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I have just finished reading “The Lean Startup” by Eric Ries for the second time and have been spending some time working with a team using the model. Joyfully it has made me think about opportunities out there and if I ever had my own push to be entrepreneurial what exactly I would consider.

As part of considering what sort of Lean Startup I would consider I wrote my ramblings down and then noticed that I felt something missing.

I would formulate the idea using the Gaddie Pitch:

You know how most…{existing commercial environment}?

Well what {Lean Startup idea} does is {how it breaks the mould from a value proposition perspective}.

In fact, {more value proposition information}/{recent success}

As I fleshed out the ideas further I considered the depths of what their value hypotheses and growth hypotheses were.

But it was missing something.

I wanted to know how the Startup idea also would create revenue for the business. After all, commercially, what good is a product if it has thousands of happy customers, a high and continual increase in customers but no means to make any revenue?

Eric Ries defines a value hypothesis as

Tests whether a product or service really delivers value to customers once they are using it.

and a growth hypothesis as

Tests how new customers will discover a product or service.

But what about the hypothesis that you will actually make money? Surely this is something that needs to be tested too.

10 thoughts on “Value, growth AND revenue hypotheses in Lean Startup

    1. Yep have read and tried it a few times. It does at least discuss the revenue streams but doesn’t consider then hypotheses like the value. Arguably the whole A3 is a hypotheses though. From memory it doesn’t cover growth hypotheses does it?

  1. Steve Blank suggests that the original formulation assumes a somewhat static business model but he emphasizes a z-axis where startups expect an evolving stack of canvases. I’d expect the growth hypothesis would be captured in the revenue section.

  2. Not all startups, lean or otherwise, are about revenue (or at least recurring revenues). A lot of startups spun out of academic research, for example, are about developing an idea, then selling the IP to (or being acquired by) another company for productisation – this is a common approach when the costs of scaling up the product idea for delivery are beyond the capability of a startup (e.g. pharmaceuticals).

    But yes – if you want to keep your own IP and company, then you want a revenue model. But you still need to deliver value – if you can’t deliver value, how do you expect to make money off it? And if you want the customer to pay directly (as opposed to, say, advertising, or turning your users into the product you sell), you need to deliver enough value to be able to ask for money in return.

    1. Isn’t selling the IP the revenue hypothesis? If you can’t sell it then you failed that theory.

      1. Yes, but it’s not a very testable hypothesis. If I’m selling a product, I can take a prototype out and see if people would buy it, or put up a page asking for people to sign up for a beta test, etc etc. If what I’m selling is IP, though, it’s probably not any value until after a few years of refinement and development – looking to find revenue-from-selling earlier, or even testing if there is something saleable, may not be very feasible.

        At the end of the day, the revenue hypothesis will always meet the real-world test: if you run out of money (or credit), you go out of business.

      2. What about trying to sell it sooner? The enquiry pull may be indicative of whether the sellable value exists… Hopefully without shooting yourself in the foot.

  3. Jim says:

    To your final question: isn’t the monetization a part of both? When validating your value hypothesis you’ll learn how much a customer would be willing to pay for it. When validating your growth hypothesis you’ll learn how many customers you think you can get. Combine the two and you can work on a financial model.

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