Thursday, June 20, 2013

Ideas to Straetgies - Hypothesis Driven Approach

“Ideas are cheap. Always be passionate about ideas and communicating those ideas and discoveries to others in the things you make.” This is one my my favorite quotes when it comes to thinking strategies which something more tangible to make ideas really happen.

There are number of tools and frameworks to evaluate and validate strategies whether the ideas make business sense. I would discuss Hypothesis Driven Approach particularly for startups or for large companies looking to grow by entering new markets. This approach is applicable for both because most new business don't fail because of technology limitations but from lack of market demand many of the principals are universally applicable to iterative customer focused development.

First, it starts with Customer Discovery to see whether a product solves a problem for an identifiable group of user. Next, in Customer Validation step, you should see the market is scalable and large enough that a viable business might be built. Customer Creation should be done through a repeatable sales and marketing road map. Lastly, in Company Building stage, company departments and operational process are created to support that scale. This assessment and validation should be done until you understand your customers' top problems (eg. How much will they pay to solve them) that your product concept solve them, and a day in the life of a customer, and the organization chart of buyers and users.

Whether to make sure every steps in the right track, Customer Problem Solution (C-P-S) Hypothesis would be helpful. Example is as follows.

Customer: I believe my best customers are Marketers.
Problem: They have no idea if a specific campaign is generating a return on investment (ROI).
Solution: Analytics that easily demonstrate marketing ROI

With the objective is to define a hypothesis that is testable, this thought can be even more specified.

Customer: I believe my best customers are small and mediumsized business (SMB) marketers.
Problem: Who cannot easily measure campaign ROI because existing solutions are too expensive, complicated to deploy, and display a dizzying array of nonactionable charts.
Solution: Low cost, easy to deploy analytics systems designed for non-technical marketers who need actionable metrics.

The solution should not necessarily for mass population. You could be better off to target Early Adapters who  1.Have a problem; 2.Understands they have a problem; 3.Are actively searching for a solution; 4.Have cobbled together an interim solution; 5.Can acquire a budget for a solution to solve this problem. Your goal of CPS Hypothesis would be to propose first solution of a minimum feature set for these early adapters.

This validation and scaling activities can not be more important. According to the research on failing startup, 70% of startups scaled premature scaling is the most comon reason for startups scaled prematurely along some dimension. While this number seemed high, this may go a long way towards explaining the 90% failure rate of startups. The study suggested takes 2-3 times longer to validate their market than most founders expect.

It doesn't necessarily mean you should have a perfect business plan. According to conventional wisdom, the first thing every founder must do is create a business plan—a static document that describes the size of an opportunity, the problem to be solved, and the solution that the new venture will provide. Typically it includes a five-year forecast for income, profits, and cash flow. A business plan is essentially a research exercise written in isolation at a desk before an entrepreneur has even begun to build a product. The assumption is that it’s possible to figure out most of the unknowns of a business in advance, before you raise money and actually execute the idea.

It truly means that strategists accept that all they have on day one is a series of untested hypotheses—basically, good guesses rather than engaging in months of planning and research. So instead of writing an intricate business plan, strategists summarize their hypotheses in a framework like business model canvas which can be a diagram of how a company creates value for itself and its customers.

Essentially, this thought process will make people think faster, get feedback and validate the guesses more often. As a specific road map of these guessing process, Erick Ries suggest the process as follows in his article of Harvard Business Review.



Traditional management education focused on existing businesses. However to deal with the forces of continual disruption, robust hypothesis approach will be more helpful them meet it head-on, innovate rapidly, and transform business.


Source: 
Harvard Business Review - Hypothesis-Driven Entrepreneurship: The Lean Startup
Steve Blank, Why the Lean Start-Up Changes Everything(http://hbr.org/2013/05/why-the-lean-start-up-changes-everything/ar/6)
Sean Ammirati, Customer Discovery & Hypothesis-Driven Entrepreneurship, Tepper School of Business
Startup Genome, http://blog.startupcompass.co/pages/startup-genome-report-extra-on-premature-sca

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