The #Entrenovation Blog – 6

Entrenoveurs – Be Assumption Detectives

Purpose: To, by example, convince entrenoveurs and founders that all assumptions related to an innovative idea should be identified and tested before commencing planning and development. Following are examples, drawn from my personal experiences at more than one company, that make the case. Descriptions of the situations have not been included as the only intent of this post is to provide real-life examples of assumptions that, if tested, could have prevented significant losses.

  • Identifying and testing of all assumptions by the project team is a critical function. This is particularly true for entrenoveur founders intent on advancing a great idea to a market.

Four untested assumption examples:

Old tailings

We were offered a mining property that included tailings containing minerals not recovered during earlier operations. The proposal was evaluated, and the decision taken to acquire the asset and conduct recovery operations. Almost immediately it became evident this venture was not going to be a financial success. 

  • The untested assumption: We did not confirm the assays presented by the selling party. The published assays were exaggerated. Embarrassing? You bet. We had the experience to know better, but the question was never asked. Possibly our team assumed another one of us had checked the assays.

Gold in them “thar” hills

We acquired a mineral property and conducted test operations during the first season. The metal values returned during that season warranted undertaking the full development of the property. As significant capital expense would be incurred to develop the property, a full evaluation of the asset was necessary. The evaluation determined that the property was not viable. The project was discontinued.

  • The untested assumption: We assumed the property was mineable, subject to realizing suitable returns from the first operating season. While the mineral values indicated the economic requirements were satisfied, further investigation revealed that the due to the nature of the property and probable environmental outcomes from operations, the property was not viable.
  • We should have completed the full evaluation in advance of conducting operations. The operations test conducted during the first season was not required in advance of the property evaluation. Another expensive lesson that could have been avoided. 

Innovation – asset upgrade

A highly qualified chemist-inventor convinced us to finance testing of his hypothesis. It involved the use of a three-part catalyst to increase the value of a naturally occurring substance. There was no question around the value of the process if proved successful and scalable. Ultimately testing was conducted in an independent recognized facility. The test was successful – the desired conversion worked. However, the conversion rate did not get over our economic hurdle. The decision to proceed required a thorough examination of available information. 

  • The untested assumption: We assumed the catalyst would be efficient, as well as successful. Our investigation determined the three constituents of the catalyst each had specific optimal condition requirements. For example, while one constituent required a high temperature, another required a low temperature.
  • We determined that the necessary optimal conditions could not be achieved and abandoned the venture. At the outset we had the subject-matter-experience available to test our assumptions but failed to do so. The mediocre result was predictable, and we got it, but only after incurring significant expenditures.

Innovation – invention

We acquired the rights to an early stage experiment involving the catalyzation of a highly caustic liquid. If successful the process would in all likelihood replace the accepted world leading process and be very valuable. We employed four subject-matter-experts to be involved in, and to oversee, the experiments being conducted in an excellent laboratory.

  • The experimental process returned outstanding repeatable results that far exceeded the standard set by the leading process. As significant capital would be required to scale-up we needed a partner. We invited the world leader to the party. A representative attended at the laboratory for a demonstration. He immediately identified a potential problem in the design of the experiment and brought the project to a very disappointing halt. 
  • First, note that there was a requirement to achieve a specific temperature in the process. Second, the substance being catalyzed was caustic and took only a few experiments to render the temperature probe useless. Third, to save money the probe was put in the vapour space above the liquid.
  • The untested assumption: We tacitly assumed the vapour space would experience the same temperature as the liquid. It was determined however that to achieve the required temperature, as indicated on the probe in the vapour space, the liquid had to be heated to a temperature 16% above the target temperature. I am certain you, the reader, share my view that this was an egregious oversight. The point however is that the assumption was overlooked by a number of experts who should have recognized the need to test the temperature assumption. 

Own the project

  • The best time to identify and test assumptions relative to the innovative idea is during the validation and justification stage. Assumptions will be made and identified during planning and development and can be dealt with at that time. But major assumptions made early in the process, and not tested, have the potential to knock your idea out of the box, as late as when success comes into view.
  • One method I believe is useful in overcoming this problem requires that each person involved in the project, at every stage, take ownership of the project and review it as thought their money is going to be invested. It is very easy to be lazy, or shy, and leave assumption identification and checking to others. Yes, I have been guilty too.
  • In my experience everyone, be they directors, executives, experts, etc., from time to time overlook major assumptions. Greater effort to identify and test, or arrange for testing, assumptions can result in significant savings of capital and other resources, and a significant improvement in success rates.

Mind your way,

Jon

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