Problem Solving 101
How to Handle Your Business Issues with the Most Efficiency and the Least Stress
Learn how to develop your critical thinking skills so you will be able to overcome any problem that may arise when starting a business.
Problem-solving is a business skill that often takes time and experience to learn to do effectively – this is just a beginners’ guide on how to structure that process. AMI’s Consultants have robust experience in solving problems, and are willing to help!
This guide has been published by Arizona Microcredit Initiative, 501(c)(3), an Arizona-based nonprofit organization dedicated to supporting underserved entrepreneurs in the Phoenix area through microlending, consulting, and education services. Visit our website to learn more!
An Introduction to Business Problems
You probably don’t need anyone to explain what a business problem is – you deal with them daily and have a much better understanding of where they come from, how serious they are, and, to a degree, how to solve them. The purpose of this document is to provide you, the prospective or current entrepreneur / small business owner, with tools to structure your thinking about problems so that 1.) you can more smoothly tackle them yourself and 2.) train others on your team who aren’t as involved as you to solve problems on their own.
Business problems arise in all sizes and in all aspects of business. Here are a very select few, but the ones you might encounter may be much larger or smaller in size, scope, and importance to your business. This is just a list of examples:
My sales this month have been lower than usual
The supplier is planning on hiking his prices, which will lower my margins
The landlord is planning on increasing rent
There's a new competitor opening soon nearby
Some customers left negative reviews about my business
The fact is, there’s no want for business problems in entrepreneurship. Real, practical, and impactful solutions, though, are much rarer. We at the Arizona Microcredit Initiative can’t guarantee that this guide will lead to the perfect solution to all your problems, but what it can do is give you the tools to maximize your chances that you do find it.
The process of identifying a problem could be called problem discovery – it’s the realization that there’s a gap between the businesses’ perfect condition (its ideal state) and where the business is now (its current state). To put it simply, business problem solving is the process of bridging the gap between those two.
The Stages of Problem Solving
Problem-solving can be thought of as a cycle with five distinct steps, the first of which we’re already familiar with – problem discovery. It’s where we identify what exactly the problem is. The other stages are developing a hypothesis, framing your thinking, research & analysis, and generating solutions. Below is how we at AMI visualize problems that we solve for entrepreneurs.
It’s important to remember that problem solving is cyclical – you’ll never run out of problems to solve, but they should be tackled one at a time. You may have heard the saying “smooth is fast, fast is smooth” – that applies to problem-solving, too. Tackle one at a time, and more problems are likely to be solved that way.
The Stages Explained
Step 1: Problem Discovery
This is the stage in which problems should be identified. Some tips we have for stating your problem are the following:
•Pick exactly one problem – it’s easy to combine two or three into one, but solving that many at once is more complex
•Identify the source of the problem – where is it coming from? Who or what is causing it? This can help identify stakeholders
•Know your timeline – some problems you have months solve, some just weeks, and for others you may have just days. Understanding the timeline can help save your efforts in terms of finding a usable solution
Step 2: Formulate a Hypothesis
This stage feels more academic than it really is. What we’re really doing here is making a claim that we can test about the problem that has been identified.
Here’s an example: if the problem is “my revenue numbers are lower than normal,” then an example of a hypothesis could be, “my revenue numbers are lower than normal because my prices are too high.” A hypothesis is an explanation for the problem, which is the most important part.
My business problem is
My hypothesis is
Step 3: Framing Your Thinking
For most people, this stage is the trickiest part of problem-solving. Framing your thinking essentially involves making a list of those factors that would influence your hypothesis (in other words, all the considerations that matter) and prioritizing those factors so you can identify where to start with your analysis.
If this sounds abstract, it is; here’s an example to better illustrate:
Problem: Revenue has declined this month
Hypothesis: Revenue has declined this month because of new competition
Framing your Thinking:
•What is the number of competitors I have? Is it different than it was before?
•What is the pricing level of each competitor? Is it different than before?
•What changes did I make internally over this period? Is anything different?
This list is neither perfect nor comprehensive but should give you a flavor for how to make your list of considerations. Next is the task of prioritizing these things. Finding out the number of competitors is easy – a quick internet search would give us that answer. The pricing level of our competitors would need a bit more research. Understanding internal changes would require making a log of business decisions to find what could have triggered this.
Make a list of all the reasons or factors that could help uphold or disprove your hypothesis
Step 4: Research and Analysis
If Step 3 is the most difficult to understand in this cycle, Step 4 is the most difficult to actually do, because it usually entails the most work out of the 5 Steps. The research and analysis phase consists of doing whatever analysis needs to be done about the factors you identified in Step 3.
For example, for the factors outlined above (number of competitors, pricing strategies, and internal changes), the analysis could look like this:
Use the internet to understand what competitors are in my area or space now. Is this number different than before? If so, who are the new players? Based on this line of questioning, you might need to do a fresh round of market research.
Use the internet, chambers of commerce, professional associations, or other contacts to understand what products or services the competitors offer, and at what prices. How different are these prices from your own?
Compile a log of all the business decisions made in the past month. Did any of them have a tangible impact on revenue drivers? Did I make inventory changes? Did I change prices? Did I change the quality of any of my products or services?
This phase can multiply quickly if left unchecked. That’s why it’s important to make a fixed list of analyses that you’re going to do before you do them. When AMI begins consulting, we use a document called a “Scope of Work” that outlines what we’re going to do, and by when. This helps us keep problem-solving from getting out of hand.
Another tip is to make sure that you’re focusing on conclusions. Knowing the number of competitors is somewhat useful, but knowing the competitors compared to before, identifying their strengths and weaknesses, and knowing where your business needs to change is far more useful.
Step 4: Identifying a Solution
Now is when you can solve the problem! The reason we recommend doing all the research first is so that less time is spent making changes, which can be costly or risky, and more time figuring out exactly where and what the problem is. When you visit the doctor, they don’t operate on you without knowing what’s causing the issue.
As an example, if you saw your revenue falling, the first instinct might be to increase your marketing or lower your prices. But if the real reason for your declining revenue was that the latest batch of inventory had blemishes that caused customers to be dissatisfied with them, then neither of your actions would have solved the problem, meaning you’ve incurred costs without addressing the problem. Using this framework helps address that.
The solution stage is the most creative phase and the one in which we have the least guidance. Some tips we can give are as follows:
Know what you can reasonably accomplish – if money, time, or support were no object, we could solve almost anything. Entrepreneurs often have runways, however, and finding solutions that fit within our constraints is often challenging
Be creative and have alternatives – while your first plan may seem like it checks all the boxes, it’s important to have backups. Have plans A, B, and C, and be willing to try all of them if needed. Having backups is almost never a bad idea.
Leverage your network – it takes a community to make a business successful. Think of mentors, professional partners, friends, associates, or any other supporters you may have. The path forward is your decision, but perspective can help.
Make a plan and execute – after you make a plan, it’s time to execute it. We recommend thinking through the steps, how long each step should take, and the specific actions you’ll need to take. Breaking things down can make this less overwhelming.
Arizona Microcredit Initiative (AMI) has consulting and microloan support for yourself and your business. If you have any more questions, you can schedule an appointment today through https://www.azmicrocredit.org/schedule-a-consultation-1 or reach out to us at email@example.com.