Posted on January 8, 2017 @ 01:50:00 PM by Paul Meagher
This blog is the first in a series of 12 blog posts decidated to each chapter in the book The Lean Startup (2011) by Eric Ries. The first chapter is simply called "Start" and it addresses what mindset you should have going into your startup venture. Eric argues that launching an explosive startup is not rocket science in the literal sense that you can't fully plan beforehand the trajectory of your business from launch to landing. There are severe limitations in our ability to predict the trajectory of a new product or service in the marketplace. Eric argues that a better way to frame the predicament of the startup is to use a driving metaphor that involves tuning the engine to perform well and continually making adjustments in light of detours to reach our destination. The "driving" metaphor suggests that more cybernetic-type control is involved.
It is difficult to determine what role a business plan is supposed to play in startups that adopt a lean methodology. Eric views traditional business plans as a predictive device that may be more appropriate for established industries and businesses where there are existing business models, market data, and financial data we might use to plan the roll out of a new product or service. An explosive startup, however, is by definition a business that must navigate its way through extreme initial uncertainty regarding the product it will ultimately offer to the customers and who the customers for the new product or service will eventually be. A startup might take the advice of traditional business texts and spend alot of time trying to plan everything out beforehand but that can be a waste of time for explosive startups as you will likely need to throw away most of your business plan when you get into the product development and consumer testing cycle.
Where does that leave us then with regards to planning your startup? Eric does not get into this much in the Start chapter, but
the lean startup movement has spawned newer alternative approaches to business planning that are arguably better adapted to initial
startup planning for explosive startups. They don't ask us to plan out everything in advance, but they try to make sure we at least have a business model hypothesis that we are provisionally working from and can share with others if need be. I don't get the sense that banks or more conservative investors would accept a business model canvas or lean canvas as a substitute for a business plan, but explosive startups will not want to invest alot of time up front into traditional forms of business planning. You will want to be more action-oriented and engaged in validating your ideas as soon as possible rather than get stuck in a prolonged business planning exercise.
A few days ago I had a conversation with a local entrepreneur in the process of starting a third business. I talked to him about
business plans and he told me he gave up on revising his business plan for the first business after the 13th iteration and that he may
never write another business plan. I asked what was the alternative. He said he is just using the pitch deck that he created to raise seed funding for his venture. His route to starting a venture was concept selling to investors using his pitch deck and using that approach managed to raise 100k so far. Now he has enough money to get down to figuring out what he needs his website to do to enact the vision and to sell the concept to customers instead of investors to get traction towards the vision so he can proceed with another Series A round of funding in a year or less.
This reminded me that there is not just one way to start a business. My friend comes from a sales background so it is probably more natural
for him to start a business by selling the concept to investors rather than building a demo. When I say selling a concept, I specifically mean he believes that he has a good business model that would address a large and growing market in the health care industry. To begin testing the business model hypothesis is a $100k proposition.
One template that is often used for Lean Startup planning is the Lean Canvas, a simplified version of the Business Model Canvas. It is also called the One Page Business plan and here is what it looks like:
If you want more information about the lean canvas, there is a useful article by lean canvas creator, Ash Maurya, on Why Lean Canvas vs Business Model Canvas?
In this blog, I used the term "explosive startup" when referring to startups because lean startup advice may not be appropriate for all forms of startups. If you are starting up a coffee shop there are alot of "knowns" that you might consult to help you better plan out your business and know what your costs are, wages are, and so on. It would be foolish not to do some research on the coffee industry and demographics and formalize it into a business plan before you go looking for money to start a coffee shop. Where you have the ability to forsee the future somewhat you should try to do it to avoid the school of hard knocks. There are explosive startup scenarios, however, where you cannot predict the future that well for a variety of reasons. Here you need to be more action oriented to figure things out and the main "planning" you should be engaged in is about how to test key business model hypothesis and assumptions as fast and efficiently as you can so you can evolve that business quickly. Pitch decks and business model canvases might be the preferred business planning/selling tools in these contexts.