Leap of faith assumptions are the real power of entrepreneurs because the entire venture depends on it. If they are true, then great opportunity awaits. If they are false, the start-up/business risks total failure.
– Eric Ries (author of The Lean Startup)
Many organizations choose to invest their scarce time and resources developing new products and/or services without having first validated that there is a market.
One frequent cause for this is the solution looking for a problem syndrome, where startups or more established companies neglect to fully understand or verify the problem first.
Without realizing it, the growth leaders of these organizations have made what is often called a “leap of faith assumption” that is, they have assumed there are ready and willing buyers for their offering.
Logic and common sense tell us that it would be very smart to verify this assumption before investing in building a solution.
Unfortunately, common sense is not always common practice!
There are several related common leap of faith assumptions made by company growth leaders. In this article, I will share what these strategic traps are and offer some guidance on how to avoid them.
Let’s get started…
Defining Leap of Faith Assumption
Every good strategic plan begins with a set of assumptions. After defining these assumptions, growth leaders next develop a strategy that uses those assumptions as a foundational starting point and build a plan around them that will achieve the organization’s objectives.
In general, you can categorize assumptions into two buckets:
- Technical – assumptions you make about topics like usability, construction, efficiency, and reliability of your product or service.
- Commercial – assumptions you make about topics like what prospects want, how you will market, sales channels, and customer success.
The goal for growth leaders is to test their assumptions as quickly as possible. For most assumptions, this is not that difficult. In fact, some assumptions can be validated from past experience or simple deduction based on accepted facts. For example, people need to eat food to live, or companies need to sell their services to grow.
Other assumptions, often related to functional details of the proposed product or service, require field-testing with prospects. This will be a topic for a future article.
In the world of startup and growth strategy there is a special subset of assumptions that are more challenging. These assumptions are so fundamental, that the success of the entire business rests on them. If they are true, tremendous opportunity awaits the company. If they are false, the company risks failure. Because they are unknown and highly risky, they are often called “leap of faith” assumptions.
Eric Ries popularized the leap of faith assumption concept in his book, The Lean Startup.
Note: Don’t be misled by the title of the book – the principles apply to any size or maturity of organization. In fact, his definition of a “startup” is: A human institution designed to create a new product or service under conditions of extreme uncertainty. This definition purposely does not include anything about company size, industry, or sector of the economy. It applies to any organization.
Growth leaders need to recognize that leap of faith assumptions are the riskiest elements of their strategic growth plans. They are also more difficult to validate, therefore there is a temptation to take them for granted, or simply gamble that they are right and not wrong.
Many startups and more mature companies have failed because they did not prioritize and properly validate their leap of faith assumptions first.
Critical Leap of Faith Assumptions
Growth leaders must try to validate as many of their assumptions as possible before they invest in developing a new solution to a problem. However, the critical assumptions, the ones we call leap of faith assumptions, should be the priority.
Leap of faith assumptions most often focus on the demand side of the equation. Why is this the case? Because if there is no demand, then there is no sale, and if there is no sale, then there is no business opportunity.
In my experience, here are the three most critical leap of faith assumptions that startup founders and established company growth leaders make:
- The ultimate “leap of faith” assumption – is that prospects actually want the proposed solution. Making sure there is market demand is critical. If you solve a problem that people want to fix that is great news.
- The next is – prospects recognize they have the problem. Or, are they living in ignorant bliss? This is not necessarily a showstopper, but if prospects don’t know they have the problem it means your marketing and sales process will be more complicated because you will have to educate on the problem and then the solution.
- The third is – prospects are willing to pay for a solution. If people recognize they have a problem and want your solution, will they pay for it? This should be obvious – it is extremely hard to build a business model around a solution that nobody will pay for!
Validating Your Leap of Faith Assumptions
The Lean Startup Methodology pioneered by Steve Blank and optimized by Eric Ries was designed to help growth leaders quickly identify their critical leap of faith assumptions so that they can test them out on potential customers. Then they can decide whether to stay the course (continue validating and begin developing the solution) or change directions (pivot). A future article will cover this process in greater detail.
Discovery can only happen when growth leaders get out of the building and talk to real live prospects in the marketplace. Only then can you learn if potential future customers have a significant problem worth solving.
How do you do this? – By asking and getting answers to deeper questions like:
- Do people really have the problem you think they have?
- How do they describe the problem?
- How do they address the problem today?
- Is your concept a better alternative for them?
- What is solving the problem worth?
- What is the cost of inaction?
- Where would they search for a solution?
- How would they like to buy?
- Where would you find more customer like them?
One proven strategy for growth leaders is to identify and prioritize their most risky assumptions to tackle first. Why? Those assumptions that are scary or make us uncomfortable are also the easiest to push aside. It is human nature to embrace what is familiar and safe, just as it is to avoid risk and the unfamiliar. Focus first on the leap of faith assumptions that have a high level of importance for project success along with a short duration of time to test.
Conclusion
Just because you “can” create a new solution is not a good enough reason. The real question is “should you?” – This can only be answered by determining that it is a solution to a problem that people want to solve and will pay for.
Before starting to create a new product and/or service, growth leaders must ensure they can positively answer critical leap of faith assumptions around demand for their proposed new product or service. A positive response will provide greater clarity and confidence to proceed.
-Onward
About the author: Kimball Norup is the founder of 1CMO Consulting, a business strategy and growth advisory firm based in Sonoma, California. To read prior articles, or sign up to receive future ones by email, click here.