“So, what’s your idea?”

If you’ve ever talked about starting a company, that is the first question you always hear. It’s a simple question, but implies that companies are built from ideas – moments of inspiration where you see something no one else has seen. In reality, that is almost never true. Almost every kind of business model has been tried at some point in history. With 7 billion people on Earth, chances are that there are a few people with the same ideas that you have.

What, then, are great companies built on? There are billion-dollar companies being started right now, somewhere, by someone who is most definitely not a billionaire yet. What is their secret?

Great businesses are built by solving problems. A problem is the difference between what a person wants/needs and what they can get today. Some example problems and the companies that were built to solve them:

• I can’t find anything on the internet. Google
• I don’t have time to stay in touch with my friends. Facebook
• I can’t figure out how to file my taxes by myself. Intuit

Even video game companies are solving a problem – they help you avoid being bored and make you happy. Some of these might not seem like problems because they have been solved so well by these companies, but if that company disappeared the problem would reappear. Not all problems are created equal, as problems can range from minor inconvenience to life threatening. You can often tell the difference by understanding how much a person is willing to pay to make the problem go away. For example, someone might be willing to pay $0.99 for a mobile game to entertain them for a few hours, but they would pay thousands of dollars for a new chair that relieves their back pain.

Almost all problems have solutions that already  exist but can be improved. For example, in the early days of the internet the biggest problem was how to find anything. Yahoo solved this problem with their directory. Then Alta Vista, et al, solved the problem more effectively with search engines. Then Google solved the problem even more effectively with a more advanced search engine. I expect sometime soon that there will be an even better solution, continuing the cycle of solution improvement and company creation.

If you can solve a difficult problem in a way that is cheaper, easier or better than existing solutions then you create value and can make money. The more acute the problem and the more valuable the solution the more money you can make in solving the problem.

But wait, you say, what about Snapchat and Facebook? They were started by teenagers and solve no obvious problems, yet have become huge! Well, the irony of life is that you don’t need to be aware of a problem (or how big it is) in order to solve it. In many cases, companies that are overnight successes hit upon problems that no one else was aware were problems (or that could be solved). No one understood a huge problem with existing social networks until Snapchat provided an alternative, surprising even the Snapchat team themselves. You can get lucky in this way, but it’s rare.

Starting from a problem provides a very useful framework for focusing your business as you grow. By always starting from the problem:

• It is easier to formulate your marketing messages and sales pitch. Instead of trying to explain what your company does, you can explain the problem and how you solve it.
• It is easier to identify your key customer segments by ranking potential customers by how much they suffer from the problem. You can avoid a lot of wasted time in exploring various customer segments.
• It is easier to measure your performance by choosing metrics that indicate how well you are solving the problem. If you are trying to save people money on buying cars but the average customer only saves $5, then you are not effective in your business.

After you choose your problem, I suggest posting it somewhere prominently in your office. Reminding everyone on your team, day in and day out, what problem you are solving will bring focus to everything you do.

So, what problem are you solving?