Demand: a: to have a strong desire for b: to wish or demand the presence of

Need: a: a lack of something requisite, desirable, or useful b: a physiological or psychological requirement for the well-being of an organism

It is vital to understand the value proposition of your startup’s product or service. In so many cases ideas will not generate businesses as so many are not solving an issue a customer feels pain at. Needs-based businesses are far more likely to succeed as their clients/customers are more likely to pay for the product or service. Hence, it is crucial to know your customer and u derstand his business needs.

In order to make my point clear, let us have a look at a promiennt example: virtual goods. Virtual goods are basically electronic items that can only be used in special applications or platforms. Facebook’s “buy your friend an icon for her birthday” is a feature that qualifies for this category.
As Piper Jaffray recently published, the virtual goods market is going to grow tremendously–future will tell if it’s by the predicted 10x to more than $6bn over the next 4 years.

So, what customer pain are virtual goods solving for it’s acquirers. All of our personal networks get more and more geographically dispersed. We get to know people on vacation or at work and add them to our network. When we just want to send a short notice for someone’s birthday, we look for the easiest way to achieve this.
And virtual goods are offering exactly that: $1 and you have your friend more likely pay more attention to your birthday wishes than all the other wall posts. Why is this important? Because you need to stick out if you want to be different.

As you rightly perceived, I used the word “want” as well. But let’s not confuse the demand for an easy present and the side-effect of the personal wall.

An example for the ill-fated want-business would be WebVan. WebVan was a company at the height of the bubble, offering grocery deliveries via web orders. It collected quite a lot of venture capital from very prominent sources and in the end got acquired by Amazon, which eventually shut it down. As much as each one of us probably likes to dream about home grocery deliveries, it clearly failed because of a lack in consumer demand. To put it more bluntly: orders didn’t materialize at all.

But why didn’t consumers pick up on that although it was clearly offering to save time and effort? There might be many reasons for a businesses failure. In this case WebVan was facing a well established infrastructure of grocery stores and restaurants. People might want to order food and groceries online, but they clearly don’t need to. It just doesn’t seem to be a pain point.