The Evolution of Successful Business Planning
[By: Dr. Peter McAlindon]
I learned early on in my entrepreneurial journey that neither an idea nor a product was a business. But how many of us focus on building and perfecting a product before we even know if it has a market? The thought processes of business planning have changed dramatically over the past few years. Planning has moved from products trying to identify markets to markets helping to define the products.
Before the Internet’s ubiquity, business plans were crafted primarily from secondary information sources such as market data and industry reports, template-formulated financial models, and academic research. They served as the best guess of how a product would perform based on published research. Business plans were often written by one person, or a small group of people, with very little, if any, customer contact. As such, writing a business plan was a traditional “research effort” requiring many months of effort to complete and was a bit like developing your company’s story and future with other people’s thoughts and ideas as the basis.
Once completed, if there was enough information, and your plan was articulated well and believable, you had a good chance of getting funding. Once crafted, a business plan posed a significant risk to investors because there just wasn’t enough flexibility in the inflexible, secondary information upon which it was built to justify the time and expense to figure out a new plan. It was an all-or-nothing proposition.
Today, a business model is used to capture and shape the dynamic nature of a business as it grows, starting with the customer. Business models benefit from input from a multitude of people, have extensive customer contact, and much is known about a market before a product is released. The market actually helps define and refine the product before its launch. The Lean Startup method, developed by Eric Ries, is at the core of developing a robust business model.
The Lean Startup method allows companies to be more capital efficient and leverages human resources more efficiently. Developed from lessons in lean manufacturing, the Lean Startup relies on “validated learning,” rapid experimentation, and some counter-intuitive practices that shorten product development cycles and measure progress in an unbiased way to learn what customers really want. It enables a company to vary its plans effectively and efficiently as it finds and grows its market. And unlike business plans, deviations in a business model are not only accepted but expected.
What enables this evolution from business plan to business model?
» Access to data, information, and customers:
Social media, websites, and email have made it much more affordable to reach out to your potential market for sales and customer feedback compared to telephone calls, bulk mailings, printed catalogs, and commercials. Databases of information, industry reports, scholarly/research papers, completed statistical analysis, and secondary research are all readily accessible and for the most part, low-cost. Today, you can quickly craft an online questionnaire, post an ad on Facebook or LinkedIn specifically targeted to a particular group of people and receive their feedback in a matter of hours.
» Technology tools:
Technology has made sharing your information with many people relatively straightforward, very cost effective, and easy to analyze. Google analytics, data analysis tools (e.g., tableau.com), online questionnaires (e.g., wufoo.com), and sales and marketing platforms (e.g., salesforce.com, hubspot.com) are just a few of the tools that can be used to help build and test a business model.
» Methods processes:
The Lean Startup methodology (e.g., steveblank.com), A/B testing (e.g., kissmetrics.com), customer development techniques (e.g., customerdevlabs.com), and minimum viable product development (e.g., leanstack.com) are just a few of the resources and methods available to help build and validate your business model. These methods and processes can also assist in determining a particular market and create a ready-made customer base and sales pipeline for products when they are launched.
Businesses that are allowed to ebb and flow based on market information and customer awareness and feedback have a much better chance of succeeding. Capturing all of this information as it continuously changes requires a robust business model. Business models, by definition, are dynamic in nature; they are constantly evolving to help a company find, refine, and develop its market. After all, knowing your customer well and gathering qualitative and quantitative information from them can only help add depth to your business as it grows. Business models offer the opportunity to keep your team on track with its mission and contribute in deepening the team’s knowledge of the overall business, its market, and perhaps most importantly, its customers.
Dr. Peter McAlindon is a Entrepreneur in Residence at Rollins College Crummer School of Business