How to act like a child and unlock the hidden value of your business

TL,DR;

In my opinion, one of the biggest barriers to validating and testing a business idea is insufficient attention to detail. Sometimes this is because we simply don’t know enough about the question at hand. Sometimes, however, it is because we don’t want to spend the time and effort necessary to bring the answer to the surface.

Our desire to just get on and do something leaves us vulnerable to uncertainty.

The simplest way to avoid this mistake is to act like a child and ask a simple question. That question is: Why?

It helped make Toyota the company it is today, so there’s no reason why it shouldn’t help you, too.

In the beginning, there is uncertainty

Generally speaking, there are 4 stages that a typical start-up passes through on the way to establishing themselves:

• Ideate: What are you going to do, and who will you do it for?
• Validate: Does your target niche exist, do they recognise the problem you are tackling, and will they pay for it?
• Test: Is your proposed solution of use to your potential customers, can you make it work for them and for you?
• Scale: Can you make more money from each customer than it costs to acquire them, and can you get enough customers to generate sufficient revenue to keep going?

I’ve written before about how Value Propositions can help clarify the validate stage and form a bridge to testing. I’ve also described how Value Proposition Statements can be used to focus your attention and refine your message.

The Value Proposition is a mechanism for exploring and defining the problem to be solved. Its purpose is to establish whether your proposed solution is sufficiently effective at mitigating that problem for users to want to pay for it. In other words, it can be a very effective way of determining problem-solution fit.

Notice that I said it can be very effective, not that it will be very effective. How well it determines that fit is directly proportional to the amount of detail it contains.

From recklessness to managed risk

One of the defining characteristics of a startup is extreme uncertainty. Once you’ve created your Value Proposition Canvas your next task is somehow to verify it and mitigate as much of that uncertainty as possible. If you get it wrong at this stage, there’s very little chance of your start-up succeeding.

A useful approach to mitigating this uncertainty, and the risk it implies, is to identify as many as possible of the explicit and implicit assumptions you have made when creating the canvas. The danger here is that poor Value Propositions can leave many assumptions hidden, and poor assumptions are little help in reducing risk.

Some of the assumptions you have made will have relatively low impact on your business. They may need to be valid for your business to thrive but they won’t necessarily stop you succeeding.

Some assumptions, however, are absolutely vital to your business. These are the assumptions which, if they are not valid, can cause catastrophic damage to your start-up. In his book The Startup Way, Eric Ries refers to these as leap-of-faith assumptions or LOFA. These are the ones you have to test as soon as possible because if they turn out to be wrong you are in a whole heap of trouble!

How do we test assumptions? We turn them into hypotheses (in the scientific sense - i.e. a proposed explanation for a set of circumstances that can be tested). Hypotheses are specific, measurable and testable statements that can prove or disprove an assumption or assumptions.

The theory is that the sooner you can make your LOFA explicit the sooner you can test them and start to remove some of the uncertainty which makes life so difficult for a startup. As with many things, however, the theory can be much easier than the practice.

In my experience working with startups many of the most important hypotheses that founders identify are described in such abstract terms that they are virtually untestable. For a startup, an untestable hypothesis is no hypothesis at all. The same is true for the jobs, pains and gains described in the Value Proposition from which the assumptions are derived.

I would like to suggest a way of avoiding the pitfall of insufficient detail: release your inner child and use the Toyota 5-whys technique to dig into your LOFA and turn them into something useful and testable.

Why, oh why, oh why, oh why, oh WHY?

Much of what we now call Lean business has come from the Toyota Production System, or TPS. The TPS came about due to the extreme constraints that Japan was under following the end of the Second World War. At this time, the Japanese economy was in a very bad way, with money for investment being almost non-existent. In addition to this, Japan is a relatively small country in terms of land mass, with little purchasable land available to establish large factories.

It is around this time that Toyota decided to start making cars. Lack of money and land put them in diametric opposition to the Americans who at that point were world leaders in car production and had a great deal of both land and money available. Despite this, Toyota not only managed to find a foothold in the American market but have since become one of the world’s premier automotive brands.

“How did they do this?”, I hear you ask. The answer is the Toyota Production System. The TPS is far too big a topic to cover in a simple blog post (it literally takes decades for employees to become qualified in the TPS). What you need to know about the TPS is one of the techniques used by Toyota to turn inefficiency into advantage - The 5-Whys.

Lack of money and space led Toyota to perfect Just-in-time manufacturing (JITM). If you can’t afford to buy materials in bulk ahead of time and have nowhere to put them anyway while you wait to use them then it makes sense to order just enough to make the next batch, which is the essence of JITM.

One of the keys to JITM is constant monitoring of the production system and the ability to stop and fix problems as they occur. To this end, all employees on the shop floor were attached to a ‘kill switch’. If anyone noticed that a process they were monitoring was not working properly they threw the kill switch, which had the effect not only of shutting down their process but also of shutting down everyone else’s. In other words, the whole production line stopped.

Once the whole production line had stopped, the production team would gather around the operator who had triggered the halt. This is when they use the ‘5-Whys’ to determine the root cause of what happened and fix that along with the symptom which brought production to a halt. The idea is that by fixing the root cause the problem can be avoided in the future.

The technique is to ask the question Why? as many times as is necessary to arrive at the root cause. Each answer forms the basis of the next question. It was found that by the time “Why?” had been asked 5 times, the root cause had generally been identified.

The 5-Whys became a key element of Toyota’s success.

The answer lies in the weeds, not the clouds!

So how can the 5-Whys help turn abstract assumptions into testable hypotheses? The best way is with an example. When working with start-ups, it’s very common for me to see assumptions like this:

Customers will want to buy our product

This statement certainly qualifies as a LOFA - you absolutely need customers to buy your product in order to succeed. As a testable hypothesis, however, it’s pretty much meaningless.

Let’s take a minute to consider why we end up with true but effectively useless statements like this. There are many potential reasons, but here are a few of the most common:

• I’m not used to creating value propositions and business assumptions and don’t see the danger of insufficient detail
• I simply don’t know the answer
• I don’t want to be seen to be wrong
• I’m afraid to know the answer
• It’s hard work to define the answer
• It seems obvious to me, so what’s the point in saying it?
• It’s boring to go into all the detail
• I’m a driven person, I want to get on with doing something and this seems like wasting time

We need to be more like children, who at a particular age ask why all the time. The reason they do this is not simply to be annoying, but because they geniunely want to know the answer. They instinctively recognise their ignorance and embrace their curiosity. Given the stakes we’re playing with, shouldn’t we want to know the answer too, even if it takes a little more work? If we don’t know the answer, that’s a good thing to acknowledge too.

So how on earth do we break turn an assumption like this into a hypothesis we can test?

As The Mom Test explains so well, if you ask customers directly whether they will buy your product they are more likely to lie to you than not, making their answer meaningless and misleading. We need some other ways of answering this question that don’t involve simply asking our potential customers directly.

So let’s try to break it down into meaningful, testable hypotheses by asking why:

1. Why will they want to buy our product? - Because it saves them time (First why)
2. Why will it save them time? - Because they no longer have to do X for themselves (Second why)
3. Why do they no longer have to do X? - Because our patented Widget will do X for them (Third why)
4. Why do they want X done for them? - Because the process of doing X is tedious and error-prone (Fourth why, and root cause)

So, we’ve now reduced an abstract assumption to something we can test: Do customers agree that doing X is tedious and error-prone? But we needn’t stop there. We can ask “Why is doing X tedious and error-prone?. Who, exactly, do we mean by customers? We can also start to put a monetary value on doing X, thereby enhancing our Business Plan.

If you’ve done your Value Proposition correctly you’ll already know the answer to this question, but often the 5-Whys process uncovers jobs/pains/gains that were overlooked in the original Value Proposition. In addition, this provides the perfect opportunity for asking Why is our patented Widget system not tedious and error-prone? This not only provides secondary validation of the proposed solution but also contributes valuable information for our sales pitch.

This example is necessarily simplistic but is by no means unusual - I come across definitions like this all the time. One of the hardest things I have to do is to convince start-up team members to focus on concrete detail rather than abstract generalisation. This is primarily because defining all the detail is often hard, boring work. It is also often because the team has jumped straight to a solution before focussing sufficiently on the problem. However it may be, asking Why? is one of the most useful and powerful tools we have.

Just as not all problems have a single root cause so not all assumptions have a single testable hypothesis. It is more than likely that there are multiple questions that can be asked at each level, and each of these sub-questions can resolve into a testable hypothesis. The key is to avoid more assumptions and logic traps and trace the chain of causality as far as you can.

The take-away

The 5-Whys is not a silver bullet. It can take a lot of work and is really just the starting point for discussing LOFAs and creating hypotheses. It is, however, a relatively simple way of breaking a deadlock and opening up new opportunities for creativity.