Welcome to the Dreamit Dose. In the next five minutes, we're going to talk
about how most startups get killed by usually two to three key assumptions.
How to identify them, how to de-risk them, and how to make sure it doesn't
happen to you. Let's dive in.
In the last 30 years of being an entrepreneur and investor, I've learned
that every single new idea, every sales forecast I ever look at, is always
based on two to three critical assumptions. The problem is, the entrepreneurs
and startups never seem to get that point.
What I want you to think about is what are the two to three most
critical assumptions you're making that if you're wrong you're dead.
Think about that, and if you want to think more narrowly
a friend of mine used to use, and still uses, a great line.
What's the bet? What's the single most critical assumption you're making
that your idea, your startup, your forecast, is going to work?
Let's say I was going rock climbing, and imagine I'm standing there and
I'm hanging off the edge of the cliff. I'm hanging there off that rope off
the edge of the cliff. I've got my Scarpa climbing shoes on, I've got carabiner.
Just imagine that person hanging 50 feet down on a 100 foot cliff.
My question for you is, what's the bet? What's the one most critical success
factor that they're not going to die that day? If you think about it
their biggest bet, is the rope isn't going to break. It's not their helmet
It's not their carabiner. It's not their Scarpa climbing shoes.
If that rope breaks, you're done.
So what I want you to think about as you're thinking about your early stage idea,
what's that rope break issue for you?
Let's think about it a little further and let's use an example from nineteen ninety-nine.
When the team and Tony Hsieh got involved with Zappos,
what was the bet? Amazon was already running
they'd been up for five years. What the bet Zappos was making, is that
people would buy shoes online. So what did they do? They maniacally focused
on that assumption. They assumed that they weren't exactly going to be
correct and that they had to figure that out. They went down to the store.
They took pictures of shoes. They posted it online. They didn't even hold inventory.
Because if they couldn't de-risk that critical assumption
that people would buy shoes online, they were toast. They spent all their time,
no leasing warehouses, no big software team, no inventory.
De-risk that critical assumption. How are you going to do that for your startup?
I realize I'm going quickly. Please leave your questions in the comments
section below. Make sure to subscribe we have a lot more coming.
So I want you to think about how do you turn assumptions into knowledge
as quickly and cheaply as possible.
Because remember as assumptions go down value goes up. This is all about
consuming your intellectual capital before consuming venture capital.
Now you've learned about this in fifth grade when you're in elementary school.
You learned about something called the scientific method. Do you remember
what it is? Think about it for a minute. The first step in the scientific
method is you form a hypothesis. Exactly. And then you set up an experiment
to prove or disprove your hypothesis. That's what assumptions and de-risking
is all about. Setting up successively important critical success factors or
critical assumptions and de-risking them as quickly and cheaply as possible.
That's what it's about. That's what I want you to do. That's what I want you to focus on.
So that works when you're really early stage startup even as you're moving to your Series A.
What are those biggest assumptions?
How are you going to de-risk them with your basic idea of your business?
Maybe you're getting into your sales pipeline. What are your two to three
most critical assumptions going into that pipeline going into that forecast?
How do you de-risk them as quickly and cheaply as possible? That's it.
Keep asking what are your most critical assumptions? What's the bet? What's
your rope break issue? That rope breaks, your dead. Keep setting up experiments
to as quickly and as cheaply as possible change assumptions into knowledge.
Do that, and you're on the path to success.
I look forward to answering your questions in the comments section.
That's your Dreamit Dose in five minutes. See you next time.