The Perils in your assumptions

Often, when we see stories about companies and ideas that have failed – like Olive, Web Van and our watch idea – we ask ourselves how could this happen? How did these smart people make such big mistakes? My bet is that assumptions were made, and the danger of assumptions is that they get turned into facts in our minds and then our business plans. Scott Cook, the Founder of Intuit said, “For every one of our failures, we had spreadsheets that looked awesome.”

In working with hundreds of startups and internal ventures, I have found a common pattern of entrepreneurial people turning assumptions into facts in their heads rather than seeking information to validate or invalidate their beliefs. Regardless of how smart we are or how eloquently we present our idea, it does not mean we have good evidence. I have a few suggestions to help organizations start reducing the risks of their ideas through assumptions testing.

For leaders who make investment decisions – consider the following questions:

1.      When have you ever given money to an effort that had great promise but ended up losing a lot of money?

2.      What percent of uncertainty are you willing to accept when investing?

3.      What kind of de-risking approach do you require your leaders to go through before committing to a spreadsheet that drives evidence-based investment decisions?

4.      How much money can you afford to lose? If you lose $1 million how much revenue do you have to get to cover it?

For anyone requesting funding for new ideas, be prepared to answer the following:

1.      What are your top 10 assumptions? What are you doing to prioritize those? What do the experiments look like? What does good evidence look like?

2.      What level of uncertainty still exists in this effort? What are you doing to reduce it?

3.      What is your learning plan for the next 90 days? What must we learn before we invest more time and money?

For teams developing new ideas, take these steps to test your assumptions:

1.      Make your assumptions explicit. Follow the scientific method.

2.      Design and execute "Learn Fast and Learn Cheap" Minimal Learning Experiments (MLEs).

3.      Report out in Steve Blank format: This is what we thought. This is what we did. This is what we learned. Based on the learning, this is what we will do next.

It is a leadership responsibility to improving clarity around risks and what needs to be learned before investing more time and money. We owe it to our organizations, employees and consumers to recognize the peril in our assumptions and design a learning plan to reduce risk!