Three simple tips for formulating hypotheses for startup business

Three simple tips for formulating hypotheses for startup business

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The Business Dictionary suggests the following definition of “Hypothesis”:

A supposition or explanation (theory) that is provisionally accepted in order to interpret certain events or phenomena, and to provide guidance for further investigation. A hypothesis may be proven correct or wrong, and must be capable of refutation. If it remains unrefuted by facts, it is said to be verified or corroborated.

http://www.businessdictionary.com/definition/hypothesis.html#ixzz385jqrXKh

Another scientific definition is:

A hypothesis is a way of taking a scientific question and turning it into testable prediction.

Here you can use “If/because method” to define a hypothesis:

If (Independent Variable) than (Dependant Variable) because (Logical reason)

However, in “The Lean Startup” Eric Ries defines two types of hypothesis:Value Hypothesis and Growth Hypothesis.

After working with various companies on hypothesis problem I’d like to suggest alternative approach to defining the right hypothesis for your Start-up business:

1. Start from the most critical assumptions and write one or more hypothesis associated with them.

Every business regardless of the stage it is at has critical factors for its existence. At the Seed or Start-up stage it is imperative that one understands what is critical for the business to exist.

The easiest way to identify it is by asking this question:

What is the thing which if not validated will kill my business?

Usually at the beginning these problems lie within the Customer definition and the Value proposition. But this is not always the case.

For example if you have a very niche solution, the market size may be the most critical for your business idea. If you find out that the total addressable market is smaller than the one you need to reach break-even than you definitely have to ditch the idea.

Identifying the Critical hypothesis for your business will save you plenty of time and resources exploring less important areas.

2. Make sure that each hypothesis is measurable and relevant to your business case.

There are two common mistakes here:

  • The hypothesis is vague and hard to test

For example:

Hypothesis: The majority of my customers will like a feature “X”. – This hypothesis can’t be tested until the term “majority” is defined.

  • Test can be performed but not relevant to the business needs.

This one is less likely to be spotted. But again it can be tested with a simple question: If it is validated, does it mean that the business case is validated?

For example:

Hypothesis: The total market size is > 500 customers/ year.

This hypothesis is measurable. However if the business needs at least 1000 customers per year to make a profit, even if “> 500 customers/ year” is validated the business case is not.

3. Be creative when designing your experiments

The common methods everyone uses are interviews, surveys (questionnaires) and landing page or prototype. But these are not the only ways one can use to test a hypothesis. Be creative but don’t forget that the goal is to validate hypothesis not to show that you can use one tool or another.

After you validate all “Critical” Hypothesis, go to the next level and do the same with the ones associated with the scalability of your business.

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