Why the Business Plan is Dead

It’s really tempting as an entrepreneur to put your head in the sand and put off testing to see if there’s a market for your product. Particularly, perhaps, for entrepreneurs who come from a technical background.

That great big shiny idea that everyone self-evidently will want – the entrepreneur’s metaphorical baby.  Any suggestion otherwise can bring out an icy stare.

While a brief business plan can be a good way to rationalise thoughts it is often also an exercise in pure imagination. Market adoption figures plucked from nowhere, a three year plan of a) develop awesome widget, b) get rich on epic sales! With a nice ramp up added in based on whatever forecast looks best on the graph.

The big problem with a business plan like this is the lack of market engagement until near the end of development; ramping up sales and marketing just before the product is ready to ship. If it turns out bad assumptions have been made and the market wants round widgets instead of square ones – you’ve already spent the budget. By the time anyone knows there’s an issue most of the money has been spent and there’s a full team of staff. The company is left in a sticky situation and executives start getting replaced.

It’s no wonder the quest has been on to create more market focused disciplines – lean and agile being two great examples. Agile structures businesses into an ever responsive state – so a company can react to new information from the market with minimal disruption. Lean focuses on using the market to test our ideas and assumptions with minimal expenditure of resources.

One thing I’ve found repeatedly with lean and agile is how simple they appear and yet how skilful their application can be – like Japanese calligraphy. There was a huge leap forward with my understanding of scrum while working alongside a professional scrum coach – so much so that I looked back somewhat wryly at the idea that I’d always thought I’d understood agile.

I wanted to find out if the same was true of “lean” so I had a go  at applying Eric Reiss’s Running Lean book for a recent project. As usual I started the project with an idea for something I wanted to make. Reiss, however, was brutal: I was to turn my idea for a product into a definition of the problem it solved and then put my idea for a solution into a drawer. I wasn’t allowed to talk about my solution, only the problem that I thought it solved. Having defined the problem and sketched out a lean canvas it was straight out the door into the marketplace to see if the problem really existed. Including, as an acid test to avoid people just being polite, finding out how people were solving the problem already.

When we run a project in this lean fashion we end up in conversation with customers before we have invested in anything more expensive than a notepad. “Fail fast” is the lean motto.

More and more early stage investors are looking for market validation, a couple of hundred signed up customers, as a preferred indicator if a business idea has worth. It is these customers that are the new replacement for a business plan. Investors are no longer content with a deck of made-up graphs. Being able to show real people interested in buying the product before development starts is a much better indicator of a good product idea and a smart business team, worth putting some money behind, than a long a glossy business plan.

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