Hey friends 👋,
De-risking business is part of every entrepreneurs and leaders duty.
Yet, reponding to VUCA (volatile, uncertain, complex, ambiguous) environments, (like the one we find ourselves in today) takes foresight, courage, resilience, vulnerability.
It requires a leader (and their teams) to step away from safety and security into new frontiers and ways of operating.
Something that can be uncomfortable for many.
Recently, we unpacked how to thrive in turbulent times by focusing on building capability across three areas:
- Anticipating change
- Designing change
- Implementing change
This week, I’ll share two of four pillars of testing business ideas, that will help you to de-risk while creating new futures.
Why Test Business Ideas?
The simple truth is found in the law of market failure.
“Most new products will fail in the market, even if competently executed” – Alberto Savoia.
Alberto has studied the failures of hundreds of companies and believes failure comes from three main reasons:
- Failure in launch. “We built the right product. We built it right. But we launched it wrong.”
- Failure in operations. “We built the right product. We launched it right. But we built it wrong.”
- Failure in premise. “We built the wrong product to start with.”
Alarmingly, it is building the wrong thing to begin with that is by far the biggest reason.
My experience suggests that building the wrong thing comes from two main places:
- Lack of a scientific approach to systematically reduce risk while simultaneously testing the idea.
- Human factors that lead us to believe our own ideas or to go down the wrong path such as ego, confirmation bias, and several other biases.
The 4 pillars provides a proven system for testing your ideas.
Pillar 1 - Testing Business Ideas - Design
The design pillar comprises of team design, team behaviour and team environment.
Team design is best thought of as constructing a diverse team with cross-functional skills, entrepreneurial and life experiences providing different perspectives.
Diverse teams helps to cultivate more unique ideas.
Team behaviour is about how a team acts. There are six behaviours that indicate team success:
- Data informed. They use insights to shape the way forward.
- Experimental. Teams look learn from conducting experiments.
- People-centric. They are focused on staying connected to the customers needs, experiences and core reason for the idea.
- Urgency. Teams move at pace, building momentum towards their goals.
- Iterative approach. They focus on ‘the doing’ and iterating their way to success.
- Challenge assumptions. Teams don’t hold their beliefs too close and always seek to challenge assumptions.
Team environment speaks to creating a stimulating and creative space to operate from.
Also, providing the necessary resources, autonomy and direction that a ‘startup’ needs.
Pillar 2 - Testing Business Ideas - Testing Process
The testing process covers defining a hypothesis, assumptions mapping, framing experiments, evidence and insights.
Defining a hypothesis.
A test needs a hypothesis to measure the outcome. For that I recommend the XYZ formula – X% of Y people will Z.
For example: We believe 30% of students aged 18-25 will buy day old pies if it’s half the price of fresh pies.
Assumption mapping is a two by two matrix to identify the most critical assumptions that need to be tested.
These are the ones that are the biggest risks (top right-hand corner) to desirability, feasibilty or viability and are prioritised in terms of the level of importance and evidence.
As per defining a hypothesis, framing experiments provides clarity on what will be done, what will be the measurement and the success criteria.
Try this framework:
1. We believe 30% of students aged 18-25 will buy day old pies if it’s half the price of fresh pies.
2. To verify that we will interview and offer 21 students day old pies to purchase.
3. And measure how many students purchase pies.
4. We are right if 7 or more purchase pies.
Evidence and insights.
Once you’ve conducted the experiment, then synthesise the learnings.
Study the evidence and derive the insights to either validate or invalidate the hypothesis.
The learnings that you get will help you decide whether to test again (and you often should), pivot to a new market or idea, or to abandon altogether.
I suggest the following framework:
- We believed that [ ].
- We observed that [ ].
- From what we learned [ ].
- Therefore, we will [ ].
This process while simple, helps to provide a documented system to defuse reactive, emotional thinking and allow objective thinking to make your decisions.
Pillar 3 - Testing Business Ideas - Running Experiments
Experiments can be categorised as ‘discovery experiments’ or ‘validation experiments’.
Discovery experiments are ones that provide weak evidence but point you in the direction in the form of insights.
Validation experiments are ones that provide strong evidence and validate insights.
And, they cover the phases of desirability (do they want it?), feasibility (can we build it?), viability (should we do this?).
There are 3 things to consider when selecting an experiment:
- What phase are you testing? ie desirability (d), feasibility (f) or viability (v) because some are better at testing particular phases.
- How much certainty do you already have? If you have little evidence for the particular assumption, then always start with a fast and inexpensive experiment that might point you in the right direction.
- What time or money constraints do you have? For example, if you lack time or money you should select experiments that are inexpensive to test multiple assumptions.
The general idea is to:
- Start inexpensive and fast in the beginning.
- As you gather more evidence, increase the investment in experiments to provide stronger evidence and run multiple experiments to test the same hypothesis.
- Try to select experiments that will provide stong evidence under your existing constraints.
- Delay building anything (actual product) until you have run multiple tests and have strong evidence.
I have started building out an experiment library with some core experiments for you to select from.
The library is a notion template, that you can duplicate and use for your own purposes.
Take a look and if these are helpful for you, let me know (reply to this email) and I’ll fully develop the library.
Pillar 4 - Testing Business Ideas - Useful Mindsets
Mindsets are often underestimated in their importance for innovation.
And, their importance is even more amplified when innovating within an existing business often with well ingrained cultures and habits.
The mindsets are categorised as enabling actions, leadership and culture tips.
- Look for evidence that proves AND disproves your hypothesis.
- Provide sufficient time or the experiment will be compromised.
- Observe actions not just what people say.
- Run experiment sequences to build up the evidence.
- Remember this is about learning and progress, so adapt.
- Never outsource or use other peoples data. You need your own, fresh data.
Leadership and culture:
- Develop an inclusive culture through using empowering words such as “we, us, or our”.
- Build capability in your team by removing hierarchy and encouraging participation such as asking “how might we test this…?” or “what else could we do…?”
- Hold your beliefs and opinions loosely to allow space for new ideas. Focus on evidence.
- Help the team develop processes, design suitable metrics and provide the necessary resources.
- Be vulnerable yet confident in your teams ability to navigate uncertainty.
- Don’t expect a ‘silver bullet’ and help transform your teams ability with coaching.
That’s all for today friends!
I hope that you’ve found a new way to de-risk while exploring ideas to transform your business.
Credits to Alberto Savoia, David J. Bland, Strategyzer.
Next week, we’ll cover the remaining two pillars, experiments and mindsets.
Let me know if you would like to go deeper into each of the pillars?
As always, feel free to reply to this email or reach out to me on LinkedIn as I’d love to hear your feedback.
Thanks for reading and I’ll catch you next week.