A lab with no solutions?

The five steps to identifying your killer problem

Economics Professor Larry Smith says it’s a problem that’s endemic around the world: the failure of entrepreneurs to identify important problems.

Their product or service might be the most innovative idea to come along in years, but if there’s no market or need for it — or if the world isn’t ready to embrace it — the venture is doomed to failure.

Conversely, a problem might be staring a company in the face, but if it doesn’t recognize it and do something about it, disaster inevitably follows. Consider the Blockbuster video rental chain. It failed to grasp the problem of bulky and cumbersome DVDs. Customers wanted something simpler. Enter video streaming technology. Exit Blockbuster.

Recently, Smith and several colleagues set out to do something about it.

Their solution? The Problem Lab.

Larry Smith

Larry Smith, economics professor and Problem Lab director


The first of its kind in Canada, the University’s new Problem Lab is designed to help innovators create ventures of great economic and social consequence. Apart from a smaller version at Oxford University in Britain, Smith, Problem Lab director, says he’s not aware of any other program of its kind in the world.

Smith and his crew have come up with a methodology to help student entrepreneurs home in on important problems. The five key steps are: history, context, failure analysis, scale and connections.

Noticeably lacking anywhere is the word solution. Mention the S word and judges in the pitch competitions set up to attract students to the Problem Lab will strike you down.

Solutions come later. Job #1 is to put the issue under a microscope and focus on that killer problem.

To understand how this new lab came into being, we’ve applied the five-step methodology to the origins of the Problem Lab. But before leaping into the five steps, it’s crucial to make sure you are working in an area that you find fascinating. Passion is an essential element, Smith argues. “The problem should be important but it should also be something you care about. I’m not going to stand down on the passion issue.”

Once a deep interest is identified, it’s important to comb through curated media such as The Globe and Mail and The New York Times to see which problems within your area are repeatedly discussed. These news stories will help you begin to understand why the problem is important.

Step 1: History

Consider how long the problem has been recognized and how loudly people are complaining about it.

Does the problem appear to be growing in importance? Who is affected?

Five years ago, Smith was asked to look for ways to improve support for entrepreneurship and “to look for ways to take the game up a notch,” he says.

Few at Waterloo were better qualified to take on this task than Smith. Known in some circles as the “career whisperer,” he has coached and counseled several thousand students on how to find jobs and start companies in his more than 30 years at Waterloo. A motivator and psychologist as much as an economist, his popular TED Talk and 2017 book, How to Have a Great Career: Find Your Passion, Achieve Your Goals and Love What You Do, urge students to follow their passion to achieve career success. Governments, financial institutions, professional associations and companies have sought his advice on everything from developing new markets to new products.

Smith enlisted the help of graduate students Brian Stewart, who specialized in economics, and George Wang, whose major was engineering. Together they embarked on a study of entrepreneurial programs at more than 20 universities in Canada, the U.S. and the U.K. Among the colleges on their list were such august institutions as Stanford, MIT, Harvard and Cambridge. Rather than copy what was offered at these universities, the goal was disruption.

“I’m opposed to best practices,” says Smith. “It implies we’re just matching them when I care to leave them in the dust.”

Step 2: Context

You need to understand the environment in which the problem exists.

What circumstances or conditions affect your problem?

In today’s frenetic world, firms are being forced to work faster and reinvent themselves more quickly than ever before just to survive, says Joel Blit, an economics professor in the Faculty of Arts and adviser to the Problem Lab. He points to the S&P 500 stock exchange. Seventy-five per cent of the companies on the exchange won’t be there in 15 years, he says. “There’s a huge amount of churn.”

Instead of relying on the CEO or the R&D team to spearhead new ventures, firms are asking every employee to pitch in as well, says Blit, who does research on innovation and entrepreneurship. Employees need to be able to identify problems around them. “We’re giving them the methodology to deeply understand those problems.”

At the same time, young entrepreneurs were channeling their energies into ideas that were too small and inconsequential. “We were being afflicted with a lot of ideas that were fairly similar and not worthy of the talents of the students,” says Smith.

“We want the next BlackBerry to come out of Waterloo and not the next app,” says Blit.

Step 3: Failure Analysis

Document past failures. You need to describe fully as many attempts to solve the problem as you can find.

You need to know who made them and why they failed.

In their 450-page study of other universities, which they called the Entrepreneurship Infrastructure Project, Smith and his team noticed a glaring lack of resources allocated to help students identify missing pieces or gaps in an industry.

Sixty per cent of courses were geared toward innovation, 27 per cent to solutions and just 13 per cent to identifying problems, says Smith.

Crista Renner

Crista Renner, Velocity business adviser

At Waterloo, students accessing the Velocity startup incubator were sometimes “jumping into a solution without giving thought to what the actual problem was, and overlooking the opportunity to validate the market,” says Velocity business adviser Crista Renner.

While doing research, they were failing to look outside the academic literature to understand the problem from different perspectives, such as markets, legislative frameworks and regulatory systems, she adds.

But the dilemma wasn’t just common at the university level. Much of the job creation in today’s economy is coming from large, well-entrenched companies following existing practices rather than small, nimble startups attacking new problems, says Smith, citing a study by the Brookings Institute.


Large industries often don’t get it right. Japan has spent more than $25 billion since 1993 to build a facility for recycling nuclear waste. Costs went through the roof, deadlines were missed and the project still isn’t finished, according to Forbes magazine.

Step 4: Scale

Who is the problem important to?

It may be possible the importance lies with a less obvious customer such as the government and its regulators.

There are two categories of problems, business and consumer, with business problems being the ones that are more likely to scale and achieve significant success. Those business problems that are urgent, rather than simply important, being more scalable still.

Smith’s goal is to have at least one startup valued at $1 billion emerge from the Problem Lab within five years. He emphasizes the words “at least.” In the modern era, “unless a problem is a one-billion-dollar problem, it’s not important,” he says.

It’s a wildly ambitious goal, but Smith has pulled off some stunners in the past. Students of his were among the first employees of Google, Facebook and Amazon, and he advised none other than Mike Lazaridis (DEng ’00) when he co-founded Research In Motion, maker of the once-ubiquitous BlackBerry smartphone that launched the global smartphone industry. Lazaridis, now a principal of Quantum Valley Investments®, went on to transform the University of Waterloo community by donating, along with his wife Ophelia Wai Fong Lazaridis, more than $122 million, which supported the creation of the Institute for Quantum Computing (IQC) and other key initiatives at Waterloo. 

Step 5: Connections

Rarely is the key problem immediately obvious, and frequently the obvious problem is not the root cause nor the source of urgency.

Once a problem has been identified, the student is advised to look beneath the surface to see if there is deeper, more significant problem connected to it. Some e-commerce platforms, for example, thought customers simply wanted lower prices. But Amazon figured out that slow delivery was also a key concern.

While the Problem Lab is supporting students as they develop ventures of their own, large, established businesses and organizations also need to solve problems to keep pace in a fast-changing economy.

The lab is a natural fit for Waterloo’s co-operative education program, says Ross Johnston, executive-director of co-op. “More and more we’re seeing demand for multi-disciplinary problem-solving from our co-op employers,” he notes.

A pilot project was launched with RBC. A strategic problem was identified at the bank. A crack team of co-op students was trained by the Problem Lab and assigned to work on the problem. A prominent law firm, Baker McKenzie, has also enlisted Smith’s team to help create an innovation lab of its own. And the Problem Lab model is being rolled out for other co-op work-terms.

Finally, more traditional connections had to be made to really scale the Problem Lab. Smith and the crew came up with the idea of pitch competitions to lure students into the lab, with the winners getting financial support for their research. For the first few pitches, Velocity and the Problem Lab supplied award money. But a longer-term solution was needed. Smith approached Mike Lazaridis, and RIM and Quantum Valley Investments co-founder Doug Fregin. They donated $300,000 with the winners of each competition sharing an award pool of $10,000 to $20,000 for research and development.

The lab has led to “breakthrough moments” for some of its users, says Renner. “When we show them how to look at the problem through the eyes of varying consumers, markets or industries, and then to look at the previous attempts at solving these issues, their thinking expands, and it allows them to explore possibilities they hadn’t considered.”

It’s early yet, but the lab has been working “shockingly well,” says Blit, noting that it has already developed an archive of research on topics such as autonomous vehicles, Internet of Things, invasive species and non-lethal weapons.

The community has a very strong entrepreneurial ecosystem, he adds, “This was the one missing piece.”

Illustrations: Kellen Hatanaka

​Photos: Joel Mieske