Understanding the value hypothesis and the growth hypothesis
A hypothesis is something that we expect to happen in the future, and we try to recognize it and explain it with the current facts or evidence without the certainty of being true, it is a supposition.
People tend to do this for everything, but when it is related to our business we make assumptions on our product with what we already know, such as: the problem we are solving, the market, the customer we are directing to, etc.:
Examples of this can be:
• The magnitude of the problem of your potential client.
• The best channel to use for promotion (taking into consideration statistics and your customers’ profile).
• How much your client earns and how much is the cost of my product or service.
• How you will increase your number of leads.
• The resources needed.
All of these are hypotheses since we don’t have a way to make sure that they are correct, but it is necessary to think about them and keep them in mind for many reasons before starting, to evaluate the market and to think how they can change with our product or service.
A value hypothesis proposes an assumption on how a product is valuable to potential customers. Even though your “potential customers” could be an assumption as well.
A value hypothesis is more about the market now. It is a hypothesis that contains the exact value you would give to potential clients. At this point you have to think about how to offer something really valuable that solves clients’ problems and desires, and also, that they can use and buy.
It is related to the traditional market study that you have to do at the beginning of the development of your idea. But in this case, you make suppositions based on studies and the reach of your business.
These suppositions can give you the conversion percent you will have in a short and medium period of time, and the best part is that you can prove them by practicing exercises and experiments with people.
Examples of your reasons why people would use your product:
• Customers use my product because they want to share their special moments with others
• Customers use my platform because they want to learn how to develop a new career
• Customers use my app because they want to keep in touch with their relatives
A growth hypothesis is a supposition that looks like a plan about how your business will grow or evolve in the long future. This hypothesis makes the business scalable and sustainable through time.
This kind of hypothesis allows you to detect if the business you want to start is valid and if you will have enough amount of clients converted to support the costs structure, even if it can cover the evolution of your processes or production.
In the software world, usually, this hypothesis is used to explain how the system, app, or platform it’s going to be discovered by new users.
In that way, you can validate at the beginning if the business you want to start is sustainable and viable.
How is the value and growth hypothesis related to the Cobuild Process?
How we said some posts ago, in part 1 of Cobuild’s Process you have to validate the idea because you are going to improve it over time, this means that you’ll keep working on that until you make it more likely to succeed.
The complete process of validation will be surrounded by hypotheses: Problem, Hypothesis (everything you know about the problem they have), Product hypothesis (the things you will do to solve it), Client Hypothesis (Who is the client), Solution Hypothesis, Value Hypothesis, Grow Hypothesis, etc. So, the purpose of this stage is to prove them to a point that a least you achieve certainty that they are not completely wrong.
It doesn’t matter if you want to validate hypotheses on the future (growth hypothesis) or now (value hypothesis), the most important thing it is that you can finally be confident that your idea is the solution to the desires and necessities of customers.
So, the growth and value hypothesis are too much related with to Cobuild’s process in the first phase of validation. And as we said before, this is the most important step before starting a business.
A good and proven way to test a hypothesis is to use the Build-Measure-Learn feedback loop, proposed by The Lean Startup. Here the goal is to design experiments and create small tests to apply to potential customers, in order to acquire results, measure, and learn from them to achieve Validated Learning
Doing a value hypothesis and a growth hypothesis
You can make as many hypotheses of your business idea as you want, but here, we will show you a bit of advice on how to do it:
1. First, write the main idea.
2. Write down the next questions:
• Who is the client?
• What problems do they really have?
• How many potential clients like them are around?
• What can I do to convert them?
• Can they pay for my service or product?
• How much are they willing to pay?
• Where are they in the world?
• How can I have access to them?
• How can I attract them?
• How will my product be known?
• Which characteristics of my product add value to them?
• Do they have enough economical resources?
• How much do they earn?
• What are they looking for?
• What do I need to solve the problem?
• Which resources are involved?
• What is my expectation about the product in future years?
• Which resources will I need in the future?
• What do I think the conversion percent will be?
3. Answer these questions and order the list depending on your priorities.
4. Separate the answer on things you can know and make now from the things that are in the future. In that way, you will get the growth and the value hypotheses.
5. Write them and prove them by using testing, interviews, surveys, and other resources.
6. Get a conclusion
7. Improve your idea from there.
Let’s see an example
Now you know: the value hypothesis and growth hypothesis are more than necessaties to start your business idea correctly. They are in the first step of the Cobuild’s Process, and they will increase your chances of satisfying your customers. We invite you to do it now, and if you need any assistance we are here to help.
Startup Confidently by emailing us at: Hello@Navigate.Capital