I once worked with a small HVAC company that had found what looked like an attractive niche.
Instead of competing for residential work, it would focus entirely on businesses. More specifically, it would service HVAC systems installed aboard cruise ships, cargo ships and other commercial vessels.
The company had the technical skills. Ships required HVAC maintenance. The potential customers operated expensive assets that could not afford unreliable systems.
On paper, the strategy made sense.
But one of its most important assumptions was wrong.
The company assumed shipowners would continue paying external specialists to perform much of the work. Instead, many owners began assigning more of those jobs to their existing crews.
The need had not disappeared. The customer had simply changed how the work was performed. That one shift changed the size of the available market and weakened a major part of the company’s growth plan.
The business survived and eventually did well, but it had to change how it went to market and where it focused its effort.
“The strategy was not irrational. One of the beliefs underneath it was wrong.”
Every strategy rests on assumptions
A strategy is a set of decisions about the future.
We decide which customers to serve, what to offer them, how to compete and where to invest. But every one of those decisions depends on things we believe will be true.
The maritime HVAC strategy depended on assumptions such as:
Shipowners would continue outsourcing the work
Vessel crews would not have the time or capability to perform it
The outsourced market would be large enough to support growth
Owners would pay a specialist rather than build the capability internally
The company could reach enough vessels within its service area
Some of those assumptions were probably correct.
But the outsourcing assumption sat near the foundation of the strategy. When it failed, several decisions built on top of it became weaker.
That is why assumptions matter.
If a minor assumption is wrong, the strategy may still work. If a foundational assumption is wrong, the company may be executing effectively against a market that is smaller or different than expected.
Ask what has to be true
When reviewing a strategy, ask one simple question:
“What has to be true for this strategy to work?”
The answers will normally fall into four areas.
Customer
Does the customer have the problem, care enough to address it and want to buy the solution from someone else?
Market
Are there enough customers, and is the opportunity large enough to support the business?
Economics
Will customers pay enough for the company to acquire them, serve them and still produce a healthy margin?
Capability
Can the company consistently deliver what the strategy promises?
For the HVAC company, the most important customer question was not whether ships needed HVAC maintenance.
They clearly did.
The more important question was whether shipowners would continue buying that maintenance from an outside provider.
Those are two very different assumptions.
Find the assumptions that could break the plan
Not every assumption requires the same attention.
A business could spend months researching every uncertainty and still never feel completely confident. Strategy always involves judgment.
The objective is not to eliminate uncertainty. It is to identify the assumptions that are both:
High impact: If this is wrong, the strategy changes materially
Low confidence: We do not have strong evidence that it is true
The HVAC company may have had high confidence in its technical ability to perform the work. It had the knowledge and experience.
It should have been less confident about the future buying behavior of shipowners, particularly as owners looked for ways to reduce costs and use their crews more effectively.
That was the assumption that deserved the most testing.
“The riskiest assumption is not always about the product. It is often about how the customer will behave.”
Build confidence before making the full bet
Testing an assumption does not need to mean commissioning an expensive market study.
The goal is to gather enough real evidence to make a stronger decision.
Before building its growth plan around outsourced maintenance, the HVAC company could have:
Interviewed shipowners about which jobs they expected to outsource or bring in-house
Compared purchasing behavior across cruise, cargo and other vessel segments
Reviewed recent work orders to see which services were growing or declining
Offered a small pilot focused on jobs crews could not easily perform
Tested adjacent services where specialist support remained necessary
Set a clear threshold for how much outsourced demand was needed to support the strategy
None of those tests would have predicted the future perfectly.
But together, they could have exposed the risk earlier and helped the company build a more resilient strategy from the beginning.
Assumptions need to be monitored
An assumption can be correct when the strategy is created and become wrong later.
Customers change. Competitors react. New technology appears. Costs rise. Companies bring work in-house that they previously outsourced, or outsource work they once performed internally.
That means critical assumptions should not be tested once and forgotten.
They should be monitored as the strategy unfolds.
For the HVAC company, the percentage of work being completed by vessel crews could have become an early warning measure. If that number began rising, the company would know that its available market was changing before the impact fully reached revenue.
A strategy should not change every time the market moves.
But when a foundational assumption changes, the business needs to notice.
Better by Monday Action
Choose one major strategic decision and complete this exercise:
Write down five things that must be true for it to work
Rate each assumption for impact and confidence
Select the high-impact assumption supported by the least evidence
Identify one customer conversation, pilot or data point that could test it
Decide what result would make you continue, adjust or stop
Do not try to prove the entire strategy.
Find the one assumption that could break it.
Until next time …
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