Don't Assume Your Way to Failure: Testing Assumptions
Assumptions - we've all made them from time to time, sometimes they can be harmful, nowhere is this more true than in developing a business. When it comes to taking an idea to prototype, and then from prototype to product, there is a key ingredient to success that is all too often overlooked: assumption testing. In a nutshell, assumption testing is the systematic and objective analysis of the idea and the business model to determine where guesses and assumptions are being made.
The key to success is to take the assumptions and determine how to turn them into actionable, answerable hypotheses. By taking this step, an entrepreneur can save themselves a lot of stress, time, and money.
More than anything, assumption testing requires both you and your team to be painfully honest and objective - you get exactly as much out of this exercise as you are willing to put into it.
Divide the assumptions into distinct aspects; this will make your approach much more efficient and effective. Every prompt should also be followed by: "...and how can this be measured and verified?"
Problem/Solution Assumptions:
a) Is the problem that you are solving significant enough to warrant a business?
b) Is the problem significant enough that somebody would be willing to pay for it?
c) What alternative solutions exist (or have existed) that are not sufficient?
d) Does your solution present a clear differentiating factor?
Market Assumptions:
a) Is your target market interested in a solution that you are offering?
b) Are your market demographics able to make a purchasing decision? (i.e. Don't market to the cashier, if you need the store manager to make the decision, etc.)
c) Why has the competition not done what you are doing? (sometimes there's a very good reason, and you need to find out why.)
d) Does your target market currently have the buying power to make the relationship economically feasible. (Every business has a customer, make sure that your target customers actually have cash in the bank!)
Operating Assumptions:
a) How long can you run and scale before you require outside financing? (maybe you won't need any if you are bringing in excellent revenue, but again this is an assumption till proven otherwise.)
b) Does your business rely on any key employees/partners/customers? (Who are they, and how can you decrease your concentrated risk?)
c) Does your business take advantage of any trends/fads/patterns? (It likely does, and this needs to be understood to determine how to architect a long term strategy, think "Beanie Babies")
d) What assumptions are you making about your key strengths? (How can you improve them and consolidate them?)
e) What assumptions are you making about your key weaknesses? (How can you minimize these and protect your position?)
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The above is by no means an exhaustive list, it is provided as an example for getting started. Every business/idea has its own unique characteristics, but one thing that isn't unique is the requirement to get objective and come to a better understanding of where you could be deluding yourself. I've always considered that every successful entrepreneur has to have a bit of "functional delusion", just make sure that you've performed these reality checks before getting your hands dirty.