The success of a business is based on variables.
IF you can buy an item for $0.50, spend $0.20 more and sell it for $2, you have a GREAT BUSINESS.
IF you can only buy that item for $2, spend $0.50, and can only sell it for $2.30, you have a TERRIBLE BUSINESS. Better to just donate your money, and at least you'll end up feeding some African kids and feel better about yourself.
The difference between the great business and the terrible business is the variables.
You can be selling services, products, own a brick and mortar store, or any other type of business you can think of.
You can be in the home services industry, the toothbrush industry, the aerospace industry, the web design industry, or any other type of industry you can think of.
You can manage a fund, own a winery, manufacture giant dildos, run an accounting firm, or have any kind of business model you can think of....
NONE of those business types or industries or models are INHERENTLY good or bad. It is all dependent on variables.
That is why we test things.
Is _____ a good idea?
It always depends on the real world variables.
When I want to test an idea, I am looking at the variables. I want to see evidence that a few key variables will pass a certain threshold in order to be considered "viable".
In logic, an argument is a series of premises that support a conclusion. With a business idea, the success of that business is dependent on a combination of proven premises. When I test an idea, I am looking to find genuine evidence of a reasonably proven combination of premises that support the validity of an idea.
Example: I want to start a lawn care company.
What premises need to be proven true in order for me to validate this idea?
1. I need to be able to acquire customers (enough of them, and at a cheap enough cost)
2. I need to be able to hire employees (enough of them, at an adequate skill level, at a cheap enough cost)
3. I need to be able to have the employees perform work for customers at a profitable enough rate to have good margins.
4. I need to be able to manage enough of these customers and employees for it to be worth my time, and worth it to eventually hire a manager (at a cheap enough cost)
So what do you do?
You need to prove these premises true . That's the goal.
If you cant get customers, you're F*cked.
If you can't hire employees, you're F*cked.
If you can't get the employees to work efficiently and charge the customer enough to have good margins, you're F*cked.
If you can't manage enough customers or employees for it to be worth your time or profitable enough to justify having a manager run things, don't expect to grow very large.
Your steps are to identify the primary premises that need to be proven in order to succeed, and then test them as quickly, cheaply, and accurately as possible. Enough to not spend too much money, not take up years of your life, and not give you false positives or false negatives.
If you ask your next door neighbor if they want lawn care services and they say no and you give up, you tested your premise cheaply, quickly, but very inaccurately.
If you took a college course for an entire year, did tons of research, polled thousands of people, and decided it was a good idea to start a lawn care company, you took way too much time. You'll only be able to test like 2-3 business ideas your whole life. You've got very few chances.
If you took out a massive loan to start a business without getting even one customer, you did it quickly, but you haven't proven a single premise, and it could prove to be a very costly test.
A happy medium would be running some ads, getting some customers, doing some work yourself, hiring an employee or two, timing the work, and seeing how the numbers work out. Maybe some of the premises are more viable than you expected, maybe some of them are worse. Maybe it's super easy to find customers but slightly harder to find employees. Make an adjustment and run the numbers as they relate to your premises. Is it looking good? Or will it likely fail? Maybe it turns out pretty rough at first but you see some hope.
That is why we test, and that's the basic framework behind it.
You need to check the validity of your premises and get cold hard empirical evidence, as cheaply, quickly and accurately as possible.
"I paid $200 in ads and got 3 customers signed up on contracts paying $180 a month for a year. (180x12x3=$6480 revenue) for the year. Seems like a good return on ad spend"
"I timed my employee working and it took him 25 minutes for the customer that pays $x/mo. That means we will be profitable if we have 5 jobs like this per day. At this rate he'll be able to do over 10. Looks good"
"I posted a job ad and got 7 applicants in a week, scheduled 3 interviews and hired someone. I'll have to see how our second hire goes but I think this could work, he seems competent enough, and it only took two days to train him".
Etc...
Every business idea has different premises that need to be validated in order to work. When you analyze your business ideas properly and create your premises accordingly, you might find that your idea was ridiculous to begin with. Some have 1-2 premises, some have 10. Some are easy, some are absurd.
When you are "starting", you are just testing. Do not think of it as taking a risk. If it feels risky, you either need to adjust your testing procedure to either be cheaper, quicker, more accurate, or a combination, or you just need to grow a pair and take the leap. If a business idea takes way too much money, time, or cannot be tested accurately, you are likely not being creative enough. You should bang that shit out over a weekend or two.
Many times I hear new ideas and I use this process naturally. I usually have a pretty good idea at what "problem" someone is likely going to face. Usually the biggest hurdle is proving the premise of "being able to get sales". And usually that's the best thing to go after first. Usually when you can get sales, everything else can follow.
Recap...
1. The success of your business hinges on a certain number of "premises" being proven, just like a logical argument.
2. Prove your premises true based on evidence and real world results.
3. The perfect trifecta of testing is doing it fast, cheap, and accurate.
4. Take your real world evidence, see which premises are succeeding and which ones are struggling, look for new opportunities or adjustments, and decide to continue or kill the idea.
5. No testing of your premises = no good evidence it will work. That's actual risk, and it's silly.
IF you can buy an item for $0.50, spend $0.20 more and sell it for $2, you have a GREAT BUSINESS.
IF you can only buy that item for $2, spend $0.50, and can only sell it for $2.30, you have a TERRIBLE BUSINESS. Better to just donate your money, and at least you'll end up feeding some African kids and feel better about yourself.
The difference between the great business and the terrible business is the variables.
You can be selling services, products, own a brick and mortar store, or any other type of business you can think of.
You can be in the home services industry, the toothbrush industry, the aerospace industry, the web design industry, or any other type of industry you can think of.
You can manage a fund, own a winery, manufacture giant dildos, run an accounting firm, or have any kind of business model you can think of....
NONE of those business types or industries or models are INHERENTLY good or bad. It is all dependent on variables.
That is why we test things.
Is _____ a good idea?
It always depends on the real world variables.
When I want to test an idea, I am looking at the variables. I want to see evidence that a few key variables will pass a certain threshold in order to be considered "viable".
In logic, an argument is a series of premises that support a conclusion. With a business idea, the success of that business is dependent on a combination of proven premises. When I test an idea, I am looking to find genuine evidence of a reasonably proven combination of premises that support the validity of an idea.
Example: I want to start a lawn care company.
What premises need to be proven true in order for me to validate this idea?
1. I need to be able to acquire customers (enough of them, and at a cheap enough cost)
2. I need to be able to hire employees (enough of them, at an adequate skill level, at a cheap enough cost)
3. I need to be able to have the employees perform work for customers at a profitable enough rate to have good margins.
4. I need to be able to manage enough of these customers and employees for it to be worth my time, and worth it to eventually hire a manager (at a cheap enough cost)
So what do you do?
You need to prove these premises true . That's the goal.
If you cant get customers, you're F*cked.
If you can't hire employees, you're F*cked.
If you can't get the employees to work efficiently and charge the customer enough to have good margins, you're F*cked.
If you can't manage enough customers or employees for it to be worth your time or profitable enough to justify having a manager run things, don't expect to grow very large.
Your steps are to identify the primary premises that need to be proven in order to succeed, and then test them as quickly, cheaply, and accurately as possible. Enough to not spend too much money, not take up years of your life, and not give you false positives or false negatives.
If you ask your next door neighbor if they want lawn care services and they say no and you give up, you tested your premise cheaply, quickly, but very inaccurately.
If you took a college course for an entire year, did tons of research, polled thousands of people, and decided it was a good idea to start a lawn care company, you took way too much time. You'll only be able to test like 2-3 business ideas your whole life. You've got very few chances.
If you took out a massive loan to start a business without getting even one customer, you did it quickly, but you haven't proven a single premise, and it could prove to be a very costly test.
A happy medium would be running some ads, getting some customers, doing some work yourself, hiring an employee or two, timing the work, and seeing how the numbers work out. Maybe some of the premises are more viable than you expected, maybe some of them are worse. Maybe it's super easy to find customers but slightly harder to find employees. Make an adjustment and run the numbers as they relate to your premises. Is it looking good? Or will it likely fail? Maybe it turns out pretty rough at first but you see some hope.
That is why we test, and that's the basic framework behind it.
You need to check the validity of your premises and get cold hard empirical evidence, as cheaply, quickly and accurately as possible.
"I paid $200 in ads and got 3 customers signed up on contracts paying $180 a month for a year. (180x12x3=$6480 revenue) for the year. Seems like a good return on ad spend"
"I timed my employee working and it took him 25 minutes for the customer that pays $x/mo. That means we will be profitable if we have 5 jobs like this per day. At this rate he'll be able to do over 10. Looks good"
"I posted a job ad and got 7 applicants in a week, scheduled 3 interviews and hired someone. I'll have to see how our second hire goes but I think this could work, he seems competent enough, and it only took two days to train him".
Etc...
Every business idea has different premises that need to be validated in order to work. When you analyze your business ideas properly and create your premises accordingly, you might find that your idea was ridiculous to begin with. Some have 1-2 premises, some have 10. Some are easy, some are absurd.
When you are "starting", you are just testing. Do not think of it as taking a risk. If it feels risky, you either need to adjust your testing procedure to either be cheaper, quicker, more accurate, or a combination, or you just need to grow a pair and take the leap. If a business idea takes way too much money, time, or cannot be tested accurately, you are likely not being creative enough. You should bang that shit out over a weekend or two.
Many times I hear new ideas and I use this process naturally. I usually have a pretty good idea at what "problem" someone is likely going to face. Usually the biggest hurdle is proving the premise of "being able to get sales". And usually that's the best thing to go after first. Usually when you can get sales, everything else can follow.
Recap...
1. The success of your business hinges on a certain number of "premises" being proven, just like a logical argument.
2. Prove your premises true based on evidence and real world results.
3. The perfect trifecta of testing is doing it fast, cheap, and accurate.
4. Take your real world evidence, see which premises are succeeding and which ones are struggling, look for new opportunities or adjustments, and decide to continue or kill the idea.
5. No testing of your premises = no good evidence it will work. That's actual risk, and it's silly.
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