The brutal truth about business is this:
Have you ever asked yourself:
- Why aren’t we growing more/faster?
- Do we have the right solution; does it solve their mission critical issue?
- This isn’t working, what’s our alternative?
If you said, “yes” about any of those questions or would like to deepen your customer relationships, this post is for you. Many businesses, particularly those that are adrift in complex, uncertain environments struggle to answer these and more.
That’s why I want to show you the secret to building a business that generates spot-on services, a proven financial model, and reliable profits is how you invest time outside of your office.
How’s your time outside of the office being spent right now?
If you are like the vast majority of concerns you spend a majority of that time digging up new leads, fighting fires, and generally glad-handing. What does the result of this look like?
It feels like this…
- The traditional playbook is falling flat on its face
- You’re struggling feverously but not gaining any real traction
- Obstacles, hardships, and setbacks seem to be piled up at your door thirty deep.
You don’t want to do this hope strategy to building a business. Smart businesses flip this paradigm and spend more time validating and ensuring key assumptions have remained relevant.
[Re]igniting a business is essentially an experiment
This isn’t just a fishing expedition. It’s an experiment to determine what matters. And, like any true experiment follows a scientific methodology. It begins with a clear hypothesis (problem & solution) set then tests the validity of the prediction.
The new strategy for business [Re]ignition
It’s no secret that I’m a fan of Steven Blank’s work. He has definitely done us all a favor by pulling back the curtain to show how successful businesses follow a repeatable path to success. In particular, I as well as notables like Eric Reis, have fully adopted his ‘Get Out of the Building’ mantra. We – bloggers, academics, and consultants – actually built this mantra by boiling down what is an integral component of his business development philosophy into an easy to say/remember phrase. My concern is that the seriousness and rigor required to execute this element correctly is being glanced over. His book ‘The Four Steps to the Epiphany” lays out a complete process focused on getting at the heart of what will drive your business growth, validating the right assumptions.
At the heart of every business is a set of beliefs that drive how the organization will strive to achieve its vision. These ‘leaps of faith’, unfortunately, may be misleading because they are born from past experiences or extrapolated from antidotal evidence. One of the first steps in our scientific methodology is to determine how real they are.
So exactly how should you go about validating your assumptions? Is it even realistic? Yes it is, however, in unsettled, unpredictable environments windows of opportunity open and close at a quickened pace. Thus, the time it would take to verify them all most likely will cost you your opportunity.
Find the proxy
This is where Pareto’s Law, better know as the 80/20 Rule, and Steven Blank’s discovery process come into play. If used in conjunction they help you identify the few key assumptions that will drive the significant portion of your success.
So how do you identify the influential 20%? Here is the process that I follow.
- Capture every assumption in writing; include both explicit and implicit beliefs
- Quantify each as best as possible
- Make sure that each assumption is represented as a variable in your financial model
- Assign each assumption a range of uncertainty; base case, best & worst case
- Assumption by assumption us the financial model’s Net Present Value (NPV) output to determine the financial impact for the best and worst cases.
- Rank the assumptions in descending order of difference in NPV between its best and worse case
- The highly ranked assumptions that account for the first 80% of the total summed variance are your key variables
Overlay the insights of Steven & find the nexus
Because Steven’s process can be aggregated into three distinct phases, each with a particular goal, we have a clue as to which categories of assumptions are highly relevant for business model development. The objectives are:
- Phase 1: learn if your assumptions about the customer problem are correct
- Phase 2: learn if your assumptions about the product hypothesis are correct
- Phase 3: verify what you found and determine of the business model makes financial sense
I encourage you to read for yourself this section of his book. However, I know that as a business leader time is of the essence. That’s why I provide my clients with the following ‘action chart’ that helps direct them through this iterative process.
If you don’t know you better ask someone
What we have to remember is that no one’s original assumptions survive the 1st encounter with reality intact. What you’re searching for is data (market reaction, feedback, etc.) that can be used to enhance your situation by focusing on the right value proposition.
 Sykes, H. B. and D. Dunham (1995). “Critical assumption planning: A practical tool for managing business development risk.” Journal of BusinessVenturing 10(6): 413-424.
- Business [Re]Ignition: The 7 Rock Solid Elements of Execution Business Model Innovation – Part 3 (donaldmcmichael.com)
- Business [Re]Ignition: The 7 Rock Solid Elements of Execution Business Model Innovation – Part 2 (donaldmcmichael.com)
- Business [Re]Ignition: The 7 Rock Solid Elements of Execution Business Model Innovation – Part 1 (donaldmcmichael.com)
- Business [Re]Ignition: The 7 Rock Solid Elements of Executing Business Model Innovation (donaldmcmichael.com)