This blog post is co-written by Yngve Dahle and Mark Robinson.
Alexander Osterwalder wrote a Wall Street Journal article in 2012 called “Burn your business plan before it burns you.” It contained several useful points and some healthy advice for entrepreneurs. Basically the author claims that working with a traditional business plan causes entrepreneurs to:
- Fall in love with their first idea, without exploring alternatives
- Not listen hard enough to customers
- Not test enough
He suggests instead that you trust your Business Model Canvas (BMC). Create it, test it and change it. Continue this process until you have something that works.
So, three years down the road, is the article still valid? Although we agree with Dr. Osterwalders diagnosis, our experience tells us that the cure administered is not sufficient for the patient. We totally agree with the Lean Principles that Dr. Osterwalder is advocating, but we don’t think that the BMC is comprehensive enough to function as the only tool used by the entrepreneur. It is a bit like using a Swiss Army Knife with only one blade.
Plan is a four-letter word?
Time to get a bit personal. Four years ago, we started our little consulting operation. We travelled around Scandinavia trying to help entrepreneurs improve their startups. Our first program was based entirely on the Business Model Canvas, and we met more than 500 companies in this phase. So- our suggested actions after burning the business plan is not based on a proper empirical study (We will return to that in a later blogpost). However, it is based on a number of meetings with more than 2000 Startups over the last four years, and feedback from our 200+ certified Lean Business Advisors.
The initial Business Model Workshops went just fine. Particularly in the initial strategic phase where the focus lies on product development, the method was very useful. However, when we revisited the same companies after one, three and even six months, far too many of the companies had failed to turn these initial strategies into everyday actions.
Of course this may mean that we were not doing our job properly. However, we believe that using the BMC was not sufficient to help the startups that most needed the help. These startups seemed to require more thorough testing of their customers needs in the business idea before turning their attention to the details of the business model. In addition, they needed a structured way to define objectives that would fit their business model, and activities that would allow them to achieve those objectives. Finally they needed a simple way to forecast the revenue and cost consequences of all these actions. All these things needed to be structured in such a dynamic way that the entrepreneur could change objectives, tasks and business model elements as often as needed, and still keep track of the finances. It should also be possible to pivot into a different business idea as often as necessary.
What seemed to be needed was some kind of plan- a holistic setup tying the business idea and business model to objectives, tasks, and a forecast predicting the financial consequences of it all. Of course, not the old kind of 100 page static documents built only to satisfy banks and investors, but nevertheless it looked a lot like some kind of planningwas in the core of it. We looked desperately for a way to avoid using this unfashionable term, but it seemed to be the most fitting description of what we felt was needed.
From plan to planning?
So, our suggestion: When the members of the Business Plan bonfire is dying out, you should start planning. Build it around the Business Model as Dr. Osterwalder suggests, but don’t stop there. Consider what objectives you should reach for and what you need to do everyday to make your dreams come true. Try to make a rough assumption of your revenues and costs. If it doesn’t look right (which it probably won’t the first few times), adjust it. Test it with the people you envision as your customers. Learn from this data, and change it once again. Designing a business model is probably the easiest part of all this. Making it become a reality will be the challenge.
We hope that this blog post may inspire you, and perhaps spark a discussion. If some of the entrepreneurship terminology we used is new to you, you can find more details about it in the Introduction chapter of our Lean Business Planning book. You can download a free PDF of the chapter here.