“Plans are only good intentions unless they immediately degenerate into hard work”- P. Drucker
Dear friends,
There is something that I’ve wanted to tell you for a long time. It’s something that we’ve been taught all those years (during university and post-graduation) repeatedly and I am afraid that might sound a bit odd in the beginning.
It would be about a topic that is been conditioned in our minds as prerequisite for start building/structuring our startup and if we skipped that step there is a good chance to be perceived by the so-called experts as either amateur or fool.
Well, because time is money I will dive immediately to the topic of interest. Is about the business plan and its role in the success or not of a startup business.
It’s a cure all isn’t it? If you want to launch a startup undoubtedly this is the path to follow am I right?
Or…………is not the path to follow?
The last many decades there is an obsession and a hype about business plans why they are so important and this process is been indicated for anybody considering to start a business, is something that you must have; based on the mainstream idea. Otherwise how you will be able to create a plan for this complicated project (starting a business), it make’s sense isn’t it?
After all the famous phrase/quote “No battle was ever won according to plan, but no battle was ever won without one.” I presume didn’t became famous for no reason, is been reiterated so many times because it’s correct.
Anyhow give me some time and in the following paragraphs I will explain what kind of different plan is needed in particular for startups and I can assure you this plan has nothing to do with the old-fashioned, outdated and ineffective business plan.
Whether you know it or not Business Plans don’t work for startups
First allow me to start with the individual that is considered as the top-expert in startup creation, the noted entrepreneur and academic Steve Blank. Steve Blank noticed from the very begging of his career that something goes wrong with how startups think and operate and created the Customer Development Movement (for more about that model check out that post).
Steve Blank 3 famous quotes/comments about why Business Plans don’t work for startups are the following:
a) “Traditional Business Plans presume no trial and no errors”.
In other words the vast majority of startup businesses create this plan and they follow it with religious devotion until to find out that the CIAs (Critical Important Assumptions) and hypotheses that they believed about were wrong, but unfortunately it’s too late to change their startup destiny because of the delayed identification of the problem (deviation between reality and their assumptions).
b) “No Business Plan Survived first contact with Customers”
Steve Blank here points out that sadly the most of the startups create this plan and the 1st contact of the actions and tactics that are indicated by their plan it happens when they launch their startup and try to market their business product/service. This is the ultimate recipe for failure and I will explain why in a while.
c) “Entrepreneurs often mistake their business plan as a cookbook for execution, failing to recognize that it is only a collection of unproven assumptions”.
Fortunately or unfortunately the overwhelming majority of our assumptions are just guesses. Regardless how much educated and well-informed we are about our market, until to test these assumptions with real customers and validate them we don’t know for sure that they will become true or not.
I am sure you will ask but why?
Why the Business Plan is broken for startups
The reasons why business plan doesn’t work for startups but only for already established businesses is due the established firms already validated their business model elements.
The fundamental difference between startups and established businesses, is that startups are looking to convert their business assumptions into facts and established businesses they already did that job and they have known customers, problems that their customers want to solve and how to deliver their solution. Startups don’t have that answers and are looking via experimentation and searching to figure out what are those answers to those questions.
This is the reason why millions of startups adopt and follow the movement that Steve Blank created and lead to a significant increase in the startup success worldwide due to the Customer Development methodology.
As Mr. Blank often describes startups have to be in a search mode and established businesses in the execution mode.
Today will immerse ourselves only to the 1st element of the series of phases that compose the Customer Development Model.
The successor (Business Model Canvas)
This was the solution to the problem that the startups were facing. Is the Business Model Canvas that created by Alexander Osterwalder and was incorporated to the Customer Development model of Mr. Blank.
The reason why this model; is because startups from their nature as Steve Blank points out have a completely different purpose than established businesses “A startup is a temporary organization designed to search for a repeatable and scalable business model”.
Only after they validate all of their business model assumptions in the market can be converted and called themselves real business. Thereby given that reality there was a need for a model that will be used in the beginning of their life (startup development phase) and only after they passed successfully that stage they can use the conventional business Plan.
The Business Model Canvas elements
Ok now that we set the framework let’s outline briefly the elements that describe the business model canvas.
a) Value Proposition: (What is the value that you will offer)
b) Customer Segments: (Who are your customers)
c) Distribution Channels (How to deliver your product/service)
d) Customer Relationships (Build Demand)
e) Revenue Streams (Revenue Model)
f) Resources needed
g) Necessary activities to implement the business model (Tactics that constitute your Startup action plan)
h) Partners
i) Cost structure
But after all what’s the difference?
You might say that these elements somehow are covered by the conventional business plans.
Indeed, nevertheless these 2 models have entirely different approaches, philosophies and they seek a different outcome.
To be more precise I’ll use the distinction that is been utilized by Chris Taylor which I particularly like:
Business plan approach: Internally focused (build the product and only after then expose it into the real market), static (doesn’t take into account that fast-pacing and constantly changing environment and the need for change in an-ongoing basis) and rigid (no deviation from the plan).
So how Business Model Canvas is different?
The one huge difference is that is been used in conjunction with the Customer Development model which will guide us through a targeted and methodic way to test, improve, change, iterate the business model canvas elements in a weekly basis.
In simple words is externally focused (go out of the building as Steve Blank preach and validate or invalidate your assumptions), dynamic and adaptable.
This will have as a result when approaching our launch day to have a business model with facts and not guesses and increase dramatically the possibilities for a successful startup and not belong to the category of 6 out of 10 startups that fail after they launch their startup businesses.
That’s it for now, I hope to enjoyed that post and see you soon, with very good “stuff” (or at least I hope so…)
“Talk about it and it’s a dream, envision it and it becomes exciting, when you start to have a plan is possible but when you schedule it is real”.- T.Robbins
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