The assumptions matrix is a simple tool that helps you prioritize which business case assumptions you need to test first. An increasing number of our clients are using the assumption matrix to decide which assumptions need to be tested after spotting a great idea that needs to be validated before jumping into “project modus”. Such validation helps reduce lingering uncertainties and increase the idea’s odds of successfully reaching the market. But what is an assumption matrix? And how do you develop and use it?
What is it?
The assumption matrix is an easy-to-use tool to help you do rapid validation of innovation ideas. The matrix looks as follows:
The matrix depicts a set of assumptions about the market (labeled with “M”) and about the solution or technology (labeled here with “T”) across two dimensions, which depict your answers to two critical questions about each assumption:
· Blocking (vertical dimension): To what extent would your business case be invalidated (or “blocked”) should the assumption be false?
· Effort (horizontal dimension): How much effort do you need to test that assumption?
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How to make an Assumption Matrix?
Making your own assumption matrix requires four steps:
· Step 1: In team, have a group discussion to enumerate the set of assumptions in which your business case rests. Consider both market and technology/solution assumptions. You can then use post-its to label each market assumption (M1, M2, …) and each technology assumption (T1, T2, …).
· Step 2: Score each assumption in terms of how much would your business case be “blocked” should the assumption be false and how much effort it takes to test such assumption:
o Start by scoring “blocking” in a 1-5 scale, where 1 is “very low damage to business case (if assumption is false)” and 5 is “very high damage to business case (if assumption is false)”. You can either do the scoring as a group (faster) or first do it individually and then come together to discuss differences and come to a final group-level score (slower but potentially richer).
o Repeat the process for effort. That is, score each assumption in terms of how much effort do you need to test that assumption. Use again a 5-point scoring scale, where 1 is “very low effort (testing the assumption can be done quickly and cheaply) and 5 is “very high effort (testing the assumption will require a lot of time and/or resources)”.
· Step 3: Plot your assumptions in the 2x2 “assumption matrix” using the scores you obtained in the previous two steps. You can easily do the “plotting” on a large piece of paper, flipchart or whiteboard by using one post-it per assumption and placing it in the corresponding location in the assumptions matrix (see the Figure below).
· Step 4: Prioritize which assumptions you will test. This requires you to examine the matrix you just created and decide – based on their potential blocking effect and effort required – which assumptions you would like to test before the next stage-gate, and which you will only test later…
Why do it?
There are three key benefits of rapid validation of assumptions in an innovation project.
First, rapid validation of innovation projects de-risks innovation projects, early in their lifecycle. Requiring ideators to verbalize and clarify assumptions to test helps them break the idea into smaller “pieces” or testable “assumptions”. These assumptions are, in a way, tentative hypotheses about the market (e.g., customer desirability, cost- and revenue-model viability) or about the technology (i.e., technological feasibility in a competitive landscape).
Second, rapid validation clarifies the direction each project should pursue. For instance, testing market size or willingness to pay hypotheses may lead a team to conclude that a certain target market is too small, or very hard to reach. Such testing may also suggest changes in the value proposition that would make the idea more appealing.
Third, rapid validation saves resources and time. Even though you could think that entering “project mode” as quickly as possible is the fastest and cheapest road to market, the opposite may be true. Instead of wasting resources and time “driving in the wrong direction”, a few weeks of lean validation means that your company can delay the more serious investments required in “project mode” until you have more evidence and lower uncertainty about the direction of the idea. Ultimately, this means a faster and cheaper go-to-market.
This way of validation is better than large-scale market research which is slow, costly and complex. To avoid these problems, you should use an assumption matrix.
By employing the assumption matrix innovation teams can rapidly identify the most critical assumptions in their business case. The matrix also clarifies which assumptions are easy or more costly to test. Armed with such information, teams can rapidly gather invaluable insights. This reduces the risk and clarifies the direction of a project. Importantly, the matrix allows teams to do such validation in a lean, quick and cost-efficient manner.
We will soon write a follow-up post clarifying the next steps, i.e., how do we depart from this matrix to define a concrete “assumption testing plan” and extracting valuable insights from such tests.