Hey everyone! I'm an entrepreneur and advisor to >50 early-stage startups and small businesses. This is the first post in a series I am writing about the basics of how to start a business. (And this is my first post on Steemit!!! Sorry if I'm doing anything wrong or mess up the formatting!)

I am taking the "greatest hits" from the topics I frequently discuss with my clients and posting them here on Steemit for public consumption to help people build a basic framework for entrepreneurship and to give you some tools to use in the process. It's meant as an introduction to business thinking and is based on my personal entrepreneurial experience and the patterns I have noticed working with many other companies. If you'd like to know more about who I am, I am posting a follow-along-live case study as I build a new consulting business here on Reddit (hope it's okay to link to that — I can put future posts here on Steemit if you guys want!).

Each post will have three parts:

A theoretical overview
Practical approaches and tools (ie actionable advice for what do with this knowledge)
A case study from my own business (hooray for transparency!)

So without further ado, let's jump into it with some of the very basics (don't worry, we'll ramp up quickly):

THEORETICAL OVERVIEW

The Business Pyramid

In my experience there is a logical order to creating a business which many people get wrong. This sequence works like a pyramid, where each step rests on the step before. As you can expect, if you build a shoddy foundation, it doesn't matter how well you construct the top of the building: it's still going to fall down.

The basic pyramid looks like this:

(I hope you guys like my fancy graphics!)

Today we will be focusing on the base of the pyramid: customer and their unique need.

What IS a business?

If you want to have a fundamental understanding of business, this is a question you need to answer, but many people trying to start a business jump over this step without really thinking about it.

There are many different ways to define a business. One that I like is "a process through which customers trade money for a solution to their problems." Let's unpack that. In every transaction, there are two sides: a buyer and a seller. The seller trades a product or service for money, and the buyer trades money for that product or service.

For a business, money is like oxygen. Without it, the business will atrophy and die because it can't do anything. In the end, the source of money for a business is its customers. (Yes, many businesses raise money in a variety of different ways, but the only SUSTAINABLE way for a business to operate is to get paid by customers.) Your customers (aka "the market") are the ones who pay you.

And how can you get people to give you their hard-earned money? By offering them something in exchange which they perceive as having higher VALUE.

The basis of every business is the value it provides to its customers

Literally everything about your business exists for the sake of providing value to your customers and then capturing some of that value in the form of a payment. If you can't provide value, you can't get paid, and your busy will die. (The famous "lean" framework goes so far as to divide all activity into "value creating activity" and "waste.")

How can you do this? Start by asking why anything ever has any value to anyone. The answer is that it solves a problem that they have — it addresses a NEED.

This problem may be non-obvious. It may be a problem people do not initially realize they have before talking to you. But the only reason anyone will ever give you their money is to satisfy a need they recognize.

The only way to provide value to people is to solve a problem that they have

Really? What about all of those things that people buy but don't seem to really need? Isn't our modern consumer economy based on people buying things they don't really need?

Without getting into a philosophical discussion of what it means to "actually need" something, let me just say that what really matters is whether or not people perceive themselves to have a need. Why, for example, do people buy fidget spinners or video games? They need to distract themselves. Buy expensive, brand-name clothes? They feel the need to be perceived a certain way. Etc.

(By the way, many businesses have lots of consumers ("users") who don't actually buy anything from them with money. Instead, these people trade their attention for a product or service, and their attention is eventually monetized in some other way (generally advertising). The same basic principle applies in this case.)

Don't make a "solution in search of a problem"

An extremely common mistake, especially when "craftsmen" who are really good at producing products but have no experience running a business create their own business for the first time, is to infamous "solution in search of a problem." Put another way, this essentially means starting one level too high in the pyramid: creating a product and then trying to find someone who might need it.

There are many logical reasons why someone might make this mistake. A major motivating factor for people to start businesses is that they want to spend their time making something that they think is cool. So they design something they like, and then try to find a way to make a living doing it (how many people non-self-employed people approach choosing their jobs).

The problem is that if you are not solving an actual need that a substantial portion of the market has, then people are not going to be willing to pay you for your product. You may think it's cool (and it may even solve YOUR problem), but unless you are solving a problem that the market has, you will simply not be able to convince anyone that they should trade their hard-earned money for your product.

A word on competition...

Many people are afraid of entering into a market with competition. I think you should be afraid of entering into a market WITHOUT competition. Your competitors are everyone else competing to solve the same customer need as you. If you have no competitors, then no one is trying to solve this need. Why? Were you the first person to think of it? Unlikely — and if so... why? Is there something unique about you that makes you uniquely positioned to actually solve this problem that no one has ever been able to solve before?

Or is this problem maybe not worth solving? Every salesman knows that your biggest competition is usually NO ACTION. You are competing with the possibility of people doing nothing. The status quo. And in the case where there is no business competition, the status quo has beaten or scared away every single other person who has tried to solve this problem.

Another major advantage to competition is that someone else has already taken the time and money to validate the problem (see below), so you can skip that step, go faster, and reduce your risk.

Remember: competition = customers = money = you're good

Of course, I am NOT saying that you should absolutely NEVER sell something in a space where there is no competition. But I am saying it is a RISKIER proposition, and you should have a good explanation of WHY there is no competition.

(Most likely there is, and you just haven't thought about it because the competition is non-obvious. Thinking of creating an entertainment product? Welcome to competing with Netflix, Reddit, television, every webgame ever, etc.)

PRACTICAL APPROACH AND TOOLS

Identifying a potential market and a need

I put these two together because they go hand-in-hand. The first thing you need to do is to identify a real need that a potential target market has. I could go into a lot more depth here, but for now I will just say that you need to really understand:

Who specifically has this problem
The specific pain points they are experiencing
What they currently do about this problem (especially whether or not they have a demonstrated willingness to ACT or SPEND MONEY to solve it)
How aware they are of the problem
How they feel about this problem and how they are solving it currently
The size and purchasing power of the group of people with this problem

Notice that I haven't said anything about how you will provide value to these people yet. Obviously this is a key part of the equation, and you cannot create a business if you are not able to actually address the problem you have identified. Likewise, an architect who builds the foundation of a building does so because of what he might be able to build on top of it. Be thoughtful about what kind of problems you investigate — this part of the process comes first, but doesn't exist in isolation from the later steps.

If you are too distant from your (potential) customers, you cannot understand them.

There is literally no way to learn the above things than by talking to people. This is a major reason that people who start businesses solving a problem that they have some direct familiarity with have a major advantage.

If you have somehow perceived a problem that you don't have any direct experience with, that should set off some alarm bells. How do you know this is really a problem? Why hasn't anyone who knows more about this solved it yet? etc. These questions are not unsolveable problems, but they do mean that you need to get out and *start talking to people* who actually have the problem you want to solve. You need direct familiarity with the problem and the world that the people who have it live in, or you can't hope to create a good solution.

Go where your customers are. Find the places that someone with this problem might spend their time, and start interacting with them there. Read forum and Reddit posts. Chat with people. Get in touch.

TOOL: Customer personas

Now that you have some idea of your customers and the problems that they have, it's time to turn that into a rich picture. This is where the (in)famous "customer personas" tool comes into play. The basics of this are actually very simple.

In essence, you want to create a very concrete portrait of your customers. So write a little story about the different archetypes of people who might buy your product. Make this as concrete as possible and include lots of details to add color — don't worry if these details won't be literally true for every single person who walks in the door. You are creating an impressionistic archetype, not instructions for a computer. Note: you will likely have MULTIPLE different customer persons. Have fun with this!

There are a million frameworks available for this (just google "customer personas"). I have mine which I share with my clients, but you can also build your own based on the specific needs of your businesses. Some things to think about including are: name (this is important to make it feel concrete!), age, sex, occupation, education, location (including urban/suburban/rural), consumption habits, comfortability with technology, income, familial status, values, aspirations, fears, who they see themselves as, who they want to be seen as, who they turn to for advice, etc. Obviously the exact details here depend on what's relevant to your business. Get creative! The more information you can add, the better.

The best way to develop customer personas is to find actual customers and then have a single person who ACTUALLY bought something from you stand in for the group of people like them. This takes a lot of the guesswork out of it.

TOOL: Validation

Okay, this is a huge topic which we will explore in much more detail in future posts. But the core principle here is that you want to build your business based on evidence from the market, not speculation. More things sound true than are. The only way to tell the difference is to go out and run experiments — or even better, find experiments that someone else has already run for you.

Up until this point, practically everything that we have discussed has been in a theoretical space. I want to encourage you to cultivate the instinct of being very skeptical of anything you think which isn't grounded in actual experience. And doubly skeptical of random stuff people without a demonstrated track record of success on the internet tell you. I even want you to be skeptical of what I tell you. Don't just believe me because I sound confident or make claim X, Y, or Z! I am giving you tools and frameworks developed from and tested in my personal experience and the experiences of my clients. Do NOT take my word for it. Go try them and see if they work.

How can you do this? This is going to be the subject of future posts, but for now, the key concept to internalize is that you want to set up a situation where you measure *behavior* and not what people tell you. Why? Because what people tell you is mostly wrong — there are all sorts of incentives making the data noisy, and many people don't really understand themselves and their behavior anyway. Your business is going to make money based on behavior, not words, so that's what you should care about.

Let's take the example of customer personas. Once you have developed your personas, they are a theoretical construct, ideally grounded in the interactions you have been having with customers. This is way better than nothing, but to make it really useful, you need to make sure it's right. So go back out, talk to more customers. See if they match up with the profile you have created. Don't lead them to the conclusions you want, just look, learn, and listen. Social media is a great tool for this, because it allows you to just look up a tremendous amount of information about people (and it's usually not hard to find many people's social media accounts, even if they haven't actually given them to you).

Another example: we talked earlier about validating the problem. Let's return to this. You want to transform your theoretical beliefs (aka assumptions) about the problem you are setting out to solve into validated data. How can you do that? By designing experiments that will lead to one result if the problem really exists and others that will lead to a different result if it does not. There are a huge number of ways to do this. For example, maybe if you offer to help people out for free and see if anyone bites. Maybe you make a post on Reddit asking if this is a common problem. Maybe you do some keyword research and see what search volume exists related to the problem.

All of these methods are imperfect and do not necessarily tell you how many people have this problem or are willing to take action or spend money to solve it. That's why competition is such a powerful tool: someone has already done your validation for you.

Like I said, this is a huge topic, and there will be more to come later. For now, the key takeaways here are (1) you should crave *evidence* that the beliefs you base your business on are true, (2) you want to design your experiments to be as cheap and fast as possible, and (3) you want to run real experiments and not just look for anything or everything that confirms your preconceived notions.

CASE STUDY: MY CONSULTING BUSINESS

I am starting a new strategic consulting business advising founders on topics related to validation, early traction, fundraising, and growth and marketing. You can read the ongoing, real-time, transparent story of that business here on Reddit (post includes links to previous posts).

My customers are early-stage startup and small business founders.
Their problem, broadly, is that they don't know the best way to grow and develop their business. Often this is because they lack first-hand experience doing this before and lack a strong mental model and roadmap for what to do; sometimes, it is because they are simply too close to it and emotionally invested to trust themselves to make fully rational decisions. Most of my clients have a specific acute need that brings them to me, which varies.
I had personal experience with this problem, and how difficult it can be to find the resources to fix it, starting a business myself and later helping my friends with their businesses.
The market of people starting their own business is large. The willingness to pay varies, but among many people, there is a high willingness to pay for help solving the biggest problems they face and developing fundamental, integrated strategies and frameworks to solve them.
The market is partially validated for me because places like the Reddit /r/entrepreneur subreddit exist and there is a whole industry of people catering to the needs of people in this position. I further validated it by offering to help people for free (which had lots of other benefits, which I'll address in future posts).

Here is an example customer persona from my business (simplified and adapted — I'm not going to post my personal customer persona template publicly yet):

Rick, 27, male, single, lives in Seattle, WA. He is a highly-motivated, technically skilled, creative guy who works in the tech industry. He has made lots of interesting projects during his life and is always trying something new. He dresses casually and is sometimes an early adopter of technology products. He created a simple product on the web in his spare time, did some rudimentary promotion of it on Reddit and Facebook, and unexpectedly struck it big after it got featured on several high-traffic sites. Now that he has some initial traction, he's not sure what to do next, or whether he can turn this into something sustainable. He's feeling really excited and a little overwhelmed, and isn't sure what to do next or where to turn for advice. His specific need is a plan, a crash course in the basics of how a business like this works, triage for the many different things he could do, and a reliable resource that can answer his questions and give him support. Right now, he's Googling answers to his questions and posting on Reddit about his situation.

Okay, that's it for Part 1 for now! Thanks for reading this far.

Like I said before, this is my first post to Steemit, so I hope you guys like it! I would really love any feedback that you have and would appreciate any questions and/or disagreement with the content of the post based on others' experiences! I am looking forward to posting the future parts of the guide right here on Steemit for you all! :)