Test it or ignore it? Stefan Posch Partner Contact Stefan Michael Faschingbauer Partner Contact Michael How to put innovation hypotheses to the test Anyone leading innovation should not mix two things: What we know and what we think we know. We should examine and test what we believe to be a hypothesis. But not all hypotheses are equally important. With a hypothesis matrix, you can find out what you should test and what you can safely ignore. This accelerates your innovation project and saves a lot of time and effort. Make the assumptions explicit and formulate them as hypotheses Everything is a hypothesis Particularly in the early phase of innovation projects, we have to assume that we hardly know anything: We work on new ideas and topics that come with a high degree of uncertainty. We often don’t know what the customer really wants. We certainly don’t know what he or she is willing to pay for our idea. Sometimes we don’t even know who the customer is. At best, we have assumptions. What do we really know? For an innovation team and its backers, it is only possible to “manage” this uncertainty well if it is written down and thus made transparent. For example, when you have an idea for a new business model, you may assume many things that you take completely for granted. You rely on your experiences, and the things you hear and see, then you combine those things with your imagination. You are making assumptions. You may say, “There is a need for x,” “It is important that product y can do this or that,” or “There is a big market for z.” Once you realize that you don’t know things for certain and are making assumptions about them, then be clear and make your assumptions explicit. From there, it’s just a small step to formulating a hypothesis. Hypotheses need to be tested A hypothesis starts with phrases like: “I believe that…”. You might then say, for example, “I believe that there is a need for x”, “I believe that y is the most important feature”, and “I believe that the size of the market for z is 100″. Think of your innovation idea (business model) as a collection of hypotheses of all kinds. By writing down the hypotheses, you make the associated uncertainty visible to everyone in the team. This makes it clear what you need to check as quickly as possible to reduce the uncertainty of your innovation project. But checking and testing your hypotheses takes time and effort. Therefore, the question is “What is important, and what can be ignored?” In other words: Which hypotheses are you better off testing early in the process? How do you prioritize? The hypotheses matrix Start by writing down all the hypotheses on post-its and filtering out the ones that relate to value for customers. For some of these unknowns, you may already be pretty confident they are true. For others, you have a guess at best. So, this is about the degree of uncertainty. Put that on the horizontal axis of your hypothesis matrix. Some of your assumptions – right or wrong – will have minimal impact on your success. Others, however, may be highly influential. This is about the “importance to success” of your innovation. Put this on the vertical axis of your matrix. Not everything that is uncertain is relevant to success Now go through all your hypotheses – one by one – and make your judgment: Do you have good evidence that it is true, or is it based purely on a gut feeling? This will help you determine the level of uncertainty for your hypothesis. Shifting the hypothesis to the right means: “not sure – high degree of uncertainty”, while shifting it to the left would mean: “pretty sure – we know it based on observations, assessments, previous sales” and so on. The second question is: How important is the hypothesis for your success? Will the entire business model collapse if your hypothesis doesn’t come true? Or is it a small problem that can be easily offset? The bigger the impact, the higher up you place the hypothesis in the matrix. Minor problems land at the bottom. „Critical Unknowns“ first When you are satisfied with the assignment of all the hypotheses in the matrix, look at the two or three hypotheses in the upper right corner. These are the ones you should test and verify early in the process! We call these the “Critical Unknowns”. Identifying the “Critical Unknowns” will give your team focus in the face of all the uncertainty. Hypothesis matrix with the “Critical Unknowns” in the upper right corner But please always remember: Prioritizing hypotheses is a subjective weighing process. It is usually easier to do in a team. That’s why we recommend using post-its and going through the process on a whiteboard or flipchart, or on a digital whiteboard. It’s worth the time to really discuss what items you are prioritizing and why. This will save you time when it comes to actually testing what is important. Think of the hypothesis matrix as an overview of your level of knowledge or uncertainty at a given point of time, and then continue to update it with each insight. The team can use this tool as a “living document” until they are certain they are on the right track with their innovation project and can move forward into concrete implementation.