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The Entrepreneurial Mind

Cheerleading backwards: arguing the null hypothesis

It's easy to cheer for a new idea, but rooting against it can strengthen it more. Want to prove that your business won't fail? Argue why it will.

By Jeff CornwallGuest blogger / December 13, 2010

In this 2008 photo released by China's Xinhua news agency, the 'Olympic Star' cheerleading squad prepares for the Olympic Games. For an entrepreneur to be sure her theorized business will succeed, it helps to argue the null hypothesis: all the reasons it will fail.

Zhao Jianwei / Xinhua / AP / File

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Those who have been in my classes know that I often bring in knowledge from other disciplines to add to our understanding of the process of entrepreneurship. In any given day I might bring in concepts from economics, psychology, music, theology, philosophy, biology, and any other number of areas of study to help us understand the process of new venture formation.

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One concept that all aspiring entrepreneurs should pay attention to comes from statistics. It is the null hypothesis.

A website aptly called Null Hypothesis offers a very clear explanation using the silly hypothesis that "the loss of my socks is due to alien burglary". Rather than try and prove this hypothesis to be true, statistics takes the approach of supporting this hypothesis by refuting the opposite hypothesis of "the loss of my socks is nothing to do with alien burglary."

Null Hypothesis explains the process this way:

In statistics, the only way of supporting your hypothesis is to refute the null hypothesis. Rather than trying to prove your idea (the alternate hypothesis) right you must show that the null hypothesis is likely to be wrong - you have to 'refute' or 'nullify' the null hypothesis. Unfortunately you have to assume that your alternate hypothesis is wrong until you find evidence to the contrary. So it's innocent until proven guilty for the aliens."So how does this apply to entrepreneurship, Professor?"

Here is how it works.

Most aspiring entrepreneurs spend their waking hours trying to prove that their idea for a new business can work. They quickly gather some cursory industry data and talk with people already working in the industry with one thought in mind: "What can I uncover that will validate my desire to open this business?" They selectively only pay attention to information that reaffirms their desire to get the business open as soon as possible. As a result, they fail to uncover information that may not paint such a rosy picture about the viability of the business idea.

When I talk with aspiring entrepreneurs, I always take the opposite approach. I start asking them questions that try to prove that their business idea cannot work. That is, I come at their idea using the null hypothesis. I shoot as many holes in their idea as I can come up with. If after I am done it is still standing, I feel better that they may be on to something.

Over the years this has resulted in some pretty frustrated students.

I once overheard a student exclaim, "That Dr. Cornwall sure is a negative guy for being an entrepreneurship professor!"

My approach has been called "being Cornwalled". I have been labeled the "Simon Cowell" of entrepreneurship.

It is not what my heart wants me to do. I would love to be their cheerleader. But I know that I am not helping them if all I do is blindly encourage them to jump ahead.

One of the most important things I try to teach my students is to internalize the perspective of working from the null hypothesis. When they come up with their next "great idea", I want them to immediately take the null hypothesis that it cannot work, and start trying to disprove or nullify it. If the idea survives, then it is time to further develop the business model and possibly move toward launching the venture.

I know it may seem like we are coming at the same thing from only a slightly different angle. But the difference in outcomes can be profound.

Once you start looking at a business idea from the null hypothesis, you uncover the weaknesses and holes in your business model. If the idea survives evaluation from this perspective, the odds are much better that the resulting business model will be much stronger when it comes time to launch than it would have been if all you did in your planning was try to rationalize starting the business.

If you cannot disprove the null hypothesis that the idea cannot work, you have saved yourself a lot of time, money and reputation capital from starting a business that was really doomed from the start. And if you end up refuting the null hypothesis -- that the business cannot possibly work -- you can rest assured that your chances for success have grown significantly higher.

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