Have you ever written a Business Plan? Did you enjoy the process?
I have posed these two questions to thousands of makers, entrepreneurs, and innovators around the world and here’s what I found:
Only 30% of them had ever written a business plan and less than 2% enjoyed the process.
I posed a different question to the investors (and stakeholders) in the room: “Do you read the entire business plan?” Again, less than 2% admitted to doing so — citing a preference for the 1-page executive summary, 10-page slide-deck, or 30-second elevator pitch.
Why then are we still forcing people to spend weeks writing a 40 page document that no one reads?
If you Google “Is the business plan dead?”, you’ll get dozens of articles dating as far back as 2010 proclaiming the death of the Business Plan. However, like the fax machine, the Business Plan refuses to die.
The best reason I’ve been able to uncover for this is that the institutions that still require a Business Plan are locked into habits of the present. They require a Business Plan because they have always required one. And entrepreneurs see no choice but to go along.
In this article, I’d like to make a case for why the Business Plan is a relic, what to use instead, and how to write a more effective Business Plan if you still have to.
The Job of the Business Plan
The Business Plan has historically been used as a fund-raising instrument. Period. While others may cite more utopian goals, I’ve yet to find one team that keeps their business plan up-to-date beyond the fund-raising event.
Starting a business used to be highly capital intensive. And the only option for entrepreneurs was hiring a Business Plan to help them make a compelling case for investment based on their ability to “pitch the perfect plan”.
But the world has changed.
Servers, software licenses, and office space that used to run into the tens of thousands of dollars are near free today. With lower startup costs and new methodologies like the Lean Startup, we no longer need large amounts of capital. We can start de-risking our ideas from day one.
The best evidence of a plan that will work isn’t pitching a fictional story of what could happen, but an actual story of what just happened when your idea met customers — also known as TRACTION.
Traction is the rate at which you capture monetizable value from customers.
If you walk into any stakeholder’s office with the beginning of a hockey-stick curve, you’ll create a Pavlovian response and won’t need much else. They’ll sit you down and want to understand your idea.
Traction, not a plan for traction, is what both investors and entrepreneurs should ultimately demand.
Business Plans versus Business Planning
Sadly, too many entrepreneurs have swung to the other extreme and opt for a “no-plan” or a “just-do-it” approach while searching for traction.
I don’t believe this is any better.
While we are building more products than ever before, many of these products will never attain product/market fit, and fail.
Trying to build a business without any planning is akin to building a house without a blueprint. A house, by comparison, is less complex and less uncertain than a business.
This is where I make a distinction between business plans and business planning. I am a huge advocate of the latter.
The main issue I have with the Business Plan is not the intent, but the format. Requiring a deliverable that doesn’t get read is a form of waste. Furthermore, doing anything innovative is riddled with both knowable unknowns and a lot more unknowable unknowns. While you can document the former, the latter is only covered by way of doing.
We need a new breed of lighter-weight business planning tools that simultaneously support this new reality and meet the needs of both maker and investor worldviews.
Meet the Lean Canvas
The Lean Canvas is one such tool. Adapted from Alex Osterwalder’s Business Model Canvas, the Lean Canvas is a 1-page business model. Like the Business Model Canvas, the Lean Canvas uses a set of building blocks that help capture a snapshot of your business model story.
While the Lean Canvas shares many boxes with the Business Model Canvas, the Lean Canvas had very different and specific design goals from the outset.
1. Entrepreneur/Maker Focused
The Lean Canvas is fundamentally built on a Customer-Problem-Solution paradigm that is more maker-oriented. While business model purists may criticize the Lean Canvas for being too product-oriented, therein lies it’s appeal. By disguising a business planning tool as an idea capture tool, we get more makers to engage — which is a win.
Every maker in the world wants to talk about their solution. So there had to be a box for that.
2. Address the Innovator’s Bias
Even though there is a solution box on the canvas, it is intentionally one of the smaller boxes on the canvas. Not because building a great solution isn’t important, but because building a solution is only part of the true product of an entrepreneur.
Your business model, not your solution, is the true product.
As entrepreneurs fill out the canvas, they quickly start to realize that the crystal-clear idea in their head is not so crystal-clear after all. Furthermore, most business fail — not due to a failure to build what they set out to build, but due to a failure of building the right product that customers want.
Deeply understanding your customers and their problems is a prerequisite to building what customers want.
3. Simple to Understand
Keeping the other labels in the canvas as simple and intuitive as possible was another key design goal. I cut my teeth on the original Business Model Canvas and had to look up several terms (like “Key Activity” and “Key Resources”) to be able to use it effectively.
I knew that asking other entrepreneurs to create a business model that required a user manual wasn’t going to work — given the fact that the majority of them are still employing a “no-plan” alternative.
Before you can ask a customer to hire your product, you have to understand what you’re asking them to fire.
The version of the Lean Canvas you see here has been refined and tweaked through thousands of hours of usability testing with entrepreneurs. I am proud to say that the Lean Canvas passes the high-school test. Other than being used at colleges and universities, is has recently been adopted into a few high-school curriculums. It was even successfully used with a group of 9-12 year olds in a “startup weekend” type of event!
4. Support Search Versus Execution
At the earliest stages of a product everything seems possible and it’s hard to capture this myriad of possibilities in a Business Plan. The solution is creating multiple business models and pitting them against each other which is the process I describe in my book: Running Lean.
5. Facilitate Conversation
By far, the biggest transformation comes from seeing entrepreneurs share their ideas with others. When you place a 1-page document in front of anyone, they can’t help but read it, and can’t help but have an opinion. And that is where true success lies.
You can use the Lean Canvas to get rapid feedback from peers, advisors, and investors — allowing you to pattern match on the riskiest assumptions in your thinking.
6. Allow for Iteration
The light-weight nature of the canvas also means that you can regularly keep it up-to-date and use it as an ongoing artifact to capture the evolution of your business model story. While a Business Plan assumes a “Plan and Execute” approach, the Lean Canvas advocates for a more iterative “Search then Execute” approach.
The best pitches and progress updates are delivered as stories.
Preemptive Strikes and Other Objections
Change is always met with resistance and the canvas is no different. Let me address some of the most common objections I’ve received.
1. Will my investor accept a Lean Canvas?
While the Lean Canvas started life in 2009 with early stage Lean Startup founders, it has quickly spread. Today it’s being used at hundreds of universities, accelerators, startups, and large companies around the world.
Investors are in the business of making money — not reading business plans. Traction is what they care about above everything else. The Business Plan used to be a proxy for future traction, but not anymore. You are far better served by achieving some early traction before approaching an investor. The way you do this is not through business plan creation but business model validation.
2. But, I still have to submit a business plan
If you still have to write a formal plan, I recommend spending half a day sketching a few canvases, sharing them with potential advisors, then running some experiments to stress test your riskiest assumptions over 1-2 weeks. When you sit down to write a business plan after that, it will be more factual (than fictional), and have a better chance of getting funded.
3. The Lean Canvas is not as detailed as a Business Plan
Yes, it is not possible to capture every aspect of the business on a single page and that isn’t the goal. It’s important to understand that the Lean Canvas is not a stand-alone document, but a conversation tool.
You can get to any aspect of your business through one-level of indirection.
4. Can I just email my Lean Canvas to others?
I don’t recommend simply emailing a Lean Canvas without context. It is far more effective to attach a supporting 5 minute video with your canvas, or better yet delivering your business model story in person.
5. The Lean Canvas does not address financial forecasts
That is a real shortcoming. A business model story alone is not enough to test whether it represents an opportunity worth investing.
That said, the alternative Excel magic wizardry that is commonly used in Business Plans is no better. Sizing a business model isn’t about ploughing through hundreds of numbers but rather building a bottoms-up model with a handful of key metrics.
In my next book, Scaling Lean, I show you how to use a 5-minute Fermi estimation technique for quickly ballparking a business model and building a projected Traction Model.
6. What about capturing marketing plans, channel distribution, and other such strategies?
Lean Canvas is one tool in a suite of business planning tools. Specifically it captures the business model story. Over at LEANSTACK, we offer 4 additional tools (all designed to also fit on a single page) to extend the Lean Canvas:
- Traction Model: Provides sizing and roadmap of the business
- Customer Factory Blueprint: Deconstructs traction using 5 metrics.
- Validation Plan: Captures new feature ideas/growth strategies to test.
- Experiment Report: Provides a checklist for designing good experiments.
Taken together, these suite of light-weight tools help you spend more time building versus planning your business.
Are you ready to fire your business plan?
If not, what’s holding you back? Let me know in the comments below.