Burn Your Business Plan – Before It Burns You
ALEXANDER OSTERWALDER: Founders go wrong when they start to believe their business plan will materialize as written. I advise entrepreneurs to burn their business plan — it’s simply too dangerous to the health of your business. Believing in them is illusional, because, to quote Steve Blank (fellow WSJ Accelerator ): “No business plan survives first contact with customers.”
As any seasoned entrepreneur and investor will tell you, however hard you think about your venture, the reality of the market will always be different. In fact, countless winners of business plan competitions learned that truth the hard way when their prized plans succumbed to market forces.
Hence, we need to have a more dynamic methodology for entrepreneurship than static business plans. A learning approach that stress tests your business ideas with real market forces and iterates through plan A, plan B, plan C, and so on — quickly and cheaply – until you’ve nailed it.
You’ve burned your business plan – now what?
The good news is that we’ve now figured out how to replace business plan writing with a more reliable process that produces better results. It’s a process that supports you in your search for a scalable and profitable business model by combining three different methods in a powerful cocktail: Business model design with the Business Model Canvas tool; Business model testing with the Customer Development methodology); Rapid prototyping with the Lean Start-up methodology. Steve Blank calls this the start-up stack.
Entrepreneurs around the globe are already practicing this method mix with great success from Silicon Valley to Switzerland, Colombia to Kenya, Singapore to Shanghai. These entrepreneurs avoid three common pitfalls:
1 – Falling in love with your first idea, without exploring alternatives
The same products, services or technologies can fail or succeed depending on the business model you choose. Exploring the possibilities is critical to finding a successful business model. Settling on first ideas risks the possibility of missing potential that can only be discovered by prototyping and testing different alternatives.
When Nespresso, a corporate start-up by food giant Nestlé, launched their revolutionary single portioned espresso machines they almost went bankrupt. Only after the introduction of a new business model did they grow to a 3 billion USD business.
When Xerox launched the first photocopier they couldn’t sell their technology until they found a business model that spread the machine through leasing and earned profits from small amounts of a large amount of photocopies. Entrepreneurs who understand business model design explore extremely different alternatives, rather than falling in love with their first idea.
2 – Not listening to customers hard enough
Constantly talking to real potential customers from the very inception of your ideas all the way to their execution is a prerequisite for any serious founder. Great entrepreneurs are often great listeners and they can spot patterns and pick up on small details in customer stories.
For example, good listeners try to get beyond what customers ”want”, towards understanding the jobs customers are trying to get done and the pains and gains they encounter related to them. Clayton Christensen, one of my favorite academics, often quotes legendary Harvard professor Theodore Levitt to illustrate this: ”People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” As an entrepreneur you want to figure out what the pains and gains related to getting that quarter inch hole are. That’s where you will create value for customers.
3 - Not testing hard enough
Once you have an idea of those customer jobs, pains, and gains you don’t want to rest until you’ve tested if what you’ve learned from talking to customers is actually real. Actions speak louder than words. There is a big difference between what people say and what they do. People might tell you they are excited about your new product, but when they are in a buying situation their behaviour might be totally different.
Get potential customers to perform real actions. This could be, for example, something as small as getting them to sign up with their email for the launch date of your upcoming product. Or, market a so-called minimum viable product (MVP) – a product or service prototype with a minimal feature set – to early adopters. What you will learn will be invaluable.
Do it the right way!
Many founders come to me for advice. They show me their Business Model Canvas and ask me what I think. My response is always the same: “Have you tested it?” The Business Model Canvas is an excellent tool to help you design better and more profitable business models. Yet, without combining it with business model testing it’s just as static as a business plan. The market might reject even the smartest business model design if it’s not stress tested.
Today we know how it works. Make the hypotheses underlying your business model canvas explicit, test the most important ones with customers and partners and integrate the learning into a new business model design. Repeat until you’ve nailed it. The tools and processes that replace business plan writing are there. Use them.