The Invalidation Horizon

What happens when what you don’t know about what you don’t know catches up with you?

Photo by Aman Pal on Unsplash

What happens when what you don’t know about what you don’t know catches up with you?

The Web was barely 36 months old when I joined my first startup. Our product enabled dentist offices to obtain pre-determinations of coverage from insurance companies, using dial-up modems to connect to a central server. This protocol was tried, tested and trusted. We decided to build other layers on the system to expand its use to doctor’s offices and to manage different types of personal health information. 

Then, in 1997, Microsoft launched Internet Explorer 4 (IE4), the first browser to overtake Netscape, the standard at the time. Moreover, Bill Gates declared that MS would significantly pivot to bring the Web to the corporate world. 

Suddenly, our target market, governments and insurance companies, wanted our system to work over TCP/IP, the web protocol. The problem is that the technology stack, specifically the security layers, was not yet fully developed. This meant rebuilding significant parts of our system as we scaled up to meet our first deliveries and anticipated demand. 

To make a long story short, our technology assumptions were suddenly invalidated, leading us to eventually fail at delivering a workable product and the company to a catastrophic end.

YES, “ASSUME” MAKES AN ASS OF ESPECIALLY ME

Assumptions are generalizations about the future based on our empirical experience of the past. We naturally assume that because things have happened a certain way in the past, they will occur similarly in the future - maybe changing in terms of volume or some other quality, but predictable. The belief that the future is predictable gives us the confidence to plan and act.

The problem is that, sooner or later, the environment on which our assumptions are based undergoes a small or large change, invalidating the original assumption. 

The most striking example of a change in environment was the pandemic pause of March 2020. I had established a cycle in my coaching practice where I had two “cohorts” of startups a year: fall and spring. I was building my spring cohort when everything stopped, pulling the rug from under my business model and tanking my revenue streams. The immediate cause of the collapse of my practice was the pandemic pause, but the underlying invalidated assumption was that there would always be another cohort of clients.

THE INVALIDATION HORIZON

The “Invalidation Horizon” is the moment when what was true yesterday is no longer true today. 

All assumptions hit an invalidation horizon because of a change in the fundamental conditions upon which the empirical experience was based. This is happening in a significant way with AI technology. The release of ChatGPT at the end of 2022 marked a specific invalidation horizon for many startups. Technology innovation projects that my portfolio companies completed as recently as 8-12 months ago are now obsolete because of the rapid advances in AI technologies and tools. 

Another case is where an industrial client presented a five-year expansion plan with strong revenue projections. However, the plan is based on acquiring an essential piece of equipment from an Israeli firm. However, that country’s high-tech sector is suddenly on pause because many employees have been called into military service due to the political situation (as I write this). This puts my client’s fundamental assumption at risk.

Financial projections, SWOT analysis, and even basic market studies are full of assumptions. However, I rarely read or hear the assumptions which support these statements. My coaching approach is simple: I find the holes in your pitches by spotting and questioning your assumptions, especially those with short invalidation horizons. 

PLANNING IS NOT GOAL SETTING

Planning is not just setting goals and actions. The most important part of planning is risk assessment.

In your planning, you want to extend the invalidation horizons of your assumptions as far out as possible, first by being aware of your assumptions, then by continuous validation. When making a statement, consider what assumptions support it and how you can validate (or invalidate) them, not just once but continuously.

The best place to start with this mindset is in your financial projections. Do not just provide numbers - we all know that the more you project into the future, the more your numbers are meaningless. Enclose a list of your assumptions and evidence that supports them. 

I’ve seen too many forecasts which forget to increase salaries or material costs due to annual inflation. In 2019, this may have been true, but not in 2023. 

Another fundamental assumption with a short invalidation horizon is that once your product is built, it will last forever without maintenance. Technology moves quickly, and so do customer demands. Expect the half-life of your innovation to be a couple of years at the most, requiring a significant upgrade or rebuild with associated development costs. 

CHANGE IS HAPPENING AT THE SPEED OF LIGHT

Change is happening at the speed of light, which draws the Invalidation Horizon of your key assumptions even closer. The more you explore your assumptions and adopt a practice of continuous validation, the more you will become risk-aware. This will improve your ability to manage uncertainty and succeed in this unpredictable world.

Davender’s passion is to guide founders, entrepreneurs and managers in developing the knowledge, skills, and confidence to enter, engage and lead their markets in an unpredictable world by thinking strategically and acting tactically. Find out more about Davender at https://www.davender.com and https://linkedin.com/in/coachdavender