How Testing Assumptions Can Improve Performance?

The lowest load-bearing part of a building is usually referred to as the foundation. The foundation of a building determines the kinds of adversities a building can withstand. A business is no different. All businesses rely on having a solid foundation. That foundation determines the how much load that business can withstand.

All businesses are built on a set of assumptions. The longer the business is in the market the more these assumptions are tested. Many entrepreneurs struggle to articulate the underlying assumption of their businesses. For example, I often hear clients or prospective clients proclaim, “I/we don’t do any marketing.” Marketing refers to anything you do to attract clients. Consequently, it’s impossible to be a business with clients and not do any marketing. What’s happening here is that these entrepreneurs haven’t articulated their approaches to marketing. In most cases, when we dig deeper these entrepreneurs are doing marketing that is either informal or implicit. Our job is to work with them to make their marketing activities formal and explicit.

The longer the business is in the market the more these assumptions are tested.

When we make their marketing formal and explicit, they can begin to evaluate their assumptions. How then might one bring to the surface the assumption of their business? In our model, every business is built on four cornerstones: Strategy, Structure, Systems and Processes, and Financial Management. Using this framework to analyze your business can quickly reveal the assumptions you have made and ultimately included in the design and implementation of your business.

Strategy for example, refers to the alignment of outputs, objectives, capabilities and resources with the opportunities and challenges the environment provides. When an entrepreneur is able to test their assumptions about how their activities are aligned with opportunities and challenges within their environment, they increase the chances of create a path to building a successful and sustainable business. It has been our experience that entrepreneurs don’t see their assumptions until they are provided with an opportunity of testing them. Once they have articulated their assumptions, they are able to evaluate, test, and strengthen them. When this new knowledge is acted upon, it can significantly impact their business.

For many entrepreneurs, the biggest opportunity in their business lies in improving and optimizing systems and processes. A process is a pattern or methodology that is repeatable, distinguishable, and transferable. A system, on the other hand, refers to a bundling of processes. When entrepreneurs are able to effectively increase effectiveness (doing the right things) and efficiency (doing things right) in their business they put themselves on a path of being able to build systems that are repeatable and transferable. Having articulated their systems and processes, they are able to understand where they can make improvements or adjustments. This new information gives the entrepreneur power. It gives them the clarity to know where they need to focus and how they are able to implement quality and continuous improvement initiatives. They now have insight into where they can either redesign or improve the systems and processes in their organization.

When entrepreneurs are able to effectively increase effectiveness (doing the right things) and efficiency (doing things right) in their business they put themselves on a path of being able to build systems that are repeatable and transferable.

The four cornerstones of business can be thought of as a heuristic or framework for building a successful and sustainable business. It gives you, the entrepreneur, guardrails within which you can operate. It helps you take that which is implicit and informal and makes it explicit and formal. When you think of building a business, it is important to think about how you align the Strategy, Structure, Systems and Processes, and Financial Management. These cornerstones form the foundation of your business and give you the capacity to test your assumptions. Armed with improved assumptions entrepreneurs are in a better position to build a strong foundation for their business. This journey of testing their assumptions sets the stage for redefining performance.