Three Business Risks & How To Test Them

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Reducing the risk of your ideas, products, or services in uncertain economic environments is critical. The way to lower the risk and uncertainty associated with your company idea is through experiments. We will go over three threats in business and the hypotheses you can use to mitigate these risks.

A good experiment is accurate enough for team members to duplicate it and produce both usable and comparable data. It clearly defines the following:

• "who" (test subject),
• "where" (test environment),
• "what" (test question) (test elements)

A well-designed business experiment consists of the following four elements:

1. Hypothesis. (we will focus on this portion in this newsletter)

2. Test out a description of the test you'll do to confirm or deny your hypothesis.

3. Measures The information you'll collect for the experiment.

4. The standards for your experiment's measurements' success.

The experiment starts with setting the reasonable hypotheses and instruments you use to prove or refute your assumptions. Be careful of confirmation bias when stating your hypotheses, where you constantly try to confirm what you know. Make sure you include hypotheses that refute what you know.

I will refer to the business model canvas (BMC), a tool to visualize all the components needed to launch a business, such as customers, a go-to-market route, a value proposition, infrastructure, and finance.

A business model canvas has nine building blocks, as shown in the figure below. The figure includes market, infrastructure, and financial risks, Which can be tested using desirability, feasibility, and viability hypotheses.

I) Market risk:

It is included in the Business Model Canvas in the following ways:

Consumer segment: We are focusing on the appropriate customer segments. Do the market segments we aim for exist, and is it large enough?

• Value Proposition: We have the appropriate value propositions for the consumer segments we focus on, and is it distinctive enough for others to copy
• Channel: We have the appropriate channels for locating and obtaining consumers.

To offer value, we can control the channels.

• Customer relationships: We can create appropriate customer connections and keep our customers who find it challenging to switch to a rival's product.

II) Infrastructure risk:

The Business Model Canvas's key partners, key activities, and essential resource components include infrastructure risk.

• Key activities: We can accomplish all the tasks necessary to develop our business model (at scale and with the appropriate quality).
• Key resources: capable of managing (at scale) all technology and resources, including intellectual property and human, financial, and other resources, that are necessary to develop our business model.
• Key partners: able to forge the alliances needed to develop our company

III) Financial risk:

The income stream and cost structure of the business model canvas both include financial risk.

• Revenue Stream: We can charge clients a certain amount for our services.

o can provide enough revenue.

• Cost structure: We can monitor and control the costs associated with our infrastructure.
• Profit is the ability to produce more income than expenses to profit.

There are three types of hypotheses:

1. Desirable: Do they want this?

There is a risk that a company's target market will be too small, that not enough consumers will be interested in the value offer, or that it won't be able to reach, attract, and keep its target market.

2. Feasible: Can we do this?

The danger is that a company won't be able to control, expand, or get access to critical partners, activities, or resources (such as technology, intellectual property, and brands).

3. Viable: Should we do this?

The risk that a company won't be able to make enough money to cover its costs

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Step 1 Identify Hypotheses desirability, feasibility & viability hypotheses and put them on your canvases.

Step 2 prioritize Hypotheses: Are they essential or not & do they have evidence or not? Prioritize the important ones without evidence

Step 3 Identify & prioritize the riskiest hypotheses: For desirability, feasibility & viability.

Once you have identified & prioritized the riskiest hypotheses, you can test them to gain clarity about business risk and mitigate that risk before spending time and money developing something people do not want.

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About me: I am Dr. Nadia Boutaoui, Ph.D.,EMBA. I help CEOs in healthcare & tech make data-driven decisions to grow their business.