No Room For Assumptions in Business
Assumptions are a part of every business. Some business owners are aware of their assumptions at all times. Some are acting upon assumptions without being aware they are counting on an assumption. If you are a business owner, beware, because without verification, assumptions can result in strategies based on hope and hope alone. With verifications, assumptions can result in strategies yielding your intended future results. So next time you make a plan, change a policy or launch a new product or service, be aware, write out your assumptions and then verify them. You’ll be glad you did! Here are three examples of what I mean.
A current client of mine is launching a new product. As we prepare our plans for developing the product, establishing a supply chain and distribution channels, we are diligently marking our assumptions, and gaining confirmation of these assumptions directly from our target market. Some of these assumptions include what we think customers want for features in the product, how much they are willing to pay and what their key purchase criteria are. Confirming these assumptions, because we talked to enough customers first, will eliminate the high probability of guessing wrong, as guessing wrong causes massive losses. Inversely, confirming and verifying assumptions this increases your chances for getting it right and results in greater chances of gaining the success you desire.
Knowing your customer is an essential part of any successful company. Whether you are a startup, or an existing company, you will need to profile, in great detail, your customer. At this point, the customer you think you have is nothing more than an assumption. It’s to your advantage to talk to some of these customers in your profile to determine if you assumptions are correct. Don’t be worried if these assumed customers turn out to be non-customers. If this happens, you’ll need to refocus your efforts on the right customer. If you need to refocus your efforts, be satisfied, because you may have saved millions of dollars by not attempting to sell to uninterested customers and seeing a goose egg for a sales number. Verifying your customer, before you risk millions of dollars into your venture, gives you dependable sales.
Business Models and Business Plans
Business models and business plans are chock full of assumptions. It’s extremely easy to overlook them. Some of them may be obvious such as a sales channel selection of direct sales versus distribution sales. Others are not so obvious, such as basing your product or service cost structures on estimates and not upon verified actual market costs. The variance between the two can be crushing enough to stop your business from moving forward profitably or may result in your asking for too little funding. A recent business plan prepared for a client involved no less than thirty assumptions, all of which needed to be considered and written down as part of the business plan.
How To Manage Your Assumptions Well
If you want to take the guesswork out of your business, look at your assumptions at every decision you make, especially in the planning phases of any decision. Follow these steps:
- Unverified assumptions = dramatically increased risk of loss
- Proven assumptions = dramatically increased chances of success
- Write down all your assumptions and be sure to challenge them
- Be sure to verify all of your assumptions with actual confirmation
- Build your strategies on verified assumptions
How much time and effort do you give to listing, challenging and verifying your assumptions?