Lean Risk – 2: Testing Assumptions

Start-ups are based on assumptions, as is any innovation or project. Assumptions are a major source of risk where it is not clear what they are, or where the original assumptions get forgotten and get taken as fact.

The philosophy of the Lean Startup has introduced the concept of the MVP or Minimum Viable Product.  The MVP is specifically intended to test the assumptions in a startup, innovation or project at a very early point. So, you use a series of MVPs to work out if your assumptions are right; and if they aren’t, you change tack before you have racked up too much cost.  It isn’t just Version 1 of the product that you then add functionality to.

As Eric Ries explains in his book The Lean Startup, if you are a media startup wanting to sell advertising, your assumptions will probably include that your idea can capture the attention of a defined customer segment, and that you can sell that attention to advertisers.  The riskier assumption is probably that you can capture the attention of a defined customer segment in the first place, so your initial MVP should test this premise.  If it doesn’t then you pivot to another strategy.

One area where you might have expected some innovation and a series of tests of MVPs is in retail in the UK.  It is only March, but so far this year, Maplin and Toys “R” Us have gone under.  New Look has announced store closures, Debenhams is getting rid of 25% of its management positions, M&S and Tesco are shedding jobs, and John Lewis’s profits have slumped by77%.  Apparently, people are spending their money on going out instead, however – Byron Burgers, Prezzo, and Jamie’s Italian have all been closing outlets, Carluccio’s has put itself up for sale, and the owner of Café Rouge and Bella Italia has racked up bigger losses.  Change brings risk, and sometimes not changing brings considerable risk.  Surely a time for innovation.

Story source:  The Lean Startup – Eric Ries, The Economist.

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