When starting a company, it is critical to record all assumptions you are making about your business. What products will you sell? At what price? How large is your market? How many do you expect to sell each year? How much will it cost you to purchase and/or manufacture the product? How many employees will you need? How much will you pay them? And on and on. There are dozens of such assumptions, and my new book, Will Your New Start Up Make Money, provides a detailed checklist. Many reasons exist to record these assumptions:
- It forces you to think through every aspect of your business idea. You don’t want to be 6 months into a business and say “Oh, I wish I had thought of that earlier!”
- Numeric assumptions can drive the creation of all your pro forma financial statements.
- You can assign a red flag to each assumption that is not yet confirmed. Remove flags as assumptions are confirmed.
Assumptions that are critical to your success and still have red flags become targets for experiments. Build and deploy prototypes, run focus groups, do anything it takes to find out as early as possible if those assumptions are true or not.
To find out more about assumption-based planning for start-up companies, read the book. The kindle version is available at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE. The paperback version is available at http://www.amazon.com/Will-Your-Start-Make-Money/dp/0996028307/.