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Hypothesis and Critical Assumptions

Introduction:

"Assumption is the mother of all fuckups" (Al Sapienza in Under Siege 2). This statement is very true for entrepreneurs. According to the Lean Launchpad method it's essential that entrepreneurs find the assumptions in their business design and verify them or find alternatives. A good method to find assumptions is going through all your text and using a highlighter to mark any statement that isn't substantiated by facts.

How to deal with assumptions:

When you have a list of assumptions, you need to prioritize them. You do that by checking what the impact the assumption has on your business when its not true. First translate your assumption into a hypothesis. For instance: "the customers like my product and are willing to pay a premium price". Than evaluate what impact the assumption has on the future of your business when it's true and when it's not true. And finally evaluate what the consequences are for your business when the hypothesis is not true. 

When the hypothesis is true, you can continue to check other assumptions. When that hypothesis is not true, the future of your business is in grave danger. Good entrepreneurs try to find the assumptions that are most critical for their business and check them first. The idea is, when your business is going to fail, you want it to fail fast, so you can either pivot you business idea or start something new.

Chart your assumptions:

PriorityAssumption or HypothesisImpact on Business when TrueImpact on Business when FalseResearch StrategyContingencies
1Assumption 1
2Assumption 2
3Assumption 3
4etc
5
6
etc.

How to verify assumptions:
You can choose from four general directions when you want to verify your assumptions:
  • do proper research yourself
  • use proper research by others
  • use verified theories and models
  • talk to customers and stakeholders (lean start-up and design thinking)
Any of the directions is fine as long as it provides sufficient substantiation to support your hypothesis. When you'r dealing with uncharted territory (new products or services on new markets) it is very difficult to find answers to your questions by doing desk research. When you are lucky/smart you can find statistics that might substantiate part of your assumption, so mostly your substantiation will be derivative.

How assumptions influence your Business Design:

When you use the Business Model Canvas as design tool for your business, it will be full of assumptions when you have just started. The assumptions are usually interrelated. When you change one assumption, it will always change all other assumptions. If possible show the relation between your assumptions in the business model canvas. When you start checking you assumptions make sure that when you are focussing on one assumption, you keep your eye on the other assumptions and your business design as a whole to make sure the the integrity of your business design is not lost. Check all of your assumption quick and dirty first than add layers of research to each assumption until you can say your business design is based on facts. 

ndw 2014