Discovery-Driven Planning

I’m noticing trends! Ries’ startup definition is spot-on:

A human institution designed to create a new product or service under conditions of extreme uncertainty

Anyway, here are my notes from Discovery-Driven Planning.

We must acknowledge the differences of planning for new ventures and planning for conventional business:

  • You are planning for the unknown, uncertain, unobvious
  • You rely on assumptions more than knowledge
  • Deviations happen because assumptions turn out to be wrong
  • Real potential is discovered as it develops

Four tools for discovery-driven planning:

1. Reverse income statement

Models the basic economics of the business and consists of:

  1. Determine the required profits
  2. Determine profit/loss. How much revenue will it take to deliver profits required?
  3. Determine allowable costs (ties in with the next step, I think)

2. Pro forma operations specs

Lays out activities needed to produce, sell, service, and deliver product or service to customer (allowable costs). It is essential to use industry standards to build a realistic picture of what the company has to look like to be competitive. The goal here is to try and capture venture’s assumptions (and THIS, ties to the next step). We can test these assumptions against experience with similar situations (validated learning applies here).

3. Key assumptions checklist

Ensures assumptions are checked. List out all key assumptions, and evaluate after each assumption is tested. This ensures business propositions hangs together. If the assumption doesn’t work, repeat the process (loop back to reverse income statement) until performance requirements and industry standards are met; otherwise scrap the venture.

4. Milestone planning chart

Specifies the assumptions to be tested at each milestone. Idea is to postpone commitments of resources until the evidence from the previous milestone signals that the risk of taking the next step is justified. Assumption-test each milestone! Designate a keeper of the assumptions (ties back into key assumptions list) to make sure: assumptions are checked and updated as each milestone is reached, and that the revised assumptions are incorporated into the success planning documents (ties back into the other 3 docs).