In fast changing times, the Lean Start-up methodology is an indispensable tool for the business owner.
This episode covers why this should be in your toolbox, what problems it can solve, and how it can work with the traditional business plan.
As a business owner, it is very powerful to use both tools: The traditional business plan and its plan-write-do loops and the Lean Start-up test-measure-adjust loops
Limitations of a Traditional Business Plan
Without reasonable information, particularly about customers and markets, feeding the business plan, then assumptions and guesses are made. As the business plan process continues, particularly in the financial section, then guesses are made on top of the assumptions already made. When this happens, the plan is doomed to fail because of false security and confidence. Time, money, and way too often, dreams are lost.
Problems Addressed by Lean Startup
Lean Start-up works in areas that the traditional business plan can’t be properly done because the information and understanding of customers and markets are just not there.
- Reducing the high cost of getting the first customer.
- Reducing the high cost of product development where there is uncertainty of customer acceptance. It’s too expensive to build over and over.
- Reducing the uncertainty and risk of the business goal or value proposition. The owners don’t know the true business goal, but they do know the product technology or service to provide.
- Situations where a traditional business plan is not practical.
Lean Startup “loop”
Test, Measure, Adjust, Repeat
In more detail, the loop includes:
- Make an educated guess or hypothesis about your product or service.
- Get out of the building…that answers are not there. Find out what’s really going on by talking to customers, suppliers, partners, etc.
- Measure the responses.
- Go back into the building and use the new information to improve your service or product development or both.
Often the results of the loop is captured on what is called a Business Model Canvas. A business model canvas is a 1-page business model that captures that state of the business at a point in time. The Business Model Canvas is not talked about in this episode.
A Traditional Business Plan’s “loop”
Plan-it, Write-it-down, Do-it-now, Repeat-it
This approach has been effective for business owners over many years. Just remember that good information is needed at the planning stage.
Business Model Questions
Every business owner or founder must face questions about their business model, how much money they will make and how they will do. This is very important whether launching a new business or adjusting to things that have changed over time. A symptom of a bad business model is high expenses and low sales. In other words, losing money.
Business Owners Should have Both Tools in their Toolbox.
As a business owner, it is very powerful to use both tools: The traditional business plan with its plan-write-do loops and the Lean Start-up with its test-measure-adjust loops. One is for planning and the other to get market information to make solid plans.
Using these two tools, you can build repeatable and profitable business models under a wide range of environments and products.
Amazon Book Link to Steve Blank’s Startup Owners’ Manual
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