Bin the business plan and do this instead!

Nicole Velho
Lean Startup Circle
7 min readMar 7, 2017

The old-school business plan just doesn’t work for early-stage entrepreneurs anymore. There are too many unknown risks and assumptions to write up all those details when all you have is an idea.

When I was in university, we were taught how to write up the perfect business plan, all 60+ pages of it. And knowing I was going to run my own business one day, knew that I had to get this right! And oh… how wrong was I!

Fast forward to the year I co-founded my first start-up in South Africa. I spent over a month writing up the perfect business plan for us. It was a beautiful piece of work — I had researched the size of the markets we were going to approach, I knew what tactics we would use to penetrate them, I knew the most likely % conversion we should aim for, I had it all written down, it was perfect — we were going to dominate the industry!

Domination at that stage was the easy part, because we were the first to our market back then (which should have been a red flag for us, had we known more). But all the little details in the plan were just a waste of time, energy and resources. I could have gotten much further in my business goals had I spent that time talking to customers, creating our first minimum viable product (MVP), learning from the markets and testing what was needed! It was probably the best piece of creative writing I had ever put together, because how would I really know how each of those markets would respond to our product until I had talked to them?

“No business plan survives first contact with customers” — Steve Blank, Serial entrepreneur, Adjunct Professor at Stanford University -

I had created a false sense of security for myself. I felt in control, I felt like I knew where we were going and I thought I was right. It was a dangerous sense of security, one that only wasted hours of my time.

Image credit: Unsplash

What should I have done instead?

As early-stage entrepreneurs, we do need some kind of plan, some type of guidance, but what should we be doing instead of the 60+ business plan? What are the alternatives?

When I started working on my umpteenth business idea, while living in Asia, I bumped into Ash Maurya’s blog. And within minutes I was hooked, I knew that this was the right way to approach starting a business if I wanted it to be a success. I knew I had to focus on getting the right business model, not the perfect business plan. I had found my holy grail of starting a business — the Lean Canvas!

The Lean Canvas

The Lean Canvas is a one-page business model plan that includes every aspect of your business model, related to your product. It is the quickest way to find the riskiest parts of your business model, in other words, the parts that need your attention most.

image credit: https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0#.948uzc2rt

Ash Maurya has a fantastic video on the Lean Canvas that explains each segment, but I’ll give a brief overview below.

1. The Problem

Entrepreneurs often get an idea and quickly go on to build out the solution they’ve imagined in their head. But this can be problematic. Before you have identified what problem you are trying to solve, and know that the problem is a problem for a big market out there, you may land up being the only person who wants to buy your solution!

The reason I prefer the Lean Canvas over other business model plans is because it focuses on the customer and their problem before getting stuck into all the other elements of a business model. If you can get these 2 elements right, you have a solid basis for your business. so go ahead and fill in the top 1–3 problems your customers are experiencing.

2. Customer Segments

To create a great business, you need to understand your customers. That is a given. If you can’t understand their pains and fears, you will struggle to create a solution for them that really solves their problem. So, head over to your the Lean Canvas and list each possible customer segment.

It then goes further to identify which are the early adopters within the customer segments. Early adopters are the people who are looking for a solution to the problem already. They are ready to buy a solution from you, if you can provide a worthwhile product/service.

Image credit: Unsplash

3. UVP

This is your unique value proposition, it’s the thing that differentiates you from your competitors. It should be the one line you use on your landing page and for all your initial marketing efforts.

A great way to create a UVP is to use Dane Maxwell’s formula for an “instant clarity headline”.

End Result Customer Wants + Specific Period of Time + Address Objections.

Eg. “Hot, fresh pizza delivered to your door in 30 minutes or it’s free”.

This tells the customer what benefit they’ll get from using your product and not what it is. It forces you to think of the customer instead of your product.

4. The Solution

Only now do we get to the solution you are imagining. The reason I say “imagining” is because until you’ve spoken to potential customers and really discovered what they need, you are partly guessing their needs.

Your solution section should outline what you think will solve the problem for your customers, but it will most probably change over the next few weeks/months so try not to get too attached! A good rule of thumb is to list out the top 3 features that should solve the problem you identified.

5. Channels

Your channels are the ways you will reach your customers, not the way you will get your inventory in. So, think about push and pull marketing you can use to reach more customers. What current channels do you have to your customers? Or what new channels can you create? Consider your network, online and offline marketing channels and any other unique way you can get your message out there.

Image credit: Unsplash

6. Revenue

Here you will list the various revenue streams you think you can create. Because you haven’t yet created your minimum viable product (MVP), this will be a bit of a guesstimate. All we are trying to do here is to get an idea if your business model is viable or not. It won’t give you detailed cashflow numbers, but it should highlight to you if your revenue streams are enough to cover your costs. Learning that now, instead of 6 months down the line, after spending all your available cash, is invaluable knowledge.

7. Cost Structure

For your cost structure, you will be listing out all the costs you believe are involved in building out your MVP. You will need to consider people costs, venues, software etc. You will need all fixed and variable costs involved. Many costs will be estimated at this stage, but with a bit of online research you should be able to get a ballpark figure for most things.

Keep in mind, you are only trying to see if your idea is viable or not. It doesn’t need to be perfect, but it needs to be realistic.

8. Key Metrics

Your key metrics are the numbers you should be watching closely to see if you are gaining or losing traction with your customers. Some examples of key metrics are: mailing list sign-ups, conversions to sale, no of customers asking to buy from you, referrals from other customers.

Be careful of vanity metrics, which are numbers that look promising, but actually aren’t related to your business progress. For example, if you look at number of sign-ups each month you will probably see an increasing number. But what happens when you take those who unsubscribed into account too? Then, do you have any increase in current interested people or a decrease?

9. Unfair Advantage

What advantage do you have over other competitors in the industry? Keep in mind, your unfair advantage needs to be something that is unique to you and cannot be easily copied or bought by others.

“A real unfair advantage is one that cannot easily be copied or bought.” — Jason Cohen, Founder, WP Engine

Many entrepreneurs tend to use passion, hard work, commitment as unfair advantages, but none of these are. A real unfair advantage is inside information (not illegally obtained), personal authority, strong community, a “dream team”, large network effects, core values, existing customers.

Next steps

Now that you have your one page business model plan, you will need to identify your riskiest part of your model and then start testing it.

If you haven’t talked to your potential customers yet, now is a good time to get out there and start interviewing them! Make sure you aren’t pitching your idea, but are rather trying to learn from them so you can build something they are lining up to buy from you.

Hi, I’m Nicole. I’m a Lean Startup consultant and founder of Super Startups — a place for parents to be entrepreneurs. For more help on validating your business idea, sign-up at superstartups.co.

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