An untested idea is essentially an assumption. How Testing Your Riskiest Assumptions Early Leads to a Better Product.

And businesses often fail because founders make assumptions about their business or product without backing them up with real-world data. But in order to create a successful business or product, you need to be able to prove that your assumptions and ideas are valid—otherwise, you might as well be running your business on unicorn dust!

Validating ideas and assumptions is not a destination—it’s an ongoing journey. Learning to validate early is a like building a muscle you’ll use again and again during your startup journey, the more you do it, the stronger your product gets.

Validating your assumptions can be an uncomfortable process for founders. At Cogent we’ve coached many founders through this process to help them build a stronger product that resonates with their target users.

So, how do you find your riskiest assumptions? How do you know which assumptions to prioritise? And more importantly, how do you address them? In this article we’ll cover how you can identify your riskiest assumptions and why going through that process ultimately leads to a better product.

The benefits of testing your riskiest assumptions

Sometimes, what sounds like a great idea might not actually turn out great in a real-world setting. So there are a few reasons why testing your riskiest assumptions is an important process:

  • Find A Winning Idea – The main purpose of testing your riskiest assumptions is to avoid wasting time in building something that’s not useful or sustainable—basically, it’s to ensure that you’re are building something people actually want.
  • Save Time – You might spend 6 or 12 months building your idea into a digital product, only for it not to be the right product. By testing your riskiest assumptions, you can validate your idea at the beginning of your project to save time, and avoid a lot of potential headaches later on.
  • Save Money – Testing riskiest assumptions ensures that your idea is not only valid, but that it’s also the right idea for you to pursue, before investing in a full product build.
  • Valuable Insight – Riskiest assumption testing often results in valuable insights you wouldn’t have uncovered otherwise. You can use the results and insights from the tests you run to inform future decision-making and product plans.

How to identify your riskiest assumptions

Let’s go through our process to give you an idea how to identify and address your riskiest assumptions.

Lean Canvas

While you might be excited by your idea’s potential, others don’t see what you see – what they see instead is something untested and risky. That’s why, according to Ash Maurya, you should first tackle what’s riskiest and not what’s easiest, in your business model.

When we validate ideas at Cogent, we’ll often start by working with you to create a Lean Canvas. The Lean Canvas succinctly maps out a business model and its key parts and lets us figure out where the biggest gaps are.

The Lean Canvas succinctly maps out a business model and its key parts and lets us figure out where the biggest gaps are.

The Lean Canvas enables us to uncover the underlying assumptions in our client’s business model that we need to test, and to identify the riskiest parts of their business plan.

Often, we’ll break off any big underlying assumptions into smaller ones, as those will be much easier to disprove.

Ranking Your Riskiest Assumptions

When you fail to correctly prioritize your risks, it doesn’t matter how many experiments you run—you’ll get sub-optimal results. So once you’ve identified your assumptions, it’s time to rank them by order of riskiest to least risky.

The more uncertainty around a specific concept, the larger its potential impact on your business.
The more uncertainty around a specific concept, the larger its potential impact on your business. So make sure you tackle the most important assumptions first!

Testing Your Riskiest Assumptions

Once you’ve identified and ranked your riskiest assumptions, it’s time to test them out by running a riskiest assumptions test (RAT)!

A RAT is a small test that targets the riskiest assumption in your business—it is designed to help you learn the most you possibly can about your assumption in a short amount of time and at the lowest possible cost, e.g. building a cheap version of a product that clients can quickly get in front of users to understand how they use it.

When you’re designing tests, you have to define the metrics that determine whether or not your assumption has been validated. What does success look like? What happens if the test fails? Once you’ve defined those metrics, you can start building an experiment around them.

Designing and Running Experiments

When we test assumptions at Cogent, we design low-cost experiments that validate or invalidate our clients’ assumptions. We’ll then implement these tests to collect data and analyse it, so that we can learn from it. This is often called the build-measure-learn cycle. During this cycle, what we learn informs the next experiment we build and then measure.

Below are a few examples of some of the experiments we run to validate an idea.

Customer Interviews

Unscripted interviews are a great way to find out more information about the problem your product is trying to solve. Are your customers who you think they are? Do they really have the problems you think they have? How does the customer solve this problem right now?

Customer interviews should be exploratory—you’re not trying to sell anything here. You’re trying to better understand the context of the problem, as well as gauge the problem’s importance. These interviews help validate that the problem you are trying to solve is a problem your customers actually have.

We recently did some research with a diverse set of business executives to find out more about how they give and receive feedback with their teams. What we unearthed in those interviews changed the shape of the product for the founder and helped steer them in a new direction. We’ve recently used Carrd as a testing tool and found it easy to use.

Landing Page Test

Landing page tests allow you to test your idea by pretending it’s already real. You can test your value proposition with a landing page that attempts to convert the customer to your product. This test helps validate your product’s demand and value.

Wizard of Oz Test

Fake it till you validate it! The Wizard of Oz test looks like it’s a real product, but behind the scenes it’s you that’s making it work. For example, we worked with a client who has a product that aggregates social media images for a brand. He sold the product to a client, thus proving demand, but for the first little while he was manually aggregating images in a spreadsheet himself. This test helps validate demand, value, and usability.

A/B Testing

/B testing allows you to test two versions of a page or marketing copy, and lets visitor interactions determine which one performs the best. The data is the most important part of this test. Use tools like Optimizely, Unbounce or Google Analytics to give you accurate data about what your users are doing on each version. This test is most useful when you can drive a lot of users to your test, to make sure results are statistically significant and meaningful.

This test helps validate demand, value, and usability (depending on what you’re testing, of course!).

Pivot or Persevere?

Once you’ve run your experiments and tested your riskiest assumptions, you have to be prepared to make hard decisions. Is your idea worth pursuing? Are there any major roadblocks that will impede on your success? Will you persevere with your project? Or will you pivot?

“The only way to win is to learn faster than anyone else.” – Eric Ries

Remember that the purpose of testing your riskiest assumptions and validating your idea is to learn. So it’s better to find out that your idea is unsustainable sooner than later. The sooner you can try another approach, the closer you get to developing a successful and sustainable idea or business!

What’s next?

Even if your idea turns out to be unsustainable, you’ll have learned a lot in a short amount of time, and you’ll be able to take that knowledge and apply it to a different assumption.

In due course, once you’ve found a solution and appropriate business model, you can move on and focus on software and scale—but not until you’ve validated your idea.

To learn more about how we can help you validate your project, get in touch.