Value hypothesis v Growth hypothesis: how to approach a business idea scientifically

05 Dec 2021

In my last post I resolved to use the techniques described in The Lean Startup as a way of directing my focus and evaluating my ideas. In fact, “evaluating my ideas” is the sum of what I need to be doing, all of the time. Ideas for products should be expressed as testable hypotheses, and then tested. “Progress” is how many of these hypotheses I’m testing, and how effectively.

To that end, I present a discussion of idea #5, the “HR Tool For Restaurant Managers” in this manner.

This idea came out of a chat with my friend Mark, who, funnily enough, is a restaurant manager. Let’s be honest here, it was his idea, and he was nice enough to share it with me. Cheers, Mark 😎.

As mentioned previously, it’s an industry where hiring is hard and staff turnover is high; on-boarding a new team member involves them completing a series of stages or milestones, with management signing each of them off. Some of these milestones will be statutory requirements such as Completed Level 2 Food Safety Training (which anyone who handles food at work is obliged by UK law to complete), some are restaurant- or even site-specific, such as Watched our video about using the POS or Had the chat about uniform and signed the form to say they understood.

When you consider that each “role” on the team (e.g. server, front-of-house, head chef, etc) will have a different set of required milestones, that these requirements may change over time, and that a busy restaurant may have tens of people in each role (many of whom at any given point are new) it’s easy to see that keeping track of all this manually could quickly turn into a quagmire of paper, folders, post-its and to-do lists.

Value Hypothesis

At its simplest the value hypothesis is:

“There as a problem [as described above] and I/we can build a solution”.

To expand on this a little:

“Restaurant managers spend considerable time and effort keeping track of the various onboarding milestones relating to the new members of their frequently-changing staff teams. A SaaS could be devised which would reduce this time and effort to the extent that managers would pay a monthly subscription fee.”

It occurs to me that even if managers are not prepared to pay a monthly sub, there is still a way of monetising this idea:

“… A free-to-use SaaS could be devised which would reduce this time and effort to the extent that a significant number of users signed up. This user-base could in future be monetised via targeted advertising (presumably by staff training suppliers).”

And there is always the option of a hybrid solution with some combination of freemium with paid & ad-free tiered membership.

The point is, that there is a problem here and one to which a solution is not impossible to imagine.

So how could this hypothesis be put to the test?

• Maybe the biggest competitor is not a competing SaaS but Google Docs (or similar) and – worst case scenario – it turns out for some reason to be impossible to make something that’s enough of an improvement on this to attract many users. This I doubt but I’ve included it for the sake of completeness.
• I have, so far, only spoken to the one restaurant manager (Mark). Maybe, for some reason I can’t see, this is not a universal problem. To find out I should speak to more managers from a range of restaurant types and gauge the extent of the problem.
• We know of an existing product called “Flow Hospitality Training” (Google it: I’d rather they didn’t see lots of bunch of referrer: tomfallowfield.com in their traffic logs right now 🕵️). This does seem at first glance to be a large product, possibly loaded with features which not everyone needs and possibly quite expensive. I should find out the cost and feature scope of this product.
• Maybe there are more “competitor” products I haven’t spotted, I should have an exhaustive search.

Growth Hypothesis

The growth hypothesis depends largely on whether we choose to pursue a subscription based SaaS model or a free-to-use, ad-supported model (or some combination of the two), but either way, the following growth hypothesis should be tested:

“There are a great many restaurant businesses in the UK and in fact everywhere. These are often small, independent businesses, and as such are fairly accessible to a sales operation. Staff turnover is generally high (I don’t know the numbers, I should find out): if somehow the product could be made to travel with staff members as they changed employer – “check out my training profile at the following link” – some fairly low-effort growth could be achieved.”

Specifically if the product were free to use:

“Offering a thing of value (see above) at zero cost is easy to do. Once the correct features were built we would be able to sign up many free users fairly quickly; after a threshold was met, suppliers of training (and related services) would pay to display ads to restaurant managers. Information about which courses were needed, and even about exactly when specific certificates were due for renewal, would be very useful to advertising clients.”

If the product were subscription-based SaaS:

“As a paid service, growth could be achieved by using some (to-be-tested) combination of: word of mouth with “talk triggers”, referral programs, freemium model, free trials, tiered membership to capture more revenue from larger restaurants, paid and unpaid influencers, content marketing, partner programs with complimentary services, lead magnets, cold approaches and other more traditional sales techniques, PPC/SEO, etc.”

It is easy to imagine that there are online communities of restaurant owners and managers that could be infiltrated used to gain exposure – while being seen to diligently add value and not be too pushy, salesy or spammy (definitely Snow White’s least favourite dwarves).

Next steps

As you can see breaking down a business idea into hypotheses like this is a very effective way of generating a useful to-do list at what could otherwise feel like an exciting but rather unsettlingly freeform time.

Re-reading the above I can easily see what I should be doing next - testing the value hypothesis, by researching the field and chatting to the people who would be its users.

Following this, the next step would be to create a minimum viable product: what would be the simplest solution to this problem that would actually provide some value to customers?