The Dangers of Untested Assumptions

Rita Gunther McGrath (Photo credit: Lisa Berg)

Rita Gunther McGrath (Photo credit: Lisa Berg)

Why do established corporations’ new ventures often fail? The new issue of Business InsightMIT Sloan Management Review’s collaboration with The Wall Street Journal, includes an interview with Rita Gunther McGrath about problems traditional business planning processes encounter when dealing with uncertain new ventures.

McGrath, an associate professor at Columbia Business School, explains that one pitfall is to “take the untested assumptions that underlie the [business] plan and treat them as facts” — and then make expensive business decisions based on those assumptions.

What’s the alternative? McGrath recommends writing down your assumptions when you write a business plan — so you remember what assumptions you made and can check them. Then figure out ways to test and evaluate your assumptions inexpensively as the business progresses.

3 Comments On: The Dangers of Untested Assumptions

  • dwithee | December 3, 2009

    No offense, but isn’t this sort of elementary? Isn’t this part of what management – especially senior management – gets paid to know how to do? If you want to really see how to do this right, don’t analyze large corporations. Analyze small and micro companies; they have MUCH more at risk and so are much more likely to question themselves every step of the way. Yes, they too make mistakes, but small companies tend to be both more aggressive in looking at new opportunities – their future may depend upon it – and conservative in questioning their decisionmaking because of the same reason, their future may depend upon it. Small companies are the growth engines of our economy; study how THEY pursue new ventures. Also, it is relatively easy to study failures; let’s hear about the successes!

  • dwithee | December 3, 2009

    Sorry, my first comment. Didn’t mean to be anonymous with my comment a bit ago. I am Dave Withee.

  • tommac923 | January 25, 2010

    While you are correct in your assumption that this is elementary in my experience the author is right on the mark with her comments. This is not to say that market research doesnt occur but how often has a company taken what seems like a good idea, championed by a senior person only to see it fail. The idea of tracking your assumptions throughout the planning and implementation process to check their validity makes a great deal of sense.

Add a comment