One of the ways to classify startups would be to place them on a simple/complex spectrum of problems. Some entrepreneurs tend to be on the “simple” end of the spectrum, that is, aiming at problems that are simple to solve but hard to sell to the consumer. A perfect example would be a yet another social network of some kind: a straightforward problem from a technical point of view (at least until it makes it big) but it comes with obvious customer acquisition and monetization problems. The other end of the spectrum contains problems that have a decent chance of financial success, as long as you can build a solution, that is. Whoever find a cure for cancer will not have problems making money.

It seems to me that most (not all) startups that get covered on Techcrunch or mentioned on Hacker News tend to be trying to solve “simple” problems. The current TC frontpage features yet another social network that will connect businesses with customers. The Lean Startup Machine (disclosure: I’m a mentor at their next London event) is catering mostly for this end of the spectrum, teaching the developers how to do customer development. Indeed, most devs are not too good at it, so the recent popularity of Steve Blank‘s ideas and Lean Startup movement should not be a surprise (although it’s useful not only for “simple” problems, of course).

However, some entrepreneurs are trying to solve “hard” problems. A good example would be Duck Duck Go. Its creator is trying to build a search engine that users would prefer to Google and Bing: an extremely challenging task, both from technical and marketing point of views. If he is successful (I’d even argue that he already is, by some metrics), his reward will be massive.

Neither class of the problems is intrinsically better than the other. The right choice must be made by the team, taking into account the unfair advantages they possess. One of the surest ways to reduce the risks when starting a new venture is to rely on existing unfair advantages: if there is an obvious reason why you and your team are best positioned to solve a specific problem, it really helps to achieve success. When speaking of unfair advantages people usually refer to technical expertise, business connections, commercial partnerships etc. but I’d also include personal passion of the founders in this list. If you are committed to making a difference in some area and you have a bigger-than-money reason to do it, you’ll probably go farther than many of the competition.

Forward Internet Group is quite good at software development, working with large arrays of data (processing, analysis and visualisation), scaling, price comparison in different domains, online advertising etc. I think that we have the best chance of success when starting new projects when many of our existing unfair advantages are used to build a new service. In other words, we’re more likely to successfully launch a new product that leverages what we already know.

A good example of this approach is Syracusa, a service that automatically improves your AdWords campaigns. To build it you need extensive AdWords expertise (we have it) and great software devs (we have them too). Syracusa happens to be a rather “hard” problem: it’s a must for any company running AdWords campaigns but it’s not straightforward to create unless you’ve been in this business for years.

The downside is that if you leverage what you know, it’s harder to leave your own domain and move into something else. I have recently looked into launching a new way of delivering individually prepackaged cat food by subscription. Even though the initial customer trials were promising (done with Steve Blank’s book in hand), I had to admit that launching this product would require learning many things we don’t have a clue about (building our own brand of cat food, for example) and it wouldn’t leverage any of our existing unfair advantages. The implications is that we are in no better position to enter this space than any other company, and the incumbents are probably much better positioned to venture in this space.

The idea I've been researching recently is a “hard” problem: data mining for the retail industry. One of the main challenges will be technical but as a potential business customer put it, it’s a “straight sale once the concept is proven to work”. There are three unfair advantages I’m relying on. Firstly, I have got the relevant experience from building InvisibleHand; secondly, we have established business relations with several potential customers; thirdly, we have a good understanding of how the online retail industry works.

If my main strengths were in customer development or UX, I would be much more likely to try to solve “easy” problems. There is no right or wrong answer: the optimal direction for every particular team depends on their skills, unfair advantages and appetite for risk.