Do Lean Startups also need Business Plans?
This post originally appeared on blog.up.co
This is a guest blog post by Hira Saeed, Community Leader, Startup Weekend Karachi who writes about startups, AI, Chatbots and Big data.
Currently, the majority of people think that lean startup refers to setting up a business with little capital from outside. However, it is not right to some extent. A lean startup is a business approach that startups use to fasten their products cycle and effectively increase customer satisfaction continuously.
Steve Blank and Eric Ries have tried to advance this line of thought, which has been emphasized by Eric Ries in his book, The Lean Startup, which he wrote in 2011. This business approach involves product prototypes that are produced consequently with the aim of doing experiments based on market hypotheses.
The feedback obtained from consumers is used to assist product evolution, within a shorter duration of time when compared to the methodologies used in the past to develop products. It can be summarized in a build-measure-learn loop that is characterized by validated learning and repetitively releasing improved products.
Why do we need Business Plans anyway?
A good business plan is useful for various reasons. The major importance is that it helps reduce uncertainty by predicting future occurrences, and for thinking and determining the best possible courses of action in case of either adverse or favorable events occurring in future.
It also is necessary for acquiring business loans from banks and other financial institutions and gives a sense of purpose and direction to both owners and employees. A business plan helps an enterprise to act objectively and consistently. Deadlines are provided by the plan, ensuring that the business does not derail and is able to achieve important milestones.
The belief that a business plan predicts future events and situations is a myth, but the truth is that it allows entrepreneurs a chance to do course corrections based on existing assumptions and expectations. This is being proactive, which gives a business an upper hand compared to reactive businesses. Here's a telling paragraph from Ries's book:
"The first problem is the allure of a good plan, a solid strategy, and thorough market research. In earlier eras, these things were indicators of likely success. The overwhelming temptation is to apply them to startups too, but this doesn't work because startups operate with too much uncertainty."
Contemporary Business Environment
In the contemporary business world, however, a plan needs not necessarily be a formal document on paper, but it could be a list, table or bullet points of goals and targets of a business. In fact, having a plan that is summarized in this manner helps the business to stay on track in a better manner than pages of a business plan in a printed document. This is because it is agiler than the formal one, which is a big advantage considering the agility of today’s business world.
Today, an entrepreneur does not need to wait for a perfect opportunity in order to venture into a promising business opportunity. What one needs to do is come up with strategies as they proceed with their investment activities that they are capable of conducting at a particular point in time. This approach is similar to how an avocado grows, from the seed outwards. Strategizing needs to be done in a dynamic manner.
Agility of today’s business world calls for agile planning, failure to which a business may not survive in the future. Good planning is cyclic in nature. One needs to go back to the original plan and make various reviews and revisions, but while ensuring that the greater goal(s) is or are not altered. The planning needs to be simple and saved where key team members can reach for it make any necessary revisions and put it back.
Do we need a formal business planning for that?
The core challenge presented by formal planning is the lengthy period of time required to write it up. Its content will be probably outdated by the time the document is completed. It does not present one with the possibility of making quick and random changes whose need arises within short intervals of time. Targeted readers will rarely read the document word by word. Most people will simply scan the document.
However, despite all the flaws of a formal business plan, the planning process is still vital for the success of any business. Either you do it yourself or hire a business plan consultant, but making it happen is a must and this is a proven fact. A business plan gives an enterprise an approximate roadmap of the routes they need to take in order to reach the purpose destination, with all possible alternative routes also spelled out in detail.
Lean planning involves a four step procedure:
- Creation of a plan
- Testing the plan
- Reviewing the results
- Revising the plan (this takes the business back to the first step).
This approach works for both established and start-up businesses.
It is not a formal business plan, and it is exclusively meant for use from within an organization. In case a business needs a formal plan, all it needs to do is add information about outsiders in their lean business plan. A lean plan shows how the business is going to make money; with a clear outline of tactics, strategies, and schedules. It also briefly describes the sales channels, target market, competitors, and marketing channels.
For startups, one can easily see whether their ideas are viable or not with ease, and either make any necessary changes or drop the whole idea. For established businesses, it assists an entrepreneur in manipulating strategies and determines the stages of progress in business.
Yes, Lean Startups Also Need Business Plans!
Therefore, an entrepreneur needs to accept the fact that the business world is evolving, and the relevance of a business plan is responding to the development. New approaches that meet the needs of the newest business environments are still going to pop up with time. In order to do well in business, one may need to combine the strengths of the old and new approaches such as a formal business plan and lean startup respectively.
Every business must, therefore, emphasized and embrace the strengths of developing a business plan even if it is a lean startup.