Assumptions are the basis for most startups. After identifying opportunities, founders use assumptions to begin piecing together a narrative to communicate their vision. And it’s just expected that each assumption in a startup’s business model will get tested and iterated over time.
The reality is, however, that there are assumptions that don’t get tested. Some of these are linchpin assumptions, ones that are critical to the business model that founders are selling to customers, investors and partners.
The punchline is that founder’s risk building a ‘house of cards’ by relying on untested assumptions.
And there are two reasons why founders press on with untested assumptions. One is legitimate, the other convenient.
The legitimate reason is limited time and resources. Assumptions live on a semi-prioritised but nonetheless messy Trello board and you keep hearing yourself say ’I’ll get to them’. I’ve been there many times. As a side note, and while resource constraint is a legitimate reason, I recommend you putting your mentor(s) to work to help prioritise assumptions. This will bring them closer to your business (which they will enjoy) and you get help from a ‘friendly’.
‘Convenient’ untested assumptions are more dangerous because they:
- Are important to the business model’s viability
- Are difficult to test (and may reveal a fatal flaw in the business model when tested)
- Receive the most positive feedback when a founder declares that the assumption is under control or well understood
The third characteristic is as subtle as it is important.
Consider this. You pitch to your first potential investor. They query a few of your assumptions and in the haste of wanting to appear like you have your act together, you offer a response. It is plausible and the potential investor accepts your answer. The meeting finishes and you agree to meet again shortly.
You meet another prospective investor (or partner or customer) and they ask the same question as the first investor. You offer the same answer. They accept it, the cycle continues and it gets reinforced when the founder raises money using the same thesis.
Hustle or false economy? (It’s the latter)
I’m all for hustling (and I’ve been in the situation above) but the issue is that over time these acceptances can result in a strange feedback loop.
The more a founder explains away assumptions and the more her/his answers are accepted, the easier it is to believe that assumption is all but solved or worthy of de-prioritisation. Even if the assumption was once important or a linchpin.
The follow-on effect can be a founder that becomes overconfident and shrugs off the assumptions.
For all the effort that goes into creating cultures that sense and respond to user and customer signals, startups remain, for the most part, their own bubbles. There is no doubt that the speed at which we generate and test ideas is a superpower. But that power is significantly degraded when founders become proficient at batting away convenient assumptions. And that can manifest at a team level when founders forget to mention or deprioritise an assumption because of the feedback they have received.
At its most benign, this behaviour can result in missing opportunities e.g. crafting a truly unique and impactful referral program to help unlock viral growth. However, at its worst, this behaviour can lead to a vote of no confidence in the founder(s) as their teams start to receive directions that seem to lack details about would ordinarily be considered important assumptions.
Time moves on
Most founders agree that they should retest assumptions from time to time, particularly the ones which helped them achieve early momentum. This is because time moves on and for startups, this means among many other factors, that the attention and preferences of customers shift.
The question is how do founders develop a discipline and tempo for retesting and validating assumptions amid other competing priority?
The reality is that there are a lot of things you can’t control in a startup. But there are some things that you can. Revisiting and validating assumptions is one of them.
3 ways to revisit old assumptions
Here are the three tactics I use to deconstruct, understand and validate old assumptions. As you will see, this doesn’t rely on the founder to do all the heavy lifting. Team members, particularly new hires, can play an important role.
1. Set a twice-annual assumption alarm
As corny as that sounds, this will remind you and the team to have a session where you can actively reflect on the assumptions that were in play six months ago. I do this by looking at the pitch deck or sales collateral I was using six months earlier. This can sometimes be confronting given how quickly business models and products evolve. Nonetheless, ask three questions, both of which begin with, ‘In hindsight, what…’:
- Number or claim did we make look bigger than it really was?
- Insight(s) about our product or market position did we overplay or underplay?
- Was the riskiest assumption in our business model at the time?
Answering these questions requires honesty, self-awareness and a desire to agree, as a team, how that assumption should be characterised in the future.
2. Ask new hires
When a new person joins the team, either as a paid audition or as a permanent hire, ask them what they believe to be the riskiest assumption of your business model. A fresh pair of eyes can be powerful. The opportunity (and challenge) for founders is to listen, and digest their response.
3. Give permission to query history
An alarm goes off in my mind when a founder refers to an ancient experiment or the earliest user feedback to respond to a team member asking, why?
And the longer the duration between the experiment or user feedback and being asked why? the louder the alarm. As I mentioned earlier, time moves on. Using dated assumptions is one of the clearest signs that a ventures rate of learning has slowed and is on its way to stalling.
The remedy is to not only give your team permission to ask why but to quickly spin up experiments to revalidate (and update or invalidate) old assumptions if the only answer a founder can muster is outdated data. And as a general rule, I consider customer experience data or insight to be outdated if it’s more than 12 months old.
One last thing…
Old assumptions that are left unchecked can be dangerous. They can see founders build a company based on a house of cards that can come crashing down. While I cringe (and chuckle) at the first versions of the pitch decks I’ve written, they do reveal the assumptions that we hoped would be validated and as a result help unlock the value of our ideas. But there are also some which persevered because we wanted them to be true.
It takes courage to objectively validate an assumption which could bring your business to its knees. But what would you rather prefer, understanding and course-correcting based on reality or investing time in an idea which is all smoke and mirrors?