Many times, we take for granted the fact that running a business is really difficult. This is especially true in the startup world, where a company’s future is tied to creating a product with features that people will actually use.

“If you build it, they will come,” is a quote from Kevin Costner in Field of Dreams. While this is a great quote, this is not a sound business strategy

Traditionally, significant effort goes into creating a Minimum Viable Product, or MVP, and there are a lot of assumptions companies make in building their MVPs.

The last thing you want to do is to make it to market and find out that there’s no demand for, or interest in, your product. Therefore, businesses are increasingly turning to Riskiest Assumption Test, or RAT, framework.

Companies can use the RAT to evaluate the assumptions they are making about how viable their idea is in terms of product-market fit, their business model, their customer base, and how they measure success.

You can identify your riskiest business assumptions by using the following framework:

  1. Thoroughly Understand Your Business Model
  2. Decide on Your Hypothesis
  3. Experiment and Evaluate

Thoroughly Understand Your Business Model 

Being involved in a startup is exciting, and that energy and passion can help you with one of the most complicated, and sometimes confusing, parts of a business – understanding how it operates. 

According to Strategyzer’s Business Model Canvas, here are the nine factors that need to be accounted for in a company’s business model:

  • Customer Segments: Who are your users or customers?
  • Value Proposition: What problem are you solving? How are you creating value for each customer segment? What is the competitive advantage you are offering versus your competitors?
  • Channels: How are you interacting with, and delivering value to, your customers?
  • Customer Relationships: What type of relationship are you establishing with your customers?
  • Revenue Streams: What is your pricing model? How is your business earning revenue?
  • Key Resources: What is the infrastructure of your business? Which assets are most important to your business?
  • Key Activities: What are the key features or benefits of your product? What does your business need to be able to do?
  • Key Partnerships: Who is your business going to be working with?
  • Cost Structure: What are the expenses your business will incur, in order to exist?

Figuring out, specifically, what your business will do and how it will do it is a lot of work, but you’ll thank yourself in the long run to uncover now that there may not be a problem to solve, instead of assuming there is one.

Otherwise, you’ll end up like the Juicero, a Google-backed blender that required a persistent internet connection to operate and squeeze pre-made juice out of packets – more slowly than the human hand could…

Decide on Your Hypothesis

Hypotheses are for more than lab reports – “educated guesses” allow you to test your assumptions in a measurable way, before they have the opportunity to impact your business.

There are two things that a hypothesis should contain: 1) the question you are trying to answer (“is our problem big enough?” or “are we selling to the right customers?”), and 2) what you believe the answer to be, based on your assumptions.

According to UX designer John Noussis, you can determine what your riskiest assumptions are by quantifying, on a scale of one to five, the probability that your assumption is wrong and multiplying that number by, on a scale of one to ten, the level of impact to your business if that assumption is wrong.

An assumption that is incredibly off the mark, yet has very little impact in being incorrect, is far less risky than an assumption that is closer to being right but has a significant impact on your business. If you own a t-shirt startup, having an extra box of small shirts laying around is far better than having nothing but small shirts.

Experiment and Evaluate

After completing your hypothesis, it’s time to test it. You may wish to use conventional tactics, such as user interviews, wireframes, or you might want to explore a more novel approach.

In order to see if there was interest in a social media scheduling platform, Buffer’s Joel Gascoigne famously set up a landing page and tested if people would be willing to sign up for the product he was pitching. In seven weeks, he got 120 signups, and almost half of them started using the product he launched shortly thereafter.

Generally, there will only be a few applicable ways to test any given hypothesis and, while no test will ever have a 100% validation rate, the goal of the RAT framework is to help remove doubt from your assumptions. Even if there is some subtlety or nuance to a situation, being aware of it puts your company in a better position to succeed than blindly charging forward with an MVP.

According to CB Insights, 42% of startup failures are attributed to a lack of product-market fit; that is, businesses trying to solve problems that weren’t actually problems. We also live in an age where top brands that solve problems are not well-run businesses, relying on investor capital to stay afloat and without chance to be profitable for years. With this being the case, it’s easy to understand why startups are embracing the RAT concept.

At MindSea, we’d all agree that it’s better to spend some time and money up front than having to deal with the consequences of investing years and thousands of dollars into something no one wants or has a need for. Maybe Kevin Costner should have instead said, “If they come, you will build it.”

If building a new mobile app is in your sights, we can help! And we’ll use the RAT approach to help guide us through. Get in touch – a MindSea Product Strategist is waiting to help you today!