An assumption is something a business plan treats as true before it has been checked. Good planners do not try to remove every assumption. They find the one that the whole idea depends on and get evidence for it first.
This skill closes enterprise and business purpose and leads into market research.
How do you choose which assumption to test?
Work through four questions.
- List the assumptions: customers, price, costs, rent and anything else the plan relies on.
- Ask which one changes the result most if it turns out to be wrong.
- Ask which one has the least evidence at present.
- Test the one that is both high-impact and weakly supported. Choose a cheap test, such as a short trial, a count or a quotation.
A signed quotation for rent is strong evidence already. A guess about how many customers will buy is not.
Worked example
Segar Juice Bar plans a counter in an office block in Georgetown. The owner writes these assumptions.
- 200 office workers walk past each day.
- 30% of them buy one cup, which is 60 cups a day.
- The price is RM9 and ingredients cost RM4.50 per cup.
- The bar opens 26 days a month.
- Rent is RM3,600 a month, from a written quotation.
Step 1, the plan as written. Profit per cup is 9 − 4.50 = RM4.50. For 60 cups: 60 × 4.50 = RM270 a day. Over 26 days: 270 × 26 = RM7,020. After rent: 7,020 − 3,600 = RM3,420 a month.
Step 2, change one assumption. Suppose only 15% buy. That is 30 cups a day. Then 30 × 4.50 = RM135 a day and 135 × 26 = RM3,510. After rent: 3,510 − 3,600 = −RM90 a month.
Step 3, compare. A drop in the buying rate from 30% to 15% turns a profit of RM3,420 into a loss. The buying rate decides the result.
Step 4, rank by evidence. Rent has a written quote. The buying rate is only a guess. So the buying rate is the assumption to test first, for example by running a small trial stall for a week and counting sales.
The mistake to watch for
Mistaken answer: “The owner should first check the price of ingredients, because costs are important.”
This picks the easiest assumption to check, not the one the idea depends on.
Ingredient costs matter, but a supplier can quote them in one phone call.
The buying rate carries the highest risk and has the least support. A second mistake is to treat friends saying “I would buy it” as evidence.
People answer politely, so a trial where customers actually pay is stronger. If you want to see how cash timing adds another risk, use the cash versus profit bridge.
Check yourself
1. In the juice bar plan, which should be tested first: the RM3,600 rent quotation, the RM9 price or the 30% buying rate? Give a reason.
Show answer
The 30% buying rate. It changes the result most and has the least evidence. Rent is already a written quotation. Price can be adjusted quickly if buyers resist.
2. Twenty friends tell the owner they would buy a cup. Why is this weak evidence?
Show answer
Friends may be polite, and saying yes costs them nothing. The group is also small and not typical of office workers. A short trial with real payments from strangers would give stronger evidence.
3. A week-long trial shows 45 cups sold a day. Using RM4.50 profit per cup and 26 days, find the monthly profit after the RM3,600 rent.
Show answer
45 × 4.50 = RM202.50 a day. 202.50 × 26 = RM5,265. After rent: 5,265 − 3,600 = RM1,665 a month. The trial figure suggests the idea works, though a week may not represent every month.
Where this leads next
You now have all five skills in this module. Try them together in the mixed practice set, and move on to objectives and stakeholders when you are ready.
Choosing which assumption to challenge is the part many students find hardest to do alone. A teacher in online one-to-one Business tuition can bring a fresh business scenario and ask you to rank the risks aloud.