Testing Hypotheses Using the Validated Learning Approach
Chances are, you’ve heard something along the lines of, “There are no failures. There are only successes and lessons.” Well, even if that is true, entrepreneurs must be conscious of how many resources and how much time goes into learning those lessons. Moreover, failure is often not required to learn. In a concept first proposed by Eric Ries in his book The Lean Startup, the process of validated learning allows entrepreneurs to learn valuable information about their product or service while using their resources as efficiently as possible.
Testing business hypotheses through the validated learning approach saves time and money as well as ensures that businesses are making products that are valuable to their target market. Businesses operate on numerous assumptions such as who their target market is, or how much people will be willing to pay for their product. Lean Startup methodology teaches a way to identify the assumptions your business operates on so that they can be tested before they are implemented.
This post will explain the complete process of identifying, testing, and learning from hypotheses by using these three steps:
Eliminate assumptions
Test hypotheses
Receive honest feedback
Identify & Eliminate Assumptions
The first step of validated learning is to identify assumptions and make them testable. Let’s assume there is a startup in the world that created a delivery service for professors whose whiteboard markers ran out of ink. For a small delivery fee, there would be a student in the building that would bring the professor a fresh, new marker. This startup has two explicit assumptions:
Teachers often run out of whiteboard markers and need new ones
Teachers are willing to pay for a service to correct that
The business plan also has several less obvious implicit assumptions (assumptions implied by the business plan). These assumptions also need to be identified and tested. For example, the business assumed that the school does not already supply markers for free. Identifying assumptions such as this one allows businesses to change course as needed. If the startup found that schools provided markers for free, then its target market should be the school and not the teachers.
Identifying Assumptions in a business plan eliminates unknowns and allows a business owner to reduce any unnecessary information gaps before they move forward with their product. It erases waste caused by foreseeable consequences of the business plan and transforms assumptions into testable hypotheses.
Testing Hypotheses
The second task is to test the assumptions in the most cost-effective way possible. Zappos is one of the greatest examples of this. In the beginning, Zappos founder Nick Swinmurn made a huge assumption: people would want to order shoes online rather than in-store. His MVP was simple: he would go into stores, take pictures of their shoes, and post them online. When people ordered them, he would go into the store again, buy the correct size and model, and then ship them for a small fee to the customer. For almost no investment and minimal time, Zappos was gaining revenue and testing their value proposition at the same time. If he would have done this only to figure out that he made a product no one wanted, he could have walked away with minimal time and monetary loss to him. The risk was small but the reward was enormous. Zappos has become one of the largest online shoe stores in the world and was bought by Amazon in 2009 in an acquisition worth $1.2 billion.
Gathering Honest Feedback
The last part of the Validated Learning process is customer feedback. To illustrate this point, we are going to use Google’s brand new service, Stadia. Stadia is the first in an ambitious new wave of online streaming platforms for video games. Because Google is the first to tackle this endeavor, all eyes are going to be on them. Competitors such as Microsoft are already working on a platform of their own to rival Stadia. One of the best ways for Google to ensure that their product remains at the top is to solicit honest feedback from early adopters. Is the user interface sub-par? Can people properly find the services they provide? This is where customer feedback becomes invaluable. Google has lots of viable questions to ask their early adopters. Early adopters are essential to quality feedback because their input feels valued, they are likely to be honest, and they are less likely to stop using the product or service because of a less-than-ideal experience. Ask them relevant questions that are in your control. Google would worry about the smoothness of their servers, whether there was any buffering, if the users enjoyed the selection of games, et cetera. Feedback paves the way for effective learning from the target market of the product. Not to mention, it is often completely free.
Validated learning, when used effectively, solves startup problems throughout the process with as little waste and as much learning as possible. By eliminating assumptions, testing hypotheses, and receiving feedback, a startup can eliminate as much risk as possible while saving the most time and money. Validated learning is a cyclical process, meaning it never stops. Startups should be constantly innovating and soliciting feedback on those innovations. Innovation is vital to a business, but it needs to be done efficiently to avoid the worst-case scenario: wasting resources on a product that no one wants. There will always be uncertainty when launching a new product or service, but Validated Learning ensures that uncertainty is brought to a minimum while resources are used as efficiently and effectively as possible.