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Many startups fail because they build a Minimum Viable Product (MVP) without validating their most critical assumptions. Founders assume demand, user behaviour or pricing will work in their favour, only to realize too late that their expectations were incorrect.
Webvan, for instance, raised $800 million for online grocery delivery but collapsed because it failed to test core assumptions before scaling.
So, how can you avoid such a fate? The Value Riskiest Assumption Test (RAT) helps startups validate key business hypotheses before committing substantial resources.
What Is the Value Riskiest Assumption Test (Value RAT)?
The Value Riskiest Assumption Test (RAT) is a lean validation method designed to identify and test the most critical factor that could make or break a startup. Instead of developing a complete MVP, Value RAT allows founders to:
- Pinpoint the most crucial assumption underlying product value.
- Run small, cost-effective experiments to test assumptions before scaling.
- Gather real-world insight to validate demand and feasibility.
A great example is Dropbox, a cloud-based file storage and syncing solution. Instead of building the whole product, Dropbox founder Drew Houston created a simple explainer video to show how it would work. The video highlighted an easy drag-and-drop file-syncing feature — something that wasn’t available at the time. The video helped the founder understand whether there is any real value behind the idea and whether there is any demand before committing to full-scale development.
The Role of MVPs vs Value RAT
An MVP is a scaled-down version of a product designed to test multiple assumptions. While useful, creating an MVP usually requires significant investment.
A Value RAT, on the other hand, focuses on the single riskiest assumption first, minimizing the time and money spent before proceeding with development.
How to Perform Value RAT
Start by nailing down the main assumptions behind your business model. Think about these key points:
- Market Demand: Ensure you’re targeting the right audience and check if your strategy is off base.
- User Willingness to Pay: See if your product offers enough value to persuade users to spend their cash.
- Scalability: Consider whether your growth plan can keep customer acquisition costs lower than your total expenses.
In addition, if you’re building a straightforward project for a mass market (e.g., a mobile app in an existing market), your priority should be assessing user acquisition costs through advertising. In this case, optimising for discoverability and paid acquisition strategies are crucial, as demand for the product is already apparent.
But if your idea goes off the beaten path, you need an assumption-driven approach to validating the value of your future product.
Designing Experiments
Develop a lean experiment to test your assumptions effectively. Options to consider include:
- Launching a landing page with a waitlist to gauge interest.
- Conducting user interviews to gather qualitative insights.
- Offering pre-orders to assess demand upfront.
- Creating a prototype to gather early feedback.
Running and Evaluating Experiments
Once you launch your experiments, gather data from real users. Monitor essential metrics like conversion rates, user engagement, and willingness to pay.
After you check out the results, if you notice that demand isn’t as high as you hoped or users seem unsure, take that as a chance to rethink your assumptions and adjust your approach before diving deeper into development.
Once you’ve confirmed that value ideas are valid, you can confidently proceed to standard Product software development or RAT Development.
Learn more about Value RAT
Discover our RAT methodology and its main benefits.
Webvan’s $800M Failure: How the Riskiest Assumption Test Could Have Saved It
Webvan failed because it made several unchecked assumptions. Here’s what went wrong:
1. Assumption: Consumers Would Rapidly Shift to Online Grocery Shopping
🔹 Why Validate? Webvan assumed that people were ready to abandon traditional grocery shopping in favour of online orders. However, in the late 90s, online shopping adoption was still low, and many consumers preferred in-person grocery selection.
🔹 How Value RAT Could Help: Instead of assuming mass adoption, Webvan could have run small-scale experiments — such as testing demand with a simple landing page or a limited pilot in one city before scaling nationwide.
🔹 What Happened Instead? Webvan aggressively expanded across 10 cities, spending hundreds of millions on warehouses and delivery fleets — without proving there was enough customer demand to sustain the model.
2. Assumption: A Large, Costly Infrastructure Was Necessary from Day One
🔹 Why Validate? Webvan believed it needed substantial automated warehouses and a complex logistics system to succeed. This assumption led to enormous upfront costs.
🔹 How RAT Could Help: A more innovative approach would have been to test operations with local supermarket partnerships or a manual delivery model before investing in automation. RAT would have exposed whether the full-scale infrastructure was essential.
🔹 What Happened Instead? Webvan spent $1 billion building fulfilment centres but couldn’t generate enough revenue to justify them. When demand didn’t meet expectations, the business burned through cash at an unsustainable rate.
3. Assumption: Customers Would Prioritize Speed Over Pricing
🔹 Why Validate? Webvan believed that fast 30-minute grocery delivery was its unique selling point. However, customers were more price-sensitive than time-sensitive, preferring to stick with their regular grocery stores.
🔹 How Value RAT Could Help: By testing customer behaviour with pre-orders, surveys, or small pilot programs, Webvan could have learned early that price competitiveness was more important than delivery speed.
🔹 What Happened Instead? Webvan set high prices to cover its costly infrastructure, but customers weren’t willing to pay premium prices for convenience alone. Without repeat business, the model became unsustainable.
4. Assumption: Scaling Quickly Would Secure Market Leadership
🔹 Why Validate? Webvan believed that blitzscaling — expanding as fast as possible — was necessary to dominate the market. However, rapid expansion only multiplies losses without a validated, profitable business model.
🔹 How RAT Could Help: Instead of launching in multiple cities simultaneously, Webvan could have tested its unit economics in one market, adjusting pricing and operations before scaling.
🔹 What Happened Instead? Webvan’s premature expansion drained resources, and when investors lost confidence, the company ran out of funding and collapsed after two years of launch.
How Keenethics Can Help You Avoid the Same Fate
At Keenethics, we help startups meet product market fit and launch the project to validate their ideas using the Value Riskiest Assumption Test before committing significant investments.
Our Value RAT service includes:
✅ Identifying your most critical business assumptions
✅ Designing and executing lean experiments
✅ Refining your approach effectively by analysing honest user feedback.
✅ Validated hypothesis of value and demand.
If it is negative, we save you money, and you can do a pivot.
If it is positive, we will assist you with standard or RAT software development*, increasing your chances of success even more.
Before you invest in product development, let’s validate your idea together. 🚀
Discover our RAT methodology and its main benefits.
