Assume at Your Peril!!!

If I were only allowed to give you one piece of advice as a budding entrepreneur, it would be: avoid assumptions. Obviously assumptions are part of everyday life and becoming an entrepreneur requires comfort with uncertainty. However, most failures can be traced back to one or more bad assumptions.

Believing in the marketability of a product or service that cannot find its market is the most fatal assumption. I call this the Contemplate Your Navel Test, where instead of asking potential customers their wants and needs, you simply keep your eyes down and fixed on your belly button while assuming that your buying behavior will mirror the market.

Assumptions regarding money are often fatal as well. Do you know how much money it will take to develop a product and file, prosecute, maintain and defend your patents? Do you know how quickly your customers will pay you versus the credit terms suppliers will offer you? Do you know what inventory levels you will have to maintain? What gross margin you can your market support, and for how long? What marketing budget will be necessary to drive your sales projections? Of course, you cannot answer all of these questions today with perfect accuracy, so you must do the best you can with limited resources and imperfect information.

Assumptions linked to timing are also of critical importance. How many businesses have you heard failed because they were ahead of their time or too late in a crowded market? How many more have you seen grow during an economic boom, only to crash during a recession. Making incorrect assumptions regarding how your company will fare in a dynamic and competitive marketplace or a recessionary environment is common. We all want to believe that we are simply better than our competition and that the good times will roll on and on. But we usually are not, and they do not. It is wrong to believe that successful entrepreneurs always view their glass as half full. If you want ensure that you have water to drink, then do not assume that a drought will never occur.

Bad assumptions also come up in the more mundane, day-to-day management of your business. For example, say your supplier has promised delivery of raw materials by next Tuesday. Do you assume that this will happen and, thus, schedule a production run for Wednesday? What assumptions are you making about this supplier’s past performance or their control over shipping and delivery? Similarly, if your customer has asked when you can deliver a finished product, do you assume that you will be able to assemble, pack and ship by the end of that week, or should you give yourself a little leeway for Murphy’s Law. While you may want to please your customer by promising delivery by the following Monday afternoon, if you fail to meet this promise, you may damage your reputation.

So how can you manage for uncertainty and avoid assumptions? The answer is that you minimize assumptions when possible, identify your unavoidable assumptions, and then expect the unexpected. This may seem like too easy a solution, but in practice it is very challenging. Most of us like to be optimistic and prefer action over analysis; however, a ready-fire-aim approach is no way to conduct an offensive in battle or business. Instead, here is a typical thought process I try to employ before making a decision:

1. What assumptions underlie my decision?
2. Can I test or prove the validity of these assumptions prior to acting upon my decision?
3. Looking at the remaining unavoidable assumptions, how would my decision change if these assumptions are wrong?
4. Can I modify my course midstream or should I alter my path now based on considering the probabilities that my remaining assumptions are wrong?
5. What key observations and measurable parameters pertaining to my assumptions should I track going forward to determine whether my decision is still sound?

This thought process may seem too clinical at first, but I think you will find that after reducing it to practice a few times, it will become second nature. When successful and experienced entrepreneurs speak of “instinct” and “common sense,” a lot of this boils down to a practiced thought process to identify an opportunity or threat, assess feasible solutions, avoid unnecessary assumptions, and manage for unavoidable uncertainty.