Have you ever seen one of those 50-page business plans that go into detail about every conceivable aspect of a still purely theoretical business? You probably have, since those business plans have been the industry standard for decades.
Yet, in a world where words like lean and agile are becoming the new norm for startups, 50-page business plans look a bit out of place, and with a good reason.
It’s a fact that creating a plan is very helpful for a new business. A study of more than 10 thousand businesses shows that ventures grow 30% faster on average if they create business plans.
However, another study indicates that innovative startups in more dynamic environments benefit from shorter planning. The reason is simply – innovative startups are less familiar with their business environment and more particularly – the exact needs of their customers. This means that the plan is likely to change often, and the more detailed the plan, the higher the chance it deviates from reality.
This claim is supported by the fact that business plans are more effective for existing companies rather than for new startups. A company with at least a few years of history is far more likely to have a deeper understanding of their customers, allowing for more accurate plans firmly based on reality.
So, simply put, if you have an innovative app idea, you should write a concise, high-level go to market plan. For the plan to be helpful in practice, it needs to be designed in a way that makes it easy for your startup team to be on the same page while at the same time being easy to update.
In the startup world, the so-called Lean Canvas is becoming very popular to satisfy this need. To a degree, it is replacing the traditional business plan. It is designed to fit all the necessary information in a single A4 sheet of paper, which makes it easy to share and update.
The sections in the lean canvas are designed to help you summarize the most important aspects of your business idea.
- Problem: Arguably the most important section. Understanding the problem in depth is what would allow you to build a commercially viable solution. In an ideal world, you’d be able to define the problem accurately right from the start. In reality, however, you would most likely have to update your definition of the problem as you gather insights from your customers.
- Solution: The second half of the main equation. The definition of your solution would most likely change more often than the definition of your problem in the search for product-market fit. Those changes would usually be very rapid during the period of testing different ideas (solutions) in the early stages of the startup.
- Key Metrics: Ideally, you will be able to find a single metric that clearly reflects if customers are finding value in your product or service. It usually is some kind of usage metric specific to your business. Don’t chase vanity metrics (social media followers, capital raised, website visitors, etc.) because they are often deceiving and have weak correlations with the success of the company.
- Unique Value Proposition: What distinguishes you from the other solutions available on the market?
- Unfair Advantage: Why are you in a position to be successful instead of someone else?
- Channels: How would you reach your customers? Keep in mind that as a startup, you usually don’t have a lot of resources. This means that it is usually better to focus strongly on one channel rather than diffuse your efforts into multiple channels.
- Customer Segments: Who is your ideal customer? Again, as a startup, it is usually better to focus. Solve the problem of one customer profile (your minimum viable segment) rather than trying to satisfy the various demands of numerous market segments in futility.
- Cost Structure: Quite self-explanatory, it helps you visualize and think through the financial specificities of your business.
- Revenue Streams: What’s your business model and how would you earn money? Refining this is very important to make your business sustainable and scalable. However, try to focus on this point only after you have found a problem-solution fit in practice. It doesn’t matter what your business model is if people don’t need what you are offering.
In conclusion, for a startup venture seeking to introduce an innovative solution, a plan is comprised of a series of hypotheses or educated guesses. Spend less time guessing and more time validating. The lean canvas is an excellent tool that allows you to plan, execute and adjust quickly.