Wasting Time Validating Assumptions?

Most founders following a lean startup approach understand the importance of documenting and validating assumptions.  My team and I have been doing it since day one.

But recently I began to realize that validating assumptions can also be a waste of time.  In a startup your most precious resource is time and focus.  If you waste too much time on things that don’t directly impact your ability to succeed, you will almost certainly fail.  And if you do succeed, it will be based mostly on luck.

Prioritization is Everything in a Startup

The best way to avoid wasting time is by prioritizing how it is used. Since so much of the focus in an early stage startup should be spent validating assumptions, an essential task is to prioritize the assumptions that need to be validated. While more information about your market is always helpful, certain market assumptions probably aren’t that critical to your success.  As with any data, “actionable” is a key word here.  If validating or disproving an assumption is not going to change your actions, then it may be interesting, but isn’t actionable.

Crystallize Your Vision of The Successful Business

So how do you determine critical, actionable assumptions in your business?  You should start by crystallizing your vision.  This is an important part of success anyway.   In fact a classic book that studied many of the most successful entrepreneurs in history highlights this exercise as the single most important thing they did.

Visualize every detail of your business when it’s successful. You should be able to answer questions like:

  • How will customers discover us?
  • What will be their first experience?
  • When will they realize they’ve found something great (what specifically will they be doing)?
  • Why will they think it’s great/important?
  • Why will they think it’s better than the old way?
  • How will they describe us to other people?
  • How will their experience evolve with our business?
  • When and how will we generate revenue?
  • How will we reinvest that money to accelerate the business?
  • Why will the whole model be repeatable and scalable?

Document every detail you can possibly imagine that describes your successful business.  The more you visualize it, the more you will really begin to believe it.  This will help you generate the authentic passion needed to raise money, attract talent and partners…  It will help you connect to the emotions that are so critical to getting people to take a leap of faith on your vision.

Time for a Reality Check

Now stop drinking your own cool aid!  Document everything that will need to go right for this vision to be a reality.  What are the core assumptions that if proven wrong will make it completely non-viable?   These are the assumptions that will be critical to validate.  These are the things that will cause you to need to course correct.   The earlier you can see the realities that affect your assumptions, the sooner you can get on the right track.

Of course broader market assumptions will also be important over time.  They can help you develop a strategy to pursue bigger market opportunities.  However, startups are too resource constrained to spend time on these assumption until fully vetting the base assumptions that support your original business premise.

Expect some debate about the order in which assumptions need to be validated.  It won’t always be clear which assumptions are critical to success and which are just nice to know.  But some level of prioritization will ensure that you maximize time spent validating the most important assumptions.

Ideal Ratio of Product Vs Marketing Spend for a Consumer Startup

Below is an answer I recently put on Quora… Since I haven’t posted on my blog for so long, I figured some people not on Quora might find it useful.

Your marketing spend should be very minimal until you validate that you have created a product that people want or need (an important exception is for network effect products, which I’ll cover later). I would suggest 95/5 ratio between product and marketing. You don’t necessarily need a marketing person on the team to do this early validation.

Once you’ve validated that people want or need the product, you should spend as much as you possibly can on customer acquisition as long as the value of each user exceeds the cost of acquiring them. Often this requires raising additional funding, but if you can present proof of profitable, scalable marketing channels then it should be easy to raise the additional funding. Of course you should complement this paid customer acquisition with free sources if possible (and you can start these early in the validation process). If your product really does a good job solving an important need, you should also have strong organic growth. At this point the spend ratio generally tips toward marketing. I’ve seen it as high as 80% to marketing and 20% to product.

The exception for network effect businesses mentioned earlier is for the following reason… The user experience for a network effect product improves with each additional user. You may need to reach a critical mass of users before you can validate that the product is important for users.