Hypothesis-Driven Entrepreneurship: The Lean Startup

Abstract

Firms that follow a hypothesis-driven approach to evaluating entrepreneurial opportunity are called "lean startups." Entrepreneurs in these startups translate their vision into falsifiable business model hypotheses, then test the hypotheses using a series of "minimum viable products," each of which represents the smallest set of features/activities needed to rigorously validate a concept. Based on test feedback, entrepreneurs must then decide whether to persevere with their business model, "pivot" by changing some model elements, or abandon the startup. This note describes, step-by-step, how to follow the hypothesis-driven approach when evaluating entrepreneurial opportunity; explains how the approach mitigates cognitive biases that otherwise can contribute to poor decisions; and considers conditions that are best suited for lean startup methods.

Learning Objective: To describe the rationale for employing a hypothesis-driven approach to evaluating entrepreneurial opportunity and the processes used with such an approach.