Do you test your hypotheses?

No matter how smart we are, as entrepreneurs what we have on day one is a faith based enterprise. Devote one minute and forty two seconds to hear what Steve Blank, serial entrepreneur and Stanford consulting professor, has to say about swiftly turning your vision into a sustainable business model:

Startups are, to quote Blank, religious enterprises. Catch is 95% of the time entrepreneurial visions are hallucinations. And as we all know, entrepreneurial minds are prone to have ideas the world is not yet ready for. It’s hence of essence to make sure we are not ahead of time. Or simply have an idea the market does not want.

So how do entrepreneurs swiftly find out if they are hallucinating?

Steve Blank’s suggestion is to break down the vision into a business model. Then get out in a fairly formal way and test your hypothesis with your customers.


Why should we test our visions?

Because we are not smarter than the collective opinion of our customers, is Steve Blank’s answer. And he is definitely right about that.

If we find out that we are wrong we then make minor changes or, if necessary, a pivot, i.e. a substantial change, to one or more of the business model components. Then we keep on making minor changes or pivots until we have a sustainable business model.

The alternative is to passionately go ahead and try to make an idea that’s not sustainable succeed. Far too many entrepreneurs make that mistake. Some even go bankrupt as a result. Probably most frustration is caused by having ideas that the market isn’t yet ready for. Not least because someone else will launch it in the future. Testing your hypothesis enables you to wait until the timing is right and do something else in the meantime. Or, if possible, gradually launch your idea.

Do you agree with Steve Blank that 95% of the time entrepreneurs are hallucinating? Is it essential to go out and test your hypotheses with your customers? Have you ever tested your visions the way Blank suggests? If so, did you make changes the way he recommends and ended up with a sustainable business model? After hearing what he has to say, will you now go out and test your hypothesis and then make the changes necessary? Or are you of the opinion that the vision you believe in will succeed, provided that you work hard at it? 

Video: StanfordBusiness – You Tube

58 responses

  1. It’s very easy for entrepreneurs to be so passionate about their idea that they can’t see the bigger picture. When I first started consulting (years ago), I was in this situation. Finally, I connected with a marketing consultant from the SBA (the U.S. Small Business Administration) and I got a reality check from an expert. Bottom line – visions need to be tested by someone who is not personally invested.
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  2. Hi! I would dare to disagree with Mr. Blank, because I feel it is pretty invalidating for entrepreneurs to suggest they are hallucinating. That just rubs me the wrong way.

    I think their ideas might not be surveyed or developed further, but I would venture to guess that most have some kernel of an idea that could work. I don't like the negativity of the 95% hallucinate, but rather would say, 95% have an idea that with work and energy could develop into a winner. It's a different approach to mentoring. :-)
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    • Laura, that's the idea "keep on making minor changes or pivots until we have a sustainable business model":-)

      Someone who works with startups told me a couple of days ago about 5 percent succeeds. If a person has not got an entrepreneurial mind, chances of succeeding are next to none. Note that an entrepreneurial mind is different from carrying out entrepreneurial activity. But even if you have an entrepreneurial mind and have a fantastic idea that the world isn't yet ready for. It will fail. So testing your hypothesis is crucial.

  3. I am a serial hallucinater (sp?) but I wouldn't have it any other way, most of the time I am bought back down to earth with a big thud, but you only need to succeed once :)
    I do get so involved that I can't see the wood for the trees, to coin a phrase – but heck, my favourite quote is "if you're going to dream, you may as well dream big!"
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  4. It is definitely essential to go out and test your hypotheses with your customers. If you do not have a customer base, then you do not have a product, no matter how good it may be. It would be sad to have a fabulous idea and not test it, then find someone else making a success of something similar later on. Devastating really.
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  5. This reminds me of the concept of beta readers for novels that have not yet been published. There is nothing more helpful than getting honest feedback from someone who is not personally involved in a project. Someone with detachment can see much more than the person with their dreams on the line.
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  6. I do think there's a real danger that an entrepreneur's "big idea" can be impractical for many reasons – a hallucination, as you put it. Consequently, testing it with (potential) customers can yield great feedback that can enable the entrepreneur to modify it.

    There is a note of caution here, though. If the idea is truly ground-breaking and futuristic, the feedback might not be helpful as customers will typically look at things from more of a "here and now" perspective as well as a "how will this benefit me" one. In such cases, the feedback might well be discouraging and prevent the idea from truly taking hold.

    Imagine a scenario where Steve Jobs put forward the idea of another tablet (the iPad as it is now known) to Apple customers back in 2009. Given the previous failed tablet attempts (including the Apple Newton) it's quite feasible that the response would have been less than enthusiastic…

  7. I'm always hallucinating ideas! But I do very often, do polls and questionnairres, to find out if what I want to do is want people want. This was a helpful reframe – business dreams or hallucinations. I'm back to it now.
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  8. I believe with anything you do, you should ask for the opinions of others. Sometimes we get so focused on our own visions that we narrow down what we see and neglect the big picture. Other times our ideas are good but could be better and just need some tweeking from an outside perspective. It is very similar to writing. We can spend so much time reading and re-reading our material trying to edit it, but we will most likely end up still missing mistakes because we have become so familiar with the text. In this case, it is best to give it to a fresh pair of eyes who can pick up on the mistakes
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  9. Our household researches everything before making a move on anything, including business. So in some respects I guess this is testing.
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  10. I struggle with two parts with this. It seems he’s suggesting to do customer research. It’s a good idea but if you have a small budget to start out with then not only is customer research costly to do but if you idea is out there, someone else with the money and resources to do so may snatch you idea and go with it. Alas, I’ve seen it happen.

    • Joanne, no matter what you do, there is always a risk someone else will steal it. Happens daily. Not even having a patent will protect you one hundred percent. When you test your idea on customers don’t tell them everything there is to know. Just ask them if they would like to achieve whatever it is your product or service will accomplish.

  11. I agree with GuyW that customers don't always know what they want or need. Did customers know they needed an iPad? Steve Jobs never did market research because he felt customers didn't know. Of course, the Steve Jobs of this world are few and far between. The rest of us slog through, mostly making it up as we go along. I had no grand plan to build a practice in social media. I thought it was something I needed to know and over time it became"build it and they will come" which is no way to run a business!
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    • Jeannette, apparently Bill Gates came up with the idea of an Ipad long before Steve Jobs. Catch is he was too early. Presumably he tested the market and decided not to go ahead with it?:-)

  12. I agree with him and you should test your idea and business model. Today there are many tools that you can use as well as observing online and offline. One thing to remember is to be careful how you test and the questions you ask as you can get different answers that may lead you in the wrong path. I think the one thing some entrepreneurs do is think about the idea from their point of view rather than customers.
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  13. You have to test your vision. As an individual I think having a vision is central to decision making, so if the vision is not grounded in anything more than wishful thinking, then so are the decisions that follow. Its great to dream (or hallucinate) but if you're going to invest your time, money and effort into an idea putting it to the test is just common sense. If you apply the same thinking to an organization, then an untested vision can easily lead to poor productivity, poor client service and eventually financial problems.
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  14. Using my own business as an example taking the collective intelligent of customer would probably not be a good idea. Most customers don't have a clue what they want. All they know is they want it now. Taking a vision and making it work you need to have some idea of what business model will work. If the age of baby boomers did not take their visions when they were new generation of entrepreneurs the US would not be where it is today with free thinkers. Unfortunately today many entrepreneurs hallucinate because they do not know how to come up creative ideas. The world of technology is great but too much has not allowed for testing a qualified vision.
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    • Arleen, part of the reason is that today, for some reason, we no longer differentiate between an entrepreneurial mind and carrying out entrepreneurial activity. The latter anyone can do. They hence don't have what it takes and really need to test their ideas. Having said that, I have an entrepreneurial mind and sometimes have ideas that are ahead of time. Testing them are hence a good idea because it enables me to understand that the market isn't yet ready for them.

  15. I can honestly say I'm not a serial entrepreneur, What I am is a planner. Passion about an idea is only that, until a plan is developed to determine the viability of the idea. I have seen it work (or not) both ways. I have witness an impassioned project that failed miserable because the concept did not work. I have also seen a concept succeed because there was a methodology applied that gave it direction and bench marks. A smart entrepreneur would know to do that. Just my thoughts.
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  16. I myself am not an entrepreneur, but I've worked three different internships with self-starters and have seen first-hand that you can't grow an idea without feedback from your potential customers. I think most important to learn from your customers is the environment in which you're selling your product or service. A bakery, for example. What if the trend of cupcake-only shops is on its way out the door? The best way to learn this is from the people who would potentially be supplying your business. It's about adapting and growing with the times.
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  17. Interesting that Steve Blank says that entrepreneurs are hallucinating 95% of the time. I don’t know how accurate that number is, but I do believe it makes sense to test your hypothesis. But even that can be tricky. If we’re really smitten with an idea, we can, even subconsciously, skew the test to our desired results.

    • What he's talking about, Donna, is people with entrepreneurial minds not people merely carrying out entrepreneurial activity. Entrepreneurial minds are genetic. I got mine from daddy and constantly have ideas that really mainly are "hallucinations". Whenever we come across a good idea we think about how we could develop it into something else and the ideas flow all the time. If people with entrepreneurial minds don't learn to test their ideas they will end up in one disaster after another. What I'm trying to say is, we know we have entrepreneurial minds and if we don't put a strain on ourselves we should probably be locked in for our own good:-)

    • Patricia, I believe, maybe wrongly, that like me you have an entrepreneurial mind. Surely you stop yourself when ideas flow that have nothing to do with what you do but could be a good business venture? Don't you then test and analyse it before going ahead with a new company and an investment of time and money?

      • Right Catarina. While I stop myself with unrelated ideas about a business venture, I actually don't always test. Case in point, when I first started as a corporate trainer around 1991, it was slow go. My husband and I happened on a karaoke business on a get-away weekend. It was so exciting to both of us and so many people were getting up and singing, we took the idea home with us. We operated that business for 2 years and it was fabulously successful. But we did NOT come home and test it out first. Our test was seeing it in operations in a city about 500 miles from where we live. Hence, hallucination.
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  18. New entrepreneurs definitely need to have a vision and I agree that this should be tested to see how it works. The rub here is that if you are new or are just putting a business plan in place you many not have the customers to test it. I think the more logical approach would be to get input from business professionals – Government Business Support Agencies, Accountants, Lawyers and peers at the Chamber of Commerce – for a start. I think you would then have better knowledge of whether you should move forward, put the project on hold or cancel the idea. That’s my thinking anyway.

    • Good points, Lenie. The halucinations actuallly take place long before you start putting together a business plan. Even a business plan may show that it's not a viable project.

  19. Superb post! I come from an entrepreneurial family, and so the idea of working for myself was not hard to embrace. But as Steve Blank says, sometimes we have to modify our initial business model once we see that it is not working out exactly as planned. If we are flexible and focused … we will succeed!

    P.S.: I love the new look of your blog, Catarina.
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  20. The measure of your success will be by the number of customers who are willing to use your product/service. We can all have wonderful ideas – the real work is convincing others of the same. If there is no demand for your product/service then it does not matter what you choose to do.

  21. Sometimes when we’re so vested in an idea our vision becomes myopic. We don’t see the problems in our periphery. I think the other piece to that is we fear failure. But if we reframe our thinking, from “pass or fail” to “outcomes” it helps neutralize an unexpected outcome. Often In research, we learn more from what doesn’t work than what does.

    • What Steve Blank is talking about is those of us who have entrepreneurial minds, Pamela. Not to be confused with carrying out entrepreneurial activity. When you have an entrepreneurial mind ideas flow at an increadible speed. You see or hear something and you ave ideas about how that could be turned into a business. And not to forget we often have ideas that the world isn't yet ready for. Believe me, if I hadn't thought things through I would have started thousands of companies by now. Trial and error when you have an entrepreneurial mind would ruin you financially. Boring but true.

  22. Yes! I agree! I'm not sure it's hallucinating but there believe there may times that we get too wrapped up in an idea and it loses clarity, even varies from the original. We do tend to make things more complicated than they need to be, right? Laugh! Also have seen things that are just a bit before their time! Testing is the way to go!

    • Absolutely, Jacqueline. But when have entrepreneurial minds we don't complicate matters, on the contrary. We get too enthusiastic. So we really need to slow down an look at if it's a viable business venture.

  23. It seems as though products and services can be brought to market so quickly and easily now that there is an over-emphasis on speed. More focus on being first rather than being right. That’s one reason why entrepreneurs don’t go through the kind of due diligence that Blank is talking about.

    • If you had an entrepreneurial mind, Ken, you would understand what he is talking about. Carrying out entrepreneurial activity is different. He, and I, know from experience that when you have an entrepreneurial mind ideas have flown at an incredible speed since you were a toddler. But to go ahead and turn them all into businesses can easily ruin you. Am sure you have come across people who go from one failure to another. They most likely have an entrepreneurial mind and don't test before they go ahead with a project. Frequently they have huge debts.

        • Thank you. Can't publish the link because of Google. Have you thought about the fact that it's not only businesspeople that are entrepreneurs? Criminals are a prime example of entrerpeneurial minds even when they come from the lowest level of society.

  24. As a business analyst, I do think that sometimes entrepreneurs dream with their hearts, and do not think with their head. The worse of theses do not even see with their eyes. They passion does not allow them to look indecently at what they are doing.
    I think we should take a step back, look at each stakeholder’s perspective. Imagine themselves as the customer, and I think things would appear “real” very quickly.

  25. Great video and I do think 95% of the time we are hallucinating. It's hard work to break down our vision and possibly admit to ourselves that our grand plan isn't going to work. We hang in even when things are going wrong. I love the terms "iterate and pivot." As entrepreneurs we need to develop the courage and the resources to make adjustments to our business.
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