This article on Testing Assumptions is the second in a 4-part series focusing on High Performance Management.
Last time we discussed goals and how it is essential that distant, overarching, goals be linked to everyday processes. We discussed the strategy for bringing those goals home and how to create a learning environment that will motivate personnel to pound away toward goals each and every day.
In this blog post, we’ll introduce a key consideration for choosing, refining, and optimizing all the goals and paths we choose for our organizations.
The truth is, there are no hard and fast rules for discovering what your product or output goals should be and what processes you should implement to get the output goals you want. Since each organization and each vision is so unique, goals cannot be determined by anyone else but you and they cannot be determined with perfect accuracy at the outset. They can only be discovered, the old fashioned way, through painstaking trial and error.
The cycle of trying, failing, analyzing, and adjusting, with the help of data generated along the way, is called the feedback loop. For simplicity’s sake, we can say the feedback loop has three main parts: trial, feedback, and adjustment. The feedback loop is the steering wheel of our organization. It is the mechanism we use to learn how well we are creating value and progressing toward our goals. It is also the mechanism we use to change paths when we find we are on the wrong one.
It would seem out of that the first phase of the feedback loop, trial, would be the easiest one to do. It is the easiest in one sense – we can’t avoid doing it. We are all, all the time, doing trials of what we think will make us successful. Whether we are consciously creating hypotheses and proceeding to test them or not, we are making assumptions about what we should be doing and acting on those assumptions.
Every business leader, no matter the business size or industry, has assumptions about the organization’s business, industry, products, customers, competitors, and effectiveness. For SMEs, however, those assumptions are likely to be much more fundamental. The very foundations of the business are often just assumptions – the business was founded on an initial basket of assumptions about the existence of customers, their preferences, and the entrepreneur’s ability to deliver value. Sometimes, the biggest assumption of all takes the form of, “If I build it, they will come.” That little sentence, at the heart of so many new companies, services, or products, is actually hiding potentially thousands of untested assumptions. In those cases where they remain unclarified and untested, they usually lead to disaster down the road.
“We’re going to be the Starbucks of the Bibimbap industry.”
Ideas about what we should be doing and what will bring us success may be derived from the leader’s experience, vision, or knowledge. Ideas may come from perceiving the shortcomings of other businesses or products. They may be a copy of another company’s perceived strengths. They may be a derivation by analogy of something seen in a partner, a competitor, or even a completely different industry. They may even have been created through our experience as a customer of some other business.
Assumptions must be tested.
Wherever they come from, assumptions are a necessary part of the trial and error process, but only the barest beginning. These assumptions must be tested, and tested well, before they can be relied on. They are only the raw material inputs for the feedback loop, not the answers they masquerade as. SME leaders, in particular, should keep this in mind when becoming enamored of the ideas they are basing their businesses on. SMEs get less do-overs because each trial costs a proportionally larger amount of their available capital. Testing assumptions early costs less than testing them late. Testing them before building product, before hiring sales staff, and before beginning marketing, costs less than testing them after doing these things.
Come back when you’re sure.
In many businesses, assumptions are rarely clarified to any point where they need to be in order to be effectively tested. There are implicit assumptions hidden away inside the explicit ones – covert assumptions we may not even realize we are making. When testing assumptions, we need to be sure we are testing the right ones, and not testing something different from what we think we are testing. That is why it is of the utmost importance to uncover the actual assumptions we are basing our businesses on.
Clarification and testing of assumptions require courage.
Often, the way we talk about our businesses, the language we use, allows us to further obscure the hidden assumptions in our plans. We often talk about our businesses with false confidence and false surety in order to build support for ideas, to create buy-in, and to persuade. These types of communication, by nature, allow for assumptions to stay hidden.
In many organizations, there is never a good time to bring up doubt or to broach the idea that there are very important unknowns. Such admissions may lead to crushing loss of support from board members, investors, key employees, or partners. So leaders who are less than sure about the way forward and who know they should be testing their assumptions instead of committing their organizations to pursuing expensive, untested, potentially ruinous paths of action, often suffer in silence, unable or unwilling to step forward until it is too late.
Too late is too expensive.
Difficulties not withstanding, silence is even more detrimental to the organization over the long term because if we don’t clarify our assumptions, we can’t test them. If we don’t test them, we’re going to be wrong more often than right. If we don’t utilize the power of the feedback loop to inform us of what we’re doing wrong, we won’t know we’re wrong until it is perhaps too late. Too late is when a product no one wants is already built. Too late is when the infrastructure for a marketing plan that won’t work is already laid out. Too late is when expensive hires for an initiative that is going to have to be abandoned have already been made.
If I build it, will they really come?
Can I build it at all?
Are these the features the customers really want?
Will they know they want it?
Do they have money?
Do they even exist?
Rodney J. Johnson is President of Erudite Risk and Co-Founder of the KBLA. He has lived in Asia for most of his adult life, but still longs for good Mexican food.
Steve McKinney is the President of McKinney Consulting an Executive Search and Leadership Consulting firm based in Seoul, Korea, a Certified Master Coach and Co-Founder of the KBLA.