As a small business owner or freelancer, you’re focused on the future. Believe it or not, establishing yourself as an entrepreneur requires you to think and plan continually. It’s not like you establish a business and start operating it on the same day. From picking the perfect company name to designing a website, you’ve probably already taken steps to ensure that your entrepreneurial endeavor will thrive. This kind of proactive planning will help pave your path to success.
But what about hurdles you’ll face as a business owner that you can’t plan for? The COVID-19 pandemic made it clear that there are some types of business disruption nobody can predict. In particular, first-time entrepreneurs are susceptible to unforeseen hurdles and frequently encounter challenges and problems they don’t see coming. This is because founders are often so focused on their product or service that they overlook the essential minutia of day-to-day business operations.
For example, first-time business owners might experience compliance problems by forgetting to keep business licenses or permits up to date. Alternatively, they might run into employment law issues, tax reporting obligations, or supply chain management. In some cases, the budget becomes an issue, and insufficient cash flow hinders business operations. This can even derail a company entirely: The No. 1 reason small businesses fail is that they run out of money.
According to the business analysts at Deloitte, the “unknown” is one of the biggest threats to an early-stage company’s success. Founders who fail to foresee potential problems don’t prepare for them — and don’t know what to do when those problems arise. The great news is that this is an avoidable situation. A business problem statement is one solution here. This document doesn’t just help you avoid failure. It also sets you up for greater success by ensuring you can efficiently handle any problems that could impede your business operations.
Below, we’ll walk you through tips and tools for creating your business problem statement. We explain what a business statement includes and how to develop one. We also highlight some useful resources you can turn to as you develop your problem statement.
What is a business problem statement?
Whether you’re starting your own landscaping company, opening a restaurant, or going it on your own as a freelance graphic designer, you need a business problem statement. This helps you identify potential hurdles that could interfere with your business’s success. It also allows you to think about viable solutions in advance.
If you’re just getting started as a startup owner or freelancer and think it’s too early to create a business problem statement, think again. This document should serve as part of the foundation of your new company. Many common startup problems arise in the first year or even in the first few months. In fact, an estimated 21.5% of small businesses fail in the first year.
This isn’t meant to deter you from becoming your own boss. Many startups make it, and there’s no reason you can’t become a startup success story. The point is that challenges will arise like they do in any business. Identifying potential problems in advance will have you prepared, both practically and mentally, for the hurdles when they do appear.
By focusing on the biggest problems that you may encounter and coming up with strategies for how to solve them, you avoid being caught off guard. When you encounter an issue, you’ll have a plan in hand. Instead of getting deterred and worrying that your entire business is at risk, you can take swift action toward a resolution.
Your business problem statement essentially allows you to see hurdles as small hiccups instead of earth-shattering disasters. Advanced problem-solving sets you up for success, both practically and mentally. Whatever may come, you can handle it.
3 Things Every Business Problem Statement Should Include
Problem identification is the basis of the business problem statement. Knowing what problems to look for can help you identify them. Most problems fall into one of seven categories. Here they are, with a brief example for each one:
- Strategy: Your day-to-day business initiatives aren’t aligned to support your large business objectives.
- Services/products: You’re experiencing a high number of product returns due to mistakes made during the sales process.
- People: Your staff lacks the training and years of experience to do their jobs efficiently, resulting in delivery bottlenecks.
- Processes: You’ve failed to research process improvement and rely on manual data entry instead of automated data collection, wasting time and money.
- Applications: You use out-of-date applications that are inefficient.
- Information: Your client data is unstructured, making it difficult to find and organize.
- Infrastructure: You have multiple applications with overlapping functionality, creating useless maintenance overheads.
A good problem statement does more than just list problems, however. Here are the key elements of a successful project statement:
Key Elements of a Project Statement
- Summary of the problem
- Impact of the problem
- Potential solutions to the problem
Below, we provide a step-by-step problem statement example. Read on to learn how a business owner might go about summarizing a problem, defining that problem’s impact, and developing potential solutions for that problem.
1. Summary of the Problem
First, you need to identify and summarize your problem in an objective, fact-based manner. Forbes offers a helpful methodology on how to frame problems in a way that will later allow you to find successful solutions. For example, if you’re having trouble coming up with potential problems, Forbes suggests shifting your perspective. Instead of thinking from the business standpoint, think from a different demographic standpoint: the customer.
Say you run a small bakery. Thinking from the customer’s standpoint, you imagine walking into the bakery to pick up a pumpkin pie for Thanksgiving — only to discover that they’re sold out, so you go somewhere else. As the business owner, this is a problem because you are missing out on a sale. But what are the smaller problems that lead to this issue?
Remain objective and fact-based when detailing the root cause that leads to this overall larger problem. Maybe you didn’t have the staff to make enough pies to meet the heightened Thanksgiving demand, for example, or perhaps you were wary of making loads of pumpkin pies that you then might not be able to sell. Simplify it even further: These two issues could be summarized as “lack of manpower” and “unforeseen seasonal demand.”
2. Impact of the Problem
With the problem defined, you can define the impact. Take the case of the missing pumpkin pies. In this scenario, the problem can be seen as falling into the categories of strategy, services/products, and people. When assessing the overall impact, answer the question: Who is impacted by this problem and how?
- Your customers: Your customers are disappointed that they can’t get the product they wanted. They have the added hassle of having to go to another location to find it. Customer satisfaction is low.
- Your employees: Your team members have to inform the customers that they can’t provide them with their desired product (and potentially deal with animosity as a result, given the heightened stress around the holiday season).
- Your business: Your business is losing out on a sale. Your business may also face dissatisfaction from employees, who have been put in a tough position. Finally, you may lose customer loyalty if the customer decides to go elsewhere in the future.
Now, you know the impact. When coming up with possible solutions, the goal is to minimize that impact.
3. Potential Solutions to the Problem
The business problem statement isn’t meant to perfectly solve the hypothetical problem because you can’t predict the precise details of a problem before it arises. However, it should outline two to three potential solutions to the problem you can use for inspiration. You will likely have to adapt the proposed solution to real-world scenarios as they appear.
Taking the pumpkin pie example, your solution might be temporarily hiring some extra staff around the busy holidays. This keeps your employees happy (you don’t have to overwork them) and ensures your customers’ demands are met. Alternatively, you might try advertising a pumpkin pie preorder promotion, encouraging people to order and pay in advance and ensuring that you wouldn’t end up with leftover stock you can’t sell.
How to Find Solutions for Your Business Challenges
The above guide provides you with the basic template needed for a business problem statement. However, you may still be stumped when it comes to defining precise problems for your unique business. Don’t stress. There are many resources to help. The nonprofit organization SCORE, a partner of the U.S. Small Business Administration (SBA), provides a primer to unexpected disasters that could impact small business success, for example.
SCORE also offers other useful tools for first-time business owners, like a mentorship program. Also, look to your state’s branch of the Small Business Administration (SBA) for assistance. The SBA provides handy resources on everything from startup funding to calculating your startup costs. ZenBusiness also offers many resources designed to help you thrive as an entrepreneur. Check out our resource guide on starting and running a business to get started.