Your Initial Business Plan is a Huge List of Assumptions

business plan

While in the coffee shop with your co-founder and blank sheets of paper for brainstorming you are in what I refer to as the “hope, vision, promise and potential” phase.  Anything is possible and the creative ideas flow each time the two of you meet.  Eventually an idea gets shaped to the point of seeming like a project is about to begin.  Now what?  For goodness sakes, don’t put your hands on the keyboard and start writing code.  Instead, use the concepts presented in this article to prepare to take your idea out for a “test drive”.

Startups Don’t Plan

I know, you’ve been told repeatedly to “move fast and break things” or “fail fast”.  No problem and no disagreement from me.  But in order to move fast or fail fast you have to start somewhere.  In fact, I wrote an article titled “Why Use a GPS When a Compass Will Do” and introduced the concept of getting down a “directionally-correct” path as quickly as possible.  So far, so good.

I also suggested in a previous article titled “Don’t Waste Time on a Business Plan” Doesn’t Mean Don’t Plan that even though 30+ page written business plans have been replaced with pitch decks, that doesn’t mean thoughtful, up-front planning isn’t required.  US Army 5-Star General and later President, Dwight Eisenhower once said “No battle was ever won according to plan, but no battle was ever won without one.”  But how does a startup get from chicken scratch on pieces of paper to a business plan?  The answer relies on assumptions and lots of them.

Most of the things you and your co-founder wrote down on the pieces of paper involved an assumption of some sort.  It’s possible that you also gathered some facts about the market size, growth rate, existing competitors and things like that.  But the areas that most define your idea and its unique differentiation involve making an assumption about something you believe to be true.

Time to Make a List

As the title of this article states, your starting business plan is mostly a huge list of assumptions.  You want to list out as many of those assumptions as you can identify.  And if you only end up with 8 or 10 on your list, you’ve got a long way to go.  Think more like 20, 30, 40.  In fact, the more innovative or disruptive your solution or business model are, the longer your list will be.

Perhaps this is obvious but the purpose of listing out all of these assumptions is so that you can validate them over time (discussed later in this article).  Validated assumptions translates to reduced risk.  Reduced risk with big upside potential is what both you and your prospective early stage investors are looking for.

To help create the list, consider concentrating on one phase of the business viability lifecycle at a time (see graphic below).  At this early point in your venture, spend most of your time on the first three phases: desirability, feasibility and viability.  Actually, of them, desirability is the most critical because if the world doesn’t suffer from the problem as you see it, they won’t pay money for the solution you’re planning to build.  And in that case it doesn’t matter if you are able to actually build it or wrap a business model around it.

Your Initial Business Plan is a Huge List of AssumptionsAs you later prepare to launch your product and gain your first paying customers you can come back to this exercise to list out your assumptions for scalability and sustainability.

What sort of assumptions am I talking about?  Below are a handful of examples related to the Founders Academy video library I produced and sell to make a little money:

  • I believe that most first-time entrepreneurs are missing both the skills and experience needed for building and growing a successful startup venture
  • I believe that most first-time entrepreneurs have a strong desire to educate themselves on topics related to building and growing a startup venture
  • I believe that streaming videos can be produced to deliver educational insights about successfully building/growing a startup
  • I believe that entrepreneurs prefer educational information to be delivered via streaming videos either instead of or in addition to written content
  • I believe that 20 minute topic-specific video modules are more digestible and, therefore, desirable versus longer compilation videos with broader coverage
  • I believe that most startup founders will be willing to pay $39 to rent a foundational set of 15 video modules
  • I believe that some startup founders will be willing to pay as much as $99 to rent a more comprehensive set of 50 video modules
  • I believe that videos can be self-produced and hosted in a manner that delivers a high-quality viewing experience
  • I believe that the content in individual video modules can be updated or enhanced with minimal effort

You get the idea.  I could go on and on when the videos will be first available, how I will make founders aware of them, how they are better than other videos currently on the market, what sort of reviews I will get, etc, etc.  Also notice how there are assumptions related to each of the 3 phases of the viability lifecycle.  More traditional startup ventures will also include assumptions related to the team they will recruit and the partnerships they will secure.

In fact, here is a starting list of categories to help you identify as many assumptions as possible:

  • The problem you are solving
  • The alternatives your customers have to solving the problem
  • The market you are serving
  • The competition you will encounter
  • The customer(s) you plan to sell to
  • The solution you are building
  • The methods you will use to attract customers
  • The way(s) you will make money
  • The team you will recruit

Avoiding Chaos

If you simply have a random list of 38 assumption statements it’s not going to serve as a valuable management tool.  Following are some actions you can take to avoid a chaotic mess.

Group the Assumptions

While in brainstorming mode with your co-founder, just go with the flow and write down as many assumptive statements as you can think of.  You can refine them later.  And at some point you’ll want to organize the assumptions into groups to better help determine completeness and also to later record your evidence of validation.  I typically recommend grouping by phase of the viability lifecycle but you might have a better way to group for your situation.

Not All Assumptions are of Equal Significance

While some assumptions are fundamental to success, others might have a workaround if they aren’t validated.  Another way to think about it is the significance of the needed pivot if a given assumption isn’t validated.  This might be obvious but you want to prioritize your work and associated validation activities on the ones rated high in significance.  To support this, include a column labeled “Significance” in your master, grouped list.

Evidence of Validation

Validation is rarely evident from a single action or observation.  If you look at my example list above for the Founders Academy video library, only the last one can be validated with a single action.  It’s the one that states “I believe that the content in individual video modules can be updated or enhanced with minimal effort”.  The first time I discover a simple method for making a change to a video, this assumption is validated.  But all the other assumptions require multiple observed actions or outcomes in order to evidence validation.

Rather than wait for full validation, it is often valuable to track hints of validation.  You might refer to it as “initial validation” versus officially “validated”, which is more definitive.  In this way, you will take actions to initially validate as many assumptions as possible (with priority on the ones of high significance) and then proceed until you gain full validation for as many as possible.

Alternative Approaches

The method I’ve described in this article represent just one approach to capturing all of the assumptions that make up your initial business plan.  Below are two alternatives to explore, if interested.

Business Model Canvas Categories

If you have produced (or plan to produce) a business model canvas or similar, you could use those categories as a guide.  Evaluate to make sure you’re getting full coverage of the important aspects of your future business plan, but it should work well with little or no modification.

Back of Napkin Approach to Tracking Progress

I describe this in another article titled “A Simple Back-of-Napkin Approach to Tracking Company Progress”.  The objective is less on listing and prioritizing the assumptions as described here and more on tracking validation progress on a weekly or monthly basis and also capturing the issues that have been identified along the way.

Taking the List out for a Test Drive

This topic is a full article by itself but is a very important aspect of this exercise.  Listing your various assumptions without attempting to validate them is like developing a full set of blueprints to build a new house but not reviewing them with a carpenter, electrician, plumber and other specialists that will actually build your house.

Educate yourself on the topics of Customer Discovery and Design Thinking, then put them to use.  And if you’re a customer of my Founders Academy video library, make sure to check out the module titled “Developing Your Idea”.  I sometimes offer this particular video module for free as a promotion.  If so, it will be listed at the top of my Videos page.

Don’t randomly wander through my blog.  Take my free online courses instead!!!

I’ve created three online courses, comprised of multiple lesson modules, each including a logically-structured sequence of articles to read, short streaming videos to watch and downloadable resources for your use.  The self-paced courses listed below can be accessed on my COURSES page.

  • Funding the Early Stages (3 lesson modules)
  • Launching Your Venture (4 lesson modules)
  • Growing Your Venture (6 lesson modules)
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