Nearly every business owner at one time or another, has had to face the dreaded business plan. It is the magical plan that non-business owners are quite sure to bring a business success. For them, the traditional 50-page Business Plan feels secure and safe. They know exactly what the business owner will be doing for the next 5 years and how much money will be made.
So to get that loan or investment, you, the business owner must make plans, you write pages and make a financial predication on how much you are going to sell, and then you go execute that plan. You use templates, pay people to help you, and make power-point slides to get the business plan perfect.
All this sounds great to the people who never ran a business before. However, even the green business owner who launched last week knows that to do a business plan correctly, you need very good information about the customer and how to build your product/service. The traditional business plan is based on assumptions and guesses, and then more guesses on top of guesses just made. If the owner doesn’t believe in the plan, then how can that plan be shared? Or even succeed?
Now don’t get me wrong. I’m all for planning. In fact, I’ve been accused of planning in infinite detail. The traditional business plan works very well in traditional business industries. The plan methodology, write-it-down then do-what-you-wrote-down, is an absolute required tool for business owners to use. But what if you don’t have the information about your customer and product to make a believable plan?
You have a great idea for a new product or a new service that you are not sure how customers will react to it? Or maybe some global pandemic changes your customer buying habits and your old business model is not working smoothly anymore?
Here is where the Lean Startup Methodology comes in and why it should be in your toolbox. In my opinion, the whole purpose of Lean Startup is to get information to make good decisions, reduce costs, and be profitable. It’s like an Army captain facing the enemy, he sends scouts out to discover the whereabouts and strengths of the enemy, and if there’s any ambushes coming up. For the business owner in uncertain times, having a clearer picture of the customer’s wants and needs, plus how the supply chain is working, will allow for making good decisions inside the company and greatly increases the chance of success and being profitable. In other words, the Lean Startup Methodology provides a way to get the information needed before writing a successful business plan.
What is a Lean Startup Methodology?
At its core, the Lean Startup Methodology is a loop – test, measure, adjust, repeat. Test your idea or prototype in the market, measure the response, make changes in the business or product, repeat the loop. This loop runs continuously until you have the information needed to build a repeatable and profitable business model.
Steps in the Lean Startup Methodology
- Make an educated guess or hypothesis about your product or service.
- Get out of the building because the answers are not in there. Talk 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.
For you purist out there, this is a form of Agile development.
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. We don’t have time to talk about the Business Model Canvas today. Just be aware that many people in the startup communities consider Lean Startup methodology and the Business Model Canvas as one tool.
Problems Lean Startup methodology can solve
- 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.
In other words, Lean Startup 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.
Lean Startup methodology is an important tool for business owners and founders to discover their profitable business model. A way to find a repeatable and profitable business model in a changing environment.
Example: You have a great idea, but don’t know if customers will buy it or not.
Businesses Lean Startup is Best
* Startups and newly launched business.
* Companies launching a new product line.
* The business environment has radically altered, and companies needs to change.
* A lack of customer understanding has resulted in high expenses and low sales.
The Lean Startup loop of test, measure, adjust, repeat is just as important as the plan-write-do loop. In fact, the two can be put together: Use the test-measure-adjust loop to get the information for the plan-write-do approach.
We have questions we don’t know the answers to.
Will people allow everything in their house be connected to the internet?
What about monitoring their body?
Can yoga and exercise coaches train through video and have the same results as in-person?
Will people accept an AI program to solve their problems? Or accept prefabricated houses as a quality place to life in?
Your business has basic questions like that. Questions that require market-place testing to find the answer and that can be very expensive to do. That’s where the Lean Startup Methodology shines in getting answers at the greatly reduced cost and time.
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 Startup test-measure-adjust loops.
Using these two tools, you can build repeatable and profitable business models under a wide range of environments and products.
It is a good idea to take time to build a good business model. One that is repeatable and profitable because that is one way to Arise2Live.