Value Hypothesis & Growth Hypothesis: lean startup validation
You’ve come up with a fantastic idea for a startup and you need to discuss the hypothesis and its value? But you’re not sure if it’s a viable one or not. What do you do next?
It’s essential to get your ideas right before you start developing them. 95% of new products fail in their first year of launch. Or to put it another way, only one in twenty product ideas succeed.
In this article, we’ll be taking a look at why it’s so important to validate your startup idea before you start spending a lot of time and money developing it. And that’s where the Lean Startup Validation process gets into, alongside the growth hypothesis and value hypothesis. We’ll also be looking at the questions that you need to ask.
Table of contents
What does it mean to validate a lean startup?
Validating your lean startup idea may sound like a complicated process, but it’s a lot simpler than you may think. It may be the case that you were already planning on carrying out some of the work.
Essentially, validating your startup when you check your idea to see if it solves a problem that your prospective customers have. You can do this by creating hypotheses and then carrying out research to see if these hypotheses are true or false.
The best startups have always been about finding a gap in the market and offering a product or service that solves the problem. For example, take Airbnb. Before Airbnb launched, people only had the option of staying in hotels. Airbnb opened up the hospitality industry, offering cheaper accommodation to people who could not afford to stay inexpensive hotels.
The Lean Startup Validation methodology
“Don’t be in a rush to get big. Be in a rush to have a great product” – Eric Ries
Validation is a crucial part of the lean startup methodology, which was devised by entrepreneur Eric Ries. The lean startup methodology is all about optimizing the amount of time that is needed to ensure a product or service is viable.
Lean Startup Validation is a critical part of the lean startup process as it helps make sure that an idea will be successful before time is spent developing the final product.
As an example of a failed idea where more validation could have helped, take Google Glass. It sounded like a good idea on paper, but the technology failed spectacularly. Customer research would have shown that $1,500 was too much money, that people were worried about health and safety, and most importantly… there was no apparent benefit to the product.
Find out more about lean startup methodology on our blog
How to create a mobile app using lean startup methodology
The benefits of validating your startup idea
The key benefit of validating your lean startup idea is to make sure that the idea you have is a viable one before you start using resources to build and promote it.
There are other less obvious benefits too:
- It can help you fine-tune your idea. So, it may be the case that you wanted your idea to go in a particular direction, but user research shows that pivoting may be the best thing to do
- It can help you get funding. Investors may be more likely to invest in your startup idea if you have evidence that your idea is a viable one
The value hypothesis and the growth hypothesis – are two ways to validate your idea
“To grow a successful business, validate your idea with customers” – Chad Boyda
In Eric Rie’s book ‘The Lean Startup’, he identifies two different types of hypotheses that entrepreneurs can use to validate their startup idea – the growth hypothesis and the value hypothesis.
Let’s look at the two different ideas, how they compare, and how you can use them to see if your startup idea could work.
The value hypothesis
The value hypothesis tests whether your product or service provides customers with enough value and most importantly, whether they are prepared to pay for this value.
For example, let’s say that you want to develop a mobile app to help dog owners find people to help walk their dogs while they are at work. Before you start spending serious time and money developing the app, you’ll want to see if it is something of interest to your target audience.
Your value hypothesis could say, “we believe that 60% of dog owners aged between 30 and 40 would be willing to pay upwards of €10 a month for this service.”
You then find dog owners in this age range and ask them the question. You’re pleased to see that 75% say that they would be willing to pay this amount! Your hypothesis has worked! This means that you should focus your app and your advertising on this target audience.
If the data comes back and says your prospective target audience isn’t willing to pay, then it means you have to rethink and reframe your app before running another hypothesis. For example, you may want to focus on another demographic, or look at reducing the price of the subscription.
Shoe retailer Zappos used a value hypothesis when starting out. Founder Nick Swinmurn went to local shoe stores, taking photos of the shoes and posting them on the Zappos website. Then, if customers bought the shoes, he’d buy them from the store and send them out to them. This allowed him to see if there was interest in his website, without having to spend lots of money on stock.
The growth hypothesis
The growth hypothesis tests how your customers will find your product or service and shows how your potential product could grow over the years.
Let’s go back to the dog-walking app we talked about earlier. You think that 80% of app downloads will come from word-of-mouth recommendations.
You create a minimal viable product (MVP for short) – this is a basic version of your app that may not contain all of the features just yet. So, you then upload it to the app stores and wait for people to start downloading it. When you have a baseline of customers, you send them an email asking them how they heard of your app.
When the feedback comes back, it shows that only 30% of downloads have come from word-of-mouth recommendations. This means that your growth hypothesis has not been successful in this scenario.
Does this mean that your idea is a bad one? Not necessarily. It just means that you may have to look at other ways of promoting your app. If you are relying on word-of-mouth recommendations to advertise it, then it could potentially fail.
Dropbox used growth hypotheses to its advantage when creating its software. The file-storage company constantly tweaked its website, running A/B tests to see which features and changes were most popular with customers, using them in the final product.
Recommendations and questions for creating and running a good hypothesis
Like any good science experiment, there are things that you need to bear in mind when running your hypotheses. Here are our recommendations:
- You may be wondering which type of hypothesis you should carry out first – a growth hypothesis or a value hypothesis. Eric Ries recommends carrying out a value hypothesis first, as it makes sense to see if there is interest before seeing how many people are interested. However, the precise order may depend on the type of product or service you want to sell;
- You will probably need to run multiple hypotheses to validate your product or service. If you do this, be sure to only test one hypothesis at a time. If you end up testing multiple ones in one go, you may not be sure which hypothesis has had which result;
- Test your most critical assumption first – this is one that you are most worried about, and could affect your idea the most. It may be that solving this issue makes your product or service a viable one;
- Remember SMART goals when creating your hypothesis:
- Specific – is your hypothesis simple? If it’s jumbled or confusing, you’re not going to get the best results from it. If you’re struggling to put together a clear hypothesis, it’s probably a sign to go back to the drawing board.
- Measurable – can your hypothesis be measured? You’ll want to get tangible results so you can check if the changes you have made have worked.
- Achievable – is your hypothesis attainable? If not, you may want to break it down into smaller goals.
- Relevant – will your hypothesis prove the validity of your product or service?
- Timely – can your hypothesis be measured in a set amount of time? You don’t want a goal that will take years to monitor and measure!
Even More
- Be as critical as possible. If you have created an idea, it is only natural that you want it to succeed. However, being objective rather than subjective will help your startup most in the long term;
- When you are carrying out customer research, use as vast a pool of people as time and money will allow. This will result in more accurate data. The great news is that you can use social media and other networking sites to reach out to potential customers and ask them their opinions;
- When carrying out customer research, be sure to ask the questions that matter. Bear in mind that liking your product or service isn’t the same as buying it. If a customer is enthusiastic about your idea, be sure to ask follow-on questions about why they like it, or if they would be willing to spend money on it. Otherwise, your data may end up being useless;
- While it is essential to have as many relevant hypotheses as possible, be careful not to have too many. While it may sound like a good idea to try out lots of different ideas, it can actually be counter-productive. As Eric Ries said:
“Don’t bog new teams down with too much information about falsifiable hypotheses. Because if we load our teams up with too much theory, they can easily get stuck in analysis paralysis. I’ve worked with teams that have come up with hundreds of leap-of-faith assumptions. They listed so many assumptions that were so detailed and complicated that they couldn’t decide what to do next. They were paralyzed by the just sheer quantity of the list.”
In conclusion – take the time to validate your product
“We must learn what customers really want, not what they say they want or what we think they should want.” – Eric Ries
According to CB Insights, the number one reason why startups fail is that there is no demand for the product. Many entrepreneurs have gone ahead and launched a product that they think people want, only to find that there is no market at all.
Lean Startup Validation is essential in helping your business idea to succeed. While it may seem like extra work, the additional work you do in the beginning will be of a critical advantage later down the line.
Still not 100% convinced? Take HubSpot. Before HubSpot launched its sales and marketing services, it started off as a blog. Co-founders Dharmesh Shah and Brian Halligan used this blog to validate their ideas and see what their visitors wanted. This helped them confirm that their concept was on the right lines and meant they could launch a product that people actually wanted to use.
FAQ
Validating a startup idea before development is crucial because it ensures that the idea is viable and addresses a real problem that customers have. With a high failure rate of new products, validation helps avoid wasting time and resources on ideas that might not succeed.
The value hypothesis tests whether customers find enough value in a product or service to pay for it. The growth hypothesis examines how customers will discover and adopt the product over time. Both hypotheses are essential for validating the viability of a startup idea.
Eric Ries recommends starting with a value hypothesis before a growth hypothesis. Validating whether the idea provides value is crucial before considering how to promote and grow it.
When creating and running a hypothesis, consider the following:
1. Focus on testing one hypothesis at a time.
2. Test your most critical assumptions first.
3. Ensure your hypothesis follows SMART goals (Specific, Measurable, Achievable, Relevant, Timely).
4. Use a wide pool of potential customers for accurate data.
5. Ask relevant and probing questions during customer research.
6. Avoid overwhelming your team with excessive hypotheses.
Validating your product idea before development helps you avoid the top reason for startup failure—lack of demand for the product. By confirming that there is a market need and interest in your idea, you increase the chances of building a successful product.
Lean Startup Validation helps entrepreneurs avoid the mistake of launching a product that doesn’t address a genuine need. By gathering evidence and feedback early, you can make informed decisions about pivoting or refining your idea before investing significant time and resources.
Certainly. Suppose you’re developing a mobile app for dog owners to find dog-walking services. Your value hypothesis could be: “We believe that 60% of dog owners aged between 30 and 40 would be willing to pay upwards of €10 a month for this service.” You then validate this hypothesis by surveying dog owners in that age range and analyzing their responses.
The growth hypothesis examines how customers will discover and adopt your product. If, for example, you expect 80% of app downloads to come from word-of-mouth recommendations, but feedback shows only 30% are from this source, you may need to reevaluate your promotion strategy.
Yes, Lean Startup Validation can be applied to startups across various industries. Whether you’re offering a product or service, the process of testing hypotheses and gathering evidence applies universally to ensure the viability of your idea.
To gather accurate data, focus on reaching a diverse pool of potential customers through various channels, including social media and networking sites. Ask relevant questions about their preferences, willingness to pay, and potential pain points related to your idea
Being critical and objective during validation helps you avoid confirmation bias and wishful thinking. Objectivity allows you to assess whether your idea truly addresses a problem and resonates with customers, ensuring that your startup’s foundation is built on solid evidence.
