Business Fact and Plan. We are talking about the future of our company, the result of a match or launching a new line of business, the reality is that our forecasts are based on assumptions of what will happen, in attempts to model the reality of the future task obviously is far from simple. If we break these predictions, we find that the basic elements are assumptions about issues such as what will be the behavior of the customer, if you're willing to pay for the product etc.
The traditional way to approach a strategy to launch either a new business line in an established company or a startup that will disembark in a market, it goes through the corner stone of the traditional strategy: the business plan implying a comprehensive analysis that describes in detail what we do, how we are going to do and how the customer and competitors will behave, how the market will react etc.
This approach may be (slightly) more valid 20 years ago when the speed at which they moved the markets was less, but now represents a tremendous risk, because it makes dozens of assumptions about what will happen without a magic ball that eliminates uncertainty inherent in the future. What do we usually take this form of lassoing a product or service?
To build and launch a product / service masterfully, efficient and time only to discover that no one wants, or that the strategy we have chosen does not allow us to grow in an optimal and scalable way.
What is the alternative? Get off our ivory tower, recognize that we have no idea what will happen in the future and prepare to find a different way to run (I highly recommend reading the book "The Lean Startup" and the upcoming "Running Lean" ).
Consequently, the post will focus today on the first step: identify which assumptions or preconceptions we have about the project.
What is a Business hypothesis?
A hypothesis is a statement about how we hope that the future will behave, but in practice we do not have sufficient information to judge their adequacy to reality.
Examples of assumptions that find hidden in our business plans:
My client has X and Y problems.
The customer is willing to pay for our service x €
Our customer conversion rate will be x%
X% will capture market
I get most of my customers via channel X and Y channel
As I think is beginning to be evident, launching a new company or line of business we should be able to identify which assumptions we used and on which rests the future of our company which also significantly improves the likelihood of getting funding .
It is not a result that investors in general are more akin to a methodology or another, but because the check systematically and from the beginning the hypothesis reduces much faster project uncertainty and also to validate customer really what it launches is valuable (and there are customers willing to pay to prove it).
KEY ASSUMPTIONS: VALUE AND GROWTH
Although typically will have used very different hypotheses, the reality is that there are two that are extremely critical:
Hypothesis VALUE: This is the first and key assumption of any project, so it is certainly the first we should try. It refers to whether the product / service really gives the client value once you use it, or put another way, if the customer finds useful our product (and ideally are willing to pay for it, but that's another topic).
For example, if we are launching a project to build massively pistachio diet shakes (strange example), our hypothesis is that there is value customers demanding dietary pistachio ice cream or at least appreciate and want to consume.
Growth assumption: Although possibly somewhat less critical in the short term, assumptions about how it will be growth are based on a valid model and scalable business, so we should start to validate as soon as possible. The growth scenarios describe how the company will grow, and are closely related to factors such as the% conversion of prospects into customers, evolution x operating margin over time etc. This allows us to validate our famous early if sales spreadsheet makes sense or is a gorgeous exercise in futility and is based only in dreams.
If we continue the example above, the growth scenario would have to do with the% of users who tested the batter and decide to buy it, the% of users who habitually consume etc.
MOST COMMON TYPES OF ASSUMPTIONS
Most of the assumptions which cover these areas are:
Who are the customers
The problems the customer
Number of potential customers who are
Number of potential customers who may become actual customers (conversion rate)
If the customer is willing to pay for the service / product
Where are the customers
Amount you are willing to pay the customer for the product / service
How will you attract customers and they will release the product / service
The characteristics of the product that will be used by the client
Availability of resources (staff, finance etc.) In a timely manner
Having identified these hypotheses, we should be obsessed with not spend a euro more (actually, not one euro to dry) until we can begin to validate if they are valid hypothesis (which really shape how they will behave reality) or false hypothesis (wrongly describing reality). And how to check if each of the assumptions we have used is valid or false? Through experiments designed adhoc and allow us to learn if you have taken is right aspect discussed later in a future post.
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