something fun to do on smartphones. Zynga solved that problem and created an entirely new kind of gaming. Is Zynga crazy innovative when it comes to games? Probably not so much. However, they are innovative in the way they execute and with the way they use data. They are creating value by creating a market that wasn’t there.
Some pain points don’t have big markets. For investors and entrepreneurs that are thinking big, they will be left alone. However, that doesn’t mean you cannot solve them and make a little money off of them. Many investors call them lifestyle businesses. They might scoff at them. However, lifestyle businesses are just a different kind of opportunity. Put in the right hands, the lifestyle business might be scalable.
Great entrepreneurs fill niches. Many of those niches are the aforementioned lifestyle business. Filling a niche successfully might turn into something else, you never know. Maybe the idea is really small-starting a lemonade stand in a place that doesn’t have one. In running that business, you may tap into something else that no one else is doing, or isn’t executing in the same way. Jimmy John’s sandwich shops certainly weren’t a novel idea when they started. Yet, he found a niche and exploited it. Now it’s a huge company.
Sometimes within the same niche, you have both lifestyle businesses and scalable businesses. When you look at trading, there are independent traders that trade their own accounts. There are large scale HFT traders that trade 24/7 and every market. Home Depot is a scalable hardware store, yet there are still small mom and pop hardware stores that survive.
Pain points sometimes aren’t particularly hard to find. Everyone is a critic! When entrepreneurship gets hard is when you start to find a way to execute your plan to solve them.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)