It is the most common misconception with Viktor Cheng Materials. There are two ways to use the hypothesis:
First - presenting a structure using the hypothesis. You always should make a full structure!!! For example, if you are having a PE (private equity) case, you should do the following:
1) Make classic structure (market, company, competitors, feasibility of exit)
2) Make subpoints (e.g. in market: size, growth rates, profitability, segmentation, etc)
3) Present your 1st level Hypothesis:
- - "In order to understand whether we should invest in Company A, I would like to check a set of the hypothesis: whether the Market is Attractive, the Company is Attractive, the competition is favorable and whether we have good opportunities for of exit"
4) Present the main 2nd level Hypothesis:
- "In the market, I would like to make sure that the market is big enough and growing;
- In the company I would like to find additional opportunities for growth;
- In competition I would like to check that the market is fragmented enough;
- Finally, I would like to check if we have potential buyers and can achieve desired exit multiples"
In your case of declining profitability, the hypothesis will be:
- Declining revenues
- Increasing costs
- Both of the above
As you can see, you are always making a full structure, not just looking at revenues or costs in isolation.
Another way to use hypothesis is using the hypothesis to prioritize your analysis (still making a full structure):
1) Make a structure: "Problem in the sales department may be related to Sales Motivation, Sales Strategy, Team Composition, and Sales Process
2) Prioritize a part of the structure based on your knowledge / common sense / available data: "Taking into account that motivation is the core problem of the sales organization, I would like to prioritize this part of the analysis"