Entrepreneurs often ask me, "how do I know if I'm on the right track?" Sometimes they are chasing what they believe will be a billion dollar idea, sometimes something smaller, but in all cases they are wrestling with a fundamental challenge of being an entrepreneur: are you chasing a huge opportunity or racing down a dead end towards failure. How do you know the difference?

In my recent book with Jeff Dyer, The Innovator's Method, just out from Harvard Business Review Press, we provide a number of tests that you can use at different stages of the innovation process to know whether you are on the right track. We draw these tests from many of the emerging perspectives on how to manage innovation, such as the lean startup, design thinking and so forth. But in the quest to provide entrepreneurs a data-based, absolute benchmark to measure themselves against, I've come to realize that an absolute benchmark may be the wrong way to approach it (even though there are a growing number of benchmarking data services aimed at entrepreneurs).

Instead the right test to know if you are onto something big is quite simple: it is the difference between what you thought would be the result and what you actually observed. That difference, whether things turned out better or worse than you thought, is the ultimate test and that delta is where the real learning and the real insight occurs. However, to observe a delta in the first place, you need to follow a few simple steps or you will likely linger for a long time in the land of the unsure or the living dead.

First, you need to explicitly define your guess--a hypothesis about what you think is true--and your guess about the outcome of a simple experiment to test your hypothesis. It is critical that you write it down. Both the hypothesis and your guess about the outcome. This sounds simple and stupid but we have had many entrepreneurs and innovators confide in me that they did not do so and kicked themselves later. Writing down your hypothesis creates a structured statement about the opportunity that you can then test. Writing down how you will measure it and what you think will be the outcome creates the opportunity for learning.

Then structure a simple, low cost experiment that you could conduct in the next few days and observe what the outcome is. Whether the results are higher or lower than expected isn't what is most important. Rather, the difference between your expectations and the result is the real learning about whether you are on to a big idea and the opportunity to ask a question of yourself: "how did the world turn out to be different than what I expected and what have I learned?" If you don't write it down, we can almost guarantee you that you will interpret whatever happens in a favorable light and you won't get the insights you need to turn a marginal idea into a billion dollar idea.

As an example, if you believe there could be a big opportunity for a new medical device, ask yourself, what is your most critical hypothesis, the one that could kill your business, and how would you test and then measure that in the next few days? If for example you were developing a new device for chiropractors, the most critical assumption may be that chiropractors actually perform procedures for which they want your device. You should write down this hypothesis and your guess about how many chiropractors would respond (when asked) that they are highly interested in buying such a device. Then call 20 chiropractors and see what happens. Whether all 20 respond with overwhelming enthusiasm or no one responds, the delta between what you thought would happen and what happened will be the doorway into whether you are on to something really big! It sound simple but it is the hinge on which successful opportunity discovery swings.

Post co-authored with Jeff Dyer. Jeff Dyer is the Horace Beesley Professor of Strategy at BYU's Marriott School of Management. He is the lead author of the best-selling book, The Innovator's DNA, and co-author of the new book, The Innovator's Method. To learn more about our research on uncertainty and innovation, visit learn.theinnovatorsmethod.com.