4U

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Here is my first mnemonic for qualifying a problem: the 4U’s. Look for problems that are Unworkable, Unavoidable, Urgent, and Underserved. It’s not that these are the only ways to describe a problem, but the more of these boxes your problem ticks, the more likely it is to rise to the top and get attention. Put all four up on your board and, as you frame your idea, ask what about it is unworkable, unavoidable, urgent, and underserved.

UNWORKABLE. This is the most fun one: if something’s broken, it needs fixing. The best problems are broken business problems, like a broken business process. The sharpest test is at the bottom of my slide: could you identify somebody who will get fired if this problem doesn’t get fixed? If you can, go sell to that person. Their job is on the line, so they’ll champion you, educate you on how to fix it, and shine a light on where all the pain is.

The classic example is the iPhone. When it first launched, people lined up to buy them (great news), then couldn’t get them activated for days, and even once activated, iCloud services like contacts and calendars didn’t work (bad news). That onboarding process was so badly broken that people got fired over it, and Steve Jobs was famously on a tirade about it. Behind the scenes it was a broken workflow: provisioning the phone through the carrier and settling billing with Apple. One of our companies, Active Endpoints, went in and fixed that workflow for AT&T and got paid millions of dollars for it. (I was also an investor in a company on the carrier side that solved the same class of problem, worth tens of millions.) Today, when you buy an iPhone it’s pre-provisioned and just turns on, but it took years and real money to make that “just works” experience possible.

Unworkable doesn’t have to be technology. It can be a social problem. When I asked Gulnaz what happens if Connected doesn’t solve its problem, the answer was that Kazakhstan can’t close its socioeconomic gap, driven by educational inequality, and the population can’t rise out of poverty; this year there were protests, huge waves of unhappy people. That’s genuinely unworkable. Cohort is another: they work on graduation rates for Black students, and if the problem isn’t solved, 20% of students won’t graduate high school, a figure backed by public data. When you can put real, documented consequences behind a problem, you’re already in a great place.

Startup Secret: measure “unworkable” by the consequences. If the consequence is genuinely costly or painful (customers spending money they don’t want to, getting so annoyed they leave, lost revenue), you’ve probably hit a real problem. If people are only marginally dissatisfied and will just live with it, you probably haven’t.

UNAVOIDABLE. Everybody in the room faces two completely unavoidable things: taxes and death (or, more graciously, aging). Both spawn enormous industries. Aging drives a vast care industry. Taxes drive not just QuickBooks and TurboTax but the entire accounting profession, because if you’re in business you have to account for everything, close the books, and comply with audits. It’s no accident that the first really successful software companies were in accounting: people had to meet payroll and pass audits, it wasn’t optional. Regulation is the same: HIPAA, Basel II, FDA drug-approval processes. You can’t skip FDA approval and take a drug to market. If you find a smarter way to help people comply, you’ve got a real problem, because it’s unavoidable.

A less obvious portfolio example is Reval, which does what the Fortune 5000 were doing on spreadsheets: accounting for derivatives (instruments companies use to defer or offset risk, for example buying currencies forward to hedge against exchange-rate swings). It’s complex, it has a real accounting need, and it’s regulated: the perfect mix. The consequences are very real. GE had roughly a $340 million restatement in 2005 purely from getting derivatives accounting wrong. It turns out about 94% of the top companies use derivatives and most were handling them on Excel. That “unavoidable” need with major consequences turned Reval from a little startup into a company heading for an IPO.

URGENT. Why does urgency matter so much, especially for a startup? Because a startup has exactly one way to die: it runs out of cash. You have an urgent need for revenue, so you must match it with a customer whose need is equally urgent. If you have urgency and your customer doesn’t, you’re in trouble.

Crucially, urgency is relative, not absolute. You can walk into a company with the best solution they’ve ever seen for a given problem, and they’ll agree, but if it’s number 42 on their priority list, you won’t get their attention. And a startup starts from behind: a big company with a brand and an existing relationship already has the customer’s attention; you are pure risk, so even listening to you costs them resource they hadn’t planned to spend. You need to be in their top three priorities to get heard.

Space Health is a good stress test. Its goal is to provide medical professionals for the commercial space sector. I challenged Midori: is that urgent? For most people in this room, health in space is not one of the first things they’ll spend money on. But flip it: for the people actually going to space, or the agencies sending them, tracking health beforehand and having care up there is urgent. So the lesson is that urgency lives in the right segment. Find the “for who” that genuinely sees this as urgent, and it becomes a tremendous opportunity.

Startup Secret: to find the real urgency, don’t introduce yourself, ask for their number one priority. When you talk to a potential customer, before you say a word about what you do, ask: “What’s your number one priority right now, and why?” Then ask, “When do you think you’ll get to number two?” Often they never get to number two, because one pain point consumes them. If you can address that, you’re in a great spot. If you can’t, expect to be deprioritized and left waiting.

You can also ride urgency created by market shifts (a point I develop more under Market Timing): mobile, and now AI, force whole industries to respond urgently. And sometimes, as with CRSP Design’s affordable robotics toys for children in South Africa, you identify the problem before users even know they have it, then help create the urgency yourself (in their case, helping the government build a curriculum, after which schools started scrambling for exactly these resources). That’s powerful, but it also lands you squarely in the challenge of getting people to say this matters more than ten other things they could spend on. That kind of need starts latent; more on that under BLAC & White.

UNDERSERVED. There’s only finite time, money, and resource to go around, so you have to help people understand why they should prioritize you. Think of it in dollars: when you walk into a company and ask them to buy, do they have budget for you? They never do. Large enterprises budget 12 months ahead and start planning three months before that, so unless you were on their radar 15 months ago, you’re trying to take budget away from something else. You’re competing in a zero-sum game for finite dollars, time, people, and attention. So look for white space: an area where there aren’t already ten other people meeting that need. If there are, you’ll fight all ten for the same scarce resources.

Underserved is especially interesting in consumer markets. Taste of Kenya is a great case: Kenyan coffee consumers, especially low-income ones, can’t afford Kenyan coffee, so they drink instant coffee imported from Brazil. So it’s underserved in two ways at once: there’s effectively no affordable local supply, and what supply exists is too expensive. That’s both an unworkable pain (people can’t afford it) and a genuinely underserved market (no supply for them). And the before/after is almost national in scale: if the farmers aren’t served they’ll cut down their coffee trees and Kenyan coffee goes extinct, while consumers never get to drink their own country’s coffee.

Bringing the 4U’s together, Dan’s TerraFlow gave a brilliant example of framing the problem so the buyer can’t ignore it. TerraFlow is software that helps pharmaceutical companies understand why the same drug works in some patients but not others. The real customer is often a scientist who has stuck their neck out convincing Pharma to fund an expensive clinical trial, and who now has an unavoidable problem: they must prove to their VP that the experiment was worth it. If they can’t identify the right biomarkers and the drug fails to reach market, the loss is measured in billions. Frame it that way and you get attention, because the buyer says, “Of course I need this, or I’ll lose billions.” That’s the whole point of the 4U’s: define the problem so that the customer themselves says it’s urgent, unworkable, and unavoidable.