The 2 questions every founder must answer
I always tell the founders I work with - be freaking stubborn about the business you are building. That's the entire point of entrepreneurship. Don't build someone else's dream.
When it comes to building the right business for you, the answer starts with two questions that every successful business has answered...but most new, especially first-time, founders have not:
What type of business do you want to build?
Whom do you solve what problem for?
I've worked with hundreds of founders. Almost every single one believes they've answered both. When I dig in, most haven't, or they have, but loosely. Or, they feel confident in their response but they have not validated it with real world data.
Two sources of data to answer these questions
Answering these two questions well requires two types of data running in parallel.
The first is external: what the market is telling you. Conversations with real customers. Who pays and who does not. What drives the decision. Patterns across enough interactions to become undeniable. The type of data to look for and how to inform big decisions like to pivot or persist was covered in my last newsletter.
The second is internal: your own honest reckoning with what you actually want to build, whom you want to build for, and what kind of founder you want to be. As you are getting data from the real world, you need to pay attention to whether there is still internal alignment with the answers you are getting for both of these two big questions.
One founder I work with built a tech-enabled service business in the care industry. She had a team, a process, and even customers. Then she realized, as she was getting this early traction, that she was no longer called to solve the problem. Catching this early, through inner work, is far better than the alternative: continuing to build something you are not sure you believe in.
The success of your business relies on discovering the answer to these 2 questions that works both for you as the founder and the market.
Let's get into both the questions now.
Question 1: What type of business do you want to build?
Every business in the world is one of these four main types. Which one you are building determines your starting playbook, your validation approach, and the nature of your relationship with your customer.
Type | Monetization | Model | Typical pricing | Examples | Start with | Considerations |
|---|---|---|---|---|---|---|
Media | brand deals / affiliate links / ads / digital products / memberships / courses / data / speaking / licensing | B2B and B2C | sponsorship fees / CPM / affiliate % / subscriptions / one-time purchases / event tickets | creators, newsletters, blogs, podcasts, communities, education brands | Build an audience | slow to start, powerful leverage and optionality |
Software | subscriptions / usage / transaction fees / seat-based pricing / freemium / marketplace take rates | B2B / B2C | monthly or annual subscriptions / per seat / API usage / % of transaction volume / tiered pricing | SaaS, AI tools, marketplaces, platforms | Get 10 customers | high upside, often more complexity/capital |
Service | projects / retainers / productized offers / performance-based pricing | B2B | hourly / fixed project fee / monthly retainer / package pricing / rev share | agencies, consultants, freelancers | Get customer 1 | fastest cash flow, scale needs creativity |
Goods | physical products / subscriptions / wholesale / bundles | B2C | unit sales / subscriptions / wholesale pricing / bundles | skincare, apparel, food brands, consumer products | Pre-sales | slowest to start, low margins, hard to scale |
The "start with" column is the part many founders get wrong. It tells you what your job actually is on day one, and it is different for each type.
If you are building a service business, your job is to get to customer #1 — a real person paying real money, as fast as possible.
For a software business, you want to prove replicability as soon as possible, so you want to get to multiple customers quickly.
If you are building a media business, you need to build an audience first. Your early "customers" are readers, viewers, or listeners who may not pay you anything yet.
The most important job every founder has is always knowing what your priorities should be right now. Get this wrong and you will waste time, money, and energy building the wrong business.
The other key aspect to consider is how will your business make money?
Shown here are some examples out of a much larger menu of monetization models that maps to each business type various ways you might make money, matched to the type of business it fits.
It is one of the resources I share with founders using my Happy Paying Customers™ System to help them get specific about how your business will make money. We also get so much more into pricing: the structure, the actual price point, and testing what actually works.
The key takeaway for now is to keep in mind that there are many ways to make money, and how you make money will impact the type of business you build, and is very closely tied to the second big question.
Question 2: Whom do you solve what problem for?
This is the question founders think they have answered most often. "Small business owners." "Working parents." "Enterprise healthcare companies."
Those are not answers. They are categories.
A real answer has specificity: who is the person paying you, what problem are you actually solving for them, and why would they pick your solution over their status quo?
That sentence houses the fundamentals every founder needs to validate with real world Happy Paying Customers:
Who: the customer paying and others using and involved in the buying process
Problem: what problem you solve for them
Status quo: how they are currently solving the problem
Why you: the specific main reason they pick you over that status quo
The specificity matters because it is what separates a hypothesis from a validated answer. And until it is validated, it is a hypothesis, no matter how confident you feel about it. I previously wrote about the 15 validation signals (ranked worst to best) that goes out what the right validation actually is.
Here’s another proof for how important this is: If you’ve been following my content, you’ll know that these are the fundamentals that we work on through the Happy Paying Customers™ System.
How the two questions are connected
These questions are not independent. They inform each other, and in practice you work through both simultaneously, not sequentially. Understanding the connection between these for your own business is a critical part of the founder journey. Here are some examples of how this shows up.
Example 1
Depending on the type of business you want to build and how you will make money, you may find that the WHO varies drastically. For example, if you are building a media business you’ll want to start with building an audience who cares about your specific worldview or identity. Next, if the way you plan to monetize is by selling to your audience (e.g. community, membership, courses, events, software, goods), then you’ll want to focus on them. However, if you decide to monetize by selling to brands who want to reach your audience (e.g. brand deals, sponsorships, affiliate), then you’ll want to focus on those brands.
Example 2
Similarly, if you want to build a b2b subscription business selling to enterprises as your WHO vs. selling to small businesses, you might consider different pricing models for how you make money. For enterprise, seat-based might make sense, while for small businesses monthly subscriptions might be best.
Example 3
One founder I work with runs a marketplace business. Her answers to both questions were defined early and have proven durable: a specific, underserved demographic on both the supply and demand sides. Both answers held up through her initial market. Now, as she moves into new geographies, Q2 is being stress-tested all over again through external data. Does her WHO exist in the next city? Is there enough supply? The answers that were true for market one are hypotheses again for market two. And, she is doing the inner work to make sure she continues to grow the business in alignment with her vision.
Your responses are hypotheses until both data sources confirm them
The framework above will get you far enough to form a working hypothesis on both questions. But a hypothesis is not an answer.
The only thing that turns a hypothesis into an answer is data from both sources, external and internal, in alignment. The way to do that is to run micro-tests to (in)validate the hypotheses with external data and continue to confirm that there is internal alignment.
One founder I work with is building a personal assistant service for the elderly. As she is collecting external data to validate her business with Happy Paying Customers, she has been pulled in a few directions. One such example is providing companionship to elders. Pursuing this would mean going in a different direction with the type of business that isn’t aligned with her vision. Instead, the external data that she is aligned with is an early customer profile that is showing strong promise. This is now the focus of her next phase of micro-testing!
This external data side is what the Happy Paying Customers™ System is built for. You continue to run micro-tests until you find a replicable one customer + one positioning + one playbook combination to grow your business in alignment with your vision.
I currently have an opening to work with 2 founders to apply the System to build your dream money-making business. Learn about the options and snag your spot here.
Sharing is caring. Send this newsletter to a first-time founder navigating the early stages of building their dream business that works both for them as the founder and the market.
