Every company has a set of business assumptions that if found to be untrue will prevent your company from moving forward. As the founder or CEO, you best have a process or tool that you can utilize to uncover then measure these truths. These can be product or customer assumptions.

I have personally captained at least 25 business ideas in my career. That is not including the hundreds of startups I have advised and counseled. The first thing I want to uncover are the handful (no more than 3) of assumptions I must prove out in order to have a scalable business.

At my core, I am a product guy with some sales & marketing chops. I have also developed very good general manager skills (hiring, firing, employee motivation, fund raising, business development). I share this with you so that you understand that I am not a finance or legal guy. I can manage my way through these areas but I prefer to let others lead there.

With that foundation in place, I share with you my tool and process when evaluating new business opportunities.

The first thing I go to is a spreadsheet.

I literally think on a spreadsheet and use "the business tool of the century" to model out everything. Are you comfortable with this tool, because if not you need to be ASAP. This is not something you should hand off to someone else. My Master-Mentor, Bart once told me that a great business person needs to know your key numbers in your head to optimize every day decisions.

One of the high-level assumptions that every business has is the notion if you can acquire your customers for less money then the lifetime value of that customer. I wrote about this a few months ago here at INC.com. Well you can model that easily on a spreadsheet.

Outline monthly the different ways you are going to sell and market your product and the costs associated with those efforts. On another tab in your model, outline the projected revenue from the sale of each product. On another tab, bring these together in a rough P&L statement. You might have to take into account the stay or churn rate if you are running a monthly subscription. You get the idea.

By building the spreadsheet yourself, you get to make decisions that may or may not pass your own sniff test. You can make these as conservative or aggressive as you want.

My biggest advice in building your business model--create a set of assumptions in the first tab that are linked to those tabs I just mentioned. That way, you can change those assumptions and see the bottom line effect of those changes. Over time, you can update the model as new information becomes available.

So, just in case you are freaking out over the implied difficulty of doing this yourself, these tasks are not difficult and I don't consider them to be more than beginner lessons. Not sure how to do this--ask one of your advisors, friends, or peers to help. A few hours learning and building your model will pay off.

Once the model is in place, then you can determine the 3 major assumptions that you need to wrap your entire business around.

Published on: Jul 30, 2015