Lately I’ve been speaking with quite a few entrepreneurs about applying lean startup methods to their business and many are having difficulty finding their hypothesis. It’s hard to hone in on the proper scope the hypothesis should test, focusing on a macro-hypothesis such as “people will buy things online” is pointless as it’s already proven, and focusing on a micro-hypothesis such as “this link should be on the left instead of the right” will cause paralysis of analysis. So what’s the right hypothesis for a new business or initiative?
1. Don’t start by thinking of all possibly hypothesis’ for your business. Think of reasons why your business could fail, and start there.
Instead of trying to boil every initiative down into 5-10 hypothesis (marketing, product, customer segments, etc.) think of why your business might fail. I’ll use the real life example of my business FlipComp in which my partner and I are working with real estate investors. We got ahead of ourselves and built a product already, however, we still are trying to figure out what the right hypothesis are and retrofit lean onto our business (customer development + innovation accounting.)
After analyzing our business we cam up with 40-50 hypothesis, it would take way too many to test and take way too long (we’d be out of money before we were done.) So I scrapped my list and started over, instead I used an exercise I got from Michael Karnjanaprakorn which I really liked – I came up with reasons why my business would fail:
- If our flagship product which analyzes real estate investments isn’t a “must-have” for our customers we will not be able to sell subscriptions and will fail
- If users refuse to bid on our wholesale real estate deals and instead go around us we wont be able to capture and we will fail
- If we cannot create a market place with enough critical mass to interest real estate wholesaler we will fail
That’s pretty much it. If we can sell subscriptions, we have some product/market fit. If we can attract buyers and sellers, we have product/market fit. There is no fluff about email clicking or specific features – these are our core hypothesis that everything else will be based on. Also, the more novel your idea is the more novel your hypothesis’ will end up being. In our case we are simply saying we need to attract buyers and sellers.
2. For each reason you will fail build a corresponding hypothesis
Our reasons for failure are converted into:
- Real estate investors will pay us for our flagship product
- If we post a real estate deal visitors be willing to bid on a $100k+ item through our site
- Wholesalers will be willing to give us their listings as exclusives on our site
3. For extra data points, take your business concept to others entrepreneurs you know and respect and ask them to come up with reasons for failure.
Repeat 1 & 2, this time do it with other entrepreneurs who’s opinions you respect. Be careful not to argue why your business will work, instead, simply ask why they think it wouldn’t. Your job as an entrepreneur isn’t to talk them into thinking your right, it’s to prove that you are right by testing your hypothesis.
If you’ve been through this exercise (or similar ones) leave your comments below.