Lean Start-up: A hypothesis approach

The importance of using a hypothesis to drive your project development progress is something that is becoming more and more widely used today. Thanks to the work of Eric Ries and Steve Blank, we now have the lean start-up methodology of managing projects to use. Whilst the theory is wide and covers a lot, I’d like to focus on one key area of the methodology, using a hypothesis based approach,  because I’ve found it useful in gaining traction in projects I am working on.

What is a hypothesis?

A hypothesis, in the lean start-up sense, is simply a question you have about your project that you would like to answer. It’s a key part of the Customer Discovery process. It might be something like”More people would catch the train if they got an SMS message 15 minutes before they needed to leave.”

A hypothesis is a statement that you can prove, or disprove, to signify that there is a market present that values your idea. It is a proposed explanation for an observable phenomenon. This is the key. In the above example, you can see that it becomes easy to find ways to prove that this might be the case.

 hypothesistracks.jpg

How do I set one?

Setting a hypothesis is both easy and hard. First of all, it’s important that the majority (if not all) of your team have a stake in the creation of the hypothesis. It’s no good running out and proving there is a market for an early train catching SMS service, if half the team believe starting a bar that serves people who have missed their train is a better idea.After that, just start throwing questions out there that speak to your base assumptions. Why did you think this was a good idea in the first place? What makes you think people will value it? How do you know this?Once you have found what you think is your hypothesis, you can begin thinking about how to answer it.

How can I answer it?

This is where the rubber hits the road. Make sure you keep your approach simple – don’t over think it. Couch your thinking in the following ways.

“What is the simplest thing we could do here to prove our hypothesis?”…

Once you have this, then go and do it. For the above example, it might just be a Wufoo form that you spread around to your friends where they can sign up (for $10) to receive an SMS from you (personally!) 15 minutes before their train. Make this simple to do, and just get started doing it. Also, importantly, make sure you charge something of value. There is no point testing that people want a FREE train-SMS service. Who WOULDN’T want that? You need to test that people will actually value what you do enough to part with their hard-earned cash.

What then?

You’ve now successfully run the first version of your project. Some call this a Minimum Viable Product (MVP).

Now what? Can you positively answer your question? DO people want a train SMS service? Why? Why not? What lessons did you learn? What features do your potential customers really want? Which ones didn’t they use? How hard was it to sell?

Now, after taking a hypothesis and customer development driven approach, you’ll have some real insights into your idea and how people value it. And the beauty is, the hypothesis method doesn’t just have to be relevant for start-ups. I think there is a huge opportunity for people everywhere to use a hypothesis driven approach in their own slow projects, or even in their large companies. It’s important not to lose sight of the fact that this is a management methodology and as such, can be used to manage anything.

7 thoughts on “Lean Start-up: A hypothesis approach”

  1. I enjoyed your post. Best advice: “What is the simplest thing we could do here to prove our hypothesis?” True to internet startups impossible to some other ventures.

    tx,
    Daniel

  2. Thanks Daniel – I agree that it’s much easier to do this for web businesses, but I don’t think it’s impossible for other ventures.

    Sure, it’s hard to use a hypothesis approach for construction, or other large scale ventures – but I’d argue that for almost any venture (even ones completely offline) there is the ability to prove customer value *before* going down the road of building a large service that may or may not hit the mark with customers.

  3. I think the real question is what is the simplest thing you could do to disprove our hypothesis. If you can’t define when you have disproved the hypothesis you will ultimately accumulate enough “evidence” to convince yourself that you have proved it. I think the “Analysis of Competing Hypotheses” model is more robust because it forces you to consider alternative/competing hypotheses, some of which if true mean that you have to adjust your business model.

  4. Thanks Sean for the comment – I totally agree with your thinking that a key to the hypothesis approach is being able to disprove it- you make the point that you can always accrue enough data to convince yourself of anything.

    The Analysis of Competing Hypothesis sounds good – I’ll be sure to check it out.

  5. You might find this Harvard Business Review article of interest to apply hypothesis approach to larger companies – http://bit.ly/bZNwQ9

    You’re weighing a major strategic venture a first-time alliance, a new market, an innovative product. Beware: business history is littered with stories about smart companies that hemorrhaged multiple millions from ventures gone bad. Why such massive losses? Too many firms use conventional planning to manage their ventures, say McGrath and MacMillan. They make predictions about a venture’s
    potential based on their established businesses. And they treat the assumptions underlying those predictions— “The product will sell itself,” “We’ll have no competitors”—as facts. By the time they
    realize a key assumption was flawed, it’s too late to stanch the bleeding. How to avoid this scenario? As your venture unfolds, use a disciplined process to systematically uncover, test, and (if necessary)
    revise the assumptions behind your venture’s plan. You’ll expose the make-or-break uncertainties common to ventures. And you’ll address those uncertainties at the lowest possible cost—so you don’t set your venture on the path to ruin.

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