The ability to prove true or false the hypothesis that a business model is based.
Testable is the ability to prove a hypothesis true or false, which is especially important in creating a business. Before businesses can open, a written business plan is required to obtain funding. As the company has never functioned before, the business plan projections for things such as yearly revenue, expected costs, and customer base must be a hypothesis.
This hypothesis cannot be self-sustaining, meaning that there must be a way to prove that the business plan's hypothesized projections can be proven to be plausible or false. After testing a hypothesis, the creditor can judge how much to credit the borrower. It is how to grant a new business loan.
Example of Testable
An example of a testable hypothesis would be if Karen decided to open a new business. Karen had a passion for sewing quilts and decided she would like to rent out a more prominent space downtown with larger equipment. Before going back to the bank to take out a small business loan, Karen wrote a business plan. In her business plan, she noted that her current production rate was three quilts a week, but with a new machine and more space, she estimated her production rate to be eight quilts a week.
In addition to accounting for her production, Karen projected that she could sell 15 quilts a month minimum. She decided on this number by researching different markets to sell her product. Not only would Karen sell her product in her new showroom, but also the three prominent farmer's markets located nearby.
Karen proved that it was statistically likely that she would meet her sales goals by researching the local area. Karen was able to determine that she would encounter between one and two thousand people per market at each market she would attend. Each market ran for two days, and with exposure to that number of people, it would be statistically unlikely that Karen would not be able to meet her sales goal.
Significance of Testable
Having a testable hypothesis is essential for a variety of reasons. Primarily, it serves as a significant tool to help lenders decide if a client's business plan is a safe bet. When a bank lends money for a new business, they need proof that that business will pay back that loan. Without data from previous years available, the lender relies on elaborate guesswork to determine if a prospective company has the potential to succeed. If that business succeeds, the bank stands to regain its investment and make money on the loan's interest.
In addition to the bank needing a guarantee for a potential loan, having a testable hypothesis is helpful for the prospective business owner. Having the ability to prove that your business model is correct can save owners time and money, allowing them to make adjustments ahead of opening. By carefully setting a testable hypothesis, both the lender and prospective owner can benefit.