Are Business Plans still relevant in 2020?
Lean StartUp Model vs. The Traditional Business Plan
A start up can be defined as a young company in a bid to develop a product or a service.
What is step one of starting a business?
Write a business plan right? Wrong.
Well that is what I want to discuss today. In 2020 is it worthwhile for a business to create a business plan?
I am not saying a business plan does not have merit, as it is intended to be your “roadmap to success” but with an estimated 90% of start-ups failing, maybe it is about time to do away with the traditional business plan.
The problems
There are many problems with business plans, but I wanted to highlight a few for comparison purposes more than anything.
Static
The issue is business plans are a static document which is in need of updating. In 2020 we live in such a fast pace business environment where consumers demand changes instantaneously with constant hunger for instant gratification. A simple Instagram post from Kylie Jenner can set a trend for the next few months in the fashion industry. How does your business plan deal with that?
Assumptions
Another major issue with this traditional method of planning is that it is often based off a lot of assumptions and secondary market research.
As Steve Jobs once said:
“People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page”
Measuring Success
How are you supposed to measure your return on investment with a business plan. Sure you can predict financial projections or give yourself goals to aim for in each quarter. But really that’s just guessing, what are you basing these figures off unless you have previous data.
There is no method to measure and validate your revenue model. Most of the times it’s driving blind and hoping for the best.
The Alternative
There is no sure way or magic method to guarantee success of any business. The global pandemic is an example of how business plans can be thrown out the window. However, the Lean Startup methodology provides in my opinion a more sure way of producing a product or service people actually want.
Lean Methodology Summary. In short, Lean methodology is a way of optimizing the people, resources, effort, and energy of your organization toward creating value for the customer.
The questions shouldn’t be can we build something to solve this problem? The question should be should we build something to solve this problem?
Innovation Accounting & Validated Learning
Lean startups use experiments on customers to gauge success. I will use IMVU (a 3D social app) as an example. When IMVU was being developed instant messaging was all the rage, MSN being the leader. IMVU then spent months working on an interoperability feature to integrate their instant messaging feature to invite friends from other IM networks.
When showing a customer they eventually discovered teens didn’t want to invite their real-world friends to a site that they didn’t know was “cool” yet. This was a major discovery. However they spent months working on a feature which was eventually discarded.
The principle of using multiple experiments early using prototypes helps refine what customers really want and if a product/service has any value to consumers. Therefore, detailed records of tests and analysis can gauge information learned as a measure of success.
Develop a minimum viable product
Creating a product to test the hypothesis that a feature is in demand much like the way scientists conduct experiments. This product can then be iterated over based off customer feedback. This can quickly test assumptions entrepreneurs have on consumer behavior.
Compare this to market research, you could go out with a survey and ask consumers if they would like a product like this or how they feel about potential products. However, it is hard to quantify human behavior and feelings objectively.
Dynamic
The learn start up methodology builds off a feedback loop build-measure-learn, which should quickly suggest if there is value in creating the product/service you propose. When this process of measuring and learning is done correctly, it will be clear that a company is either moving the drivers of the business model or not. If not, it is a sign that it is time to pivot or make a structural course correction to test a new fundamental hypothesis about the product, strategy, and engine of growth.
This is a much more progressive way to look at a business market in an ever-changing environment. A business plan can be too rigid and does not allow for fluctuation of strategy based off consumer behavior.
Conclusion
This blog was heavily influenced by the book I am reading The Lean Startup by Eric Ries. You could argue this way of thinking suits certain types of business’ and I am not saying we need to stop creating business plans. However, a combination of lean methodology and principles with a business plan may be the way forward.
I would be really interested to hear what young budding entrepreneurs would think of this and how much value should be attached to a business plan for a start-up. I have made a lot of judgements on a business plan and how much entrepreneurs really use them to guide their business. My main point is based off the approach to business entrepreneurs take.
Sources Used:
http://theleanstartup.com/
https://herahub.com/resources/lean-startup-model-millennials-vs-the-traditional-business-plan-baby-boomers/
https://interaction.net.au/articles/five-principles-of-lean-startups/