Are Business Plans Obsolete?

August 22, 2012

Business planning is regarded as an important activity – as long as you don’t plan on everything working out according to plan… The objective is to think deeply about your target market, what it will take to serve them profitably along with the issues and obstacles that you may face. A business plan also serves as something that you can share with others so that they can provide you with their feedback.

Business plan templates that I was introduced to in college included things like a market analysis, an overview of the products or services that would be offered based on that market analysis, marketing and sales strategies, the organization and management of the company, and of course those rosy financial projections. But isn’t this really an attempt at predicting the future, unlikely to fit reality? And does building a business plan like this even make sense in today’s turbulent, hypercompetitive global economy?

Actually, it can be wasteful to build out a long-winded business plan, and even more wasteful to follow it as originally outlined.

What we really need to do is model the business, to test our hypothesis as quickly as possible by having conversations with potential customers and then adapting based on that feedback. We need fast, low-cost, low-risk ways to execute on the build-measure-learn loop before we are out of runway (capital). I referenced some research and techniques in my post, How to Fire a Business Bullet, but there is more you can do.

Instead of a business plan, we can use Ash Maurya’s Lean Canvas, which is an adaptation of Alex Osterwalder’s Business Model Canvas and outlined in Osterwalder’s book, Business Model Generation. (You can read more about the genesis of what is now the Lean Canvas from a 2010 blog post by Ash Maurya.) The Lean Canvas covers the essentials of quickly creating a business model in a concise format that is easily shareable.

Ash Maurya’s advises in his recent book Running Lean that we shouldn’t be in a rush to build product first. We need to learn from potential customers about what their real problems are and what we can do to address those problems – profitably. As Maurya states, this will most likely involve significant change:
“Most startups still fail. Of those that succeed, two-thirds report that they dramatically changed their plans along the way. Successful startups don’t necessarily begin with a better initial plan, but they discover a plan that works before they run out of resources.”
Running Lean covers making use of the Lean Canvas as you conduct business model interviews designed to learn from prospective customers versus pitching your idea to them. The goal is to balance speed, focus, and learning so that you don’t over-emphasize speed and focus, for example, but fail to learn, or spend too much time focusing and learning, but not getting to market quickly enough. You want to leverage the Lean Canvas and the interview process around validating a problem as it relates to a particular customer segment (and you will likely have more than one customer segment).

Speed, efficiency, low-risk, and less wasted effort; this sounds like the perfect 21st-centruy approach to business development! So I ask, do we need a business plan or a business model? It seems to me that business plans are so 20th century…