Last week, on the television show, “30 Rock,” main character Tracy Jordan’s son opens up a restaurant. The rookie restaurateur assumes that customers would enjoy eating their meals while watching Japanese Godzilla monsters engage in deadly battle. He turns out to be wrong.
In class, we would identify this type of folly as a “killer assumption.”
If an assumption is wrong, it will probably kill your business. Therefore, a good rule of thumb for all aspiring entrepreneurs is to consider two important issues. First, identify what your killer assumptions may be. Second, figure out a way to test those assumptions so that your business doesn’t go belly-up.
Coincidentally, a number of students in our class are working on business plans. Whitney Maddox wants to launch Bold Magazine, an online magazine targeted to African-American women from the United States, aged 15 to 21. Unlike competitor youth magazines, Whitney’s magazine will have stories about the average African-American teenager.
Through our conversations, we outlined a number of assumptions. However, I believe Whitney’s biggest (and possibly killer) assumptions rest with how she will collect information for her online stories and how she knows those stories will be appealing and relevant to her readers.
Why are they killers? Bottom-line, no stories no magazine.
If the stories are not appealing to the target population, then the website will not have an audience. If there is no audience, there is little to no incentive for advertisers to pay for banner or box ad space on the Bold website. Unless Whitney has some other kind of funding, I imagine it would be very difficult to keep the website running while continuing to interview teenagers and write articles.
Whitney and I both agreed that before launching a website, it might be best to do some market research and assemble a focus group consisting of potential consumers. In this case, the focus group for Bold would be African-American women ages 15 to 21. If focus group members are not even the slightest bit interested in the online magazine, then Whitney has her answer and the business is over. However, if target group shows interest in reading Bold Magazine, then we would have to sit-down, outline more assumptions, and conduct further market testing.
But let’s assume that Whitney has launched Bold, the online magazine, and the website is doing well: attracting a lot of visitors and advertisers. At this point, Whitney might consider offering a monthly or annual fee for Bold.
In some cases the introduction of a fee on a previously free business, such in Whitney’s case might alienate most of her readers and kill her website. This is yet another example of a killer assumption.
My suggestion to Whitney is to conduct an online focus group of Bold readers, which could help her test this killer assumption. Whitney could ask them under what conditions, if any, would they consider paying a subscription fee for Bold. Whitney may discover that the best answer lies within a compromise: offering a free service version and a fee-based pro-version, thus keeping her business afloat.