Have you ever seen one of those 50-page business plans that detail every conceivable aspect of a still purely theoretical business? You probably did, since these business plans have been the industry standard for decades.
Yet in a world where words like lean and agile becoming the new norm for startups, 50-page business plans seem a bit out of place, and for good reason.
It is a fact that creating a plan is very useful for a new business. A study of over 10,000 businesses shows that businesses grow 30% faster on average if they create business plans.
However, another study indicates that innovative startups in more dynamic environments benefit from shorter planning. The reason is simple: innovative startups are less familiar with their business environment and more particularly the exact needs of their customers. This means that the plan is likely to change often, and the more detailed the plan, the more likely it is to deviate from reality.
This claim is supported by the fact that business plans are more effective for existing businesses than for new startups. A company with at least a few years of history is much more likely to have a deeper understanding of its customers, enabling more accurate plans firmly based on reality.
So, simply put, if you have an innovative app idea, you need to write a concise, high-level go-to-market plan. For the plan to be useful in practice, it should be designed in a way that allows your startup team to be easily on the same page while also being easy to update.
In the startup world, the so-called skinny canvas is becoming very popular to satisfy this need. To some extent, it replaces the traditional business plan. It is designed to contain all the necessary information on a single sheet of A4 paper, making it easy to share and update.
The Lean Canvas sections are designed to help you summarize the most important aspects of your business idea.
- Problem: Without doubt the most important section. Understanding the problem in depth is what would allow you to build a commercially viable solution. In an ideal world, you would be able to define the problem precisely from the start. In reality, however, you will likely need to update your problem definition as you gather information from your customers.
- The solution: The second half of the main equation. Your solution definition will likely change more often than your problem definition in the search for product-market fit. These changes would usually be very rapid during the period of testing different ideas (solutions) in the early stages of the startup.
- Key indicators: Ideally, you’ll be able to find a single metric that clearly reflects whether customers find value in your product or service. This is usually some kind of usage metric specific to your business. Do not pursue vanity metrics (social media subscribers, capital raised, website visitors, etc.) as they are often misleading and have low correlations with business success.
- Unique Value Proposition: What sets you apart from other solutions on the market?
- Unfair advantage: Why are you able to succeed instead of someone else?
- Channels: How would you reach your customers? Keep in mind that as a startup you usually don’t have a lot of resources. This means that it’s usually better to focus heavily on one channel rather than spreading your efforts across multiple channels.
- Customer segments: Who is your ideal client? Again, as a startup it’s usually best to focus. Solve the problem of one customer profile (your minimum viable segment) rather than trying to satisfy the diverse demands of many market segments to no avail.
- The cost structure: Quite self-explanatory, it helps you visualize and think about the financial specifics of your business.
- Income stream: What is your business model and how would you make money? Refining this is very important to make your business sustainable and scalable. However, try to focus on this point only after finding a practical problem-solution. It doesn’t matter what your business model is if people don’t need what you offer.
In conclusion, for a start-up company looking to introduce an innovative solution, a plan is made up of a series of assumptions or educated guesses. Spend less time guessing and more time validating. The Lean Canvas is a great tool that lets you plan, execute, and adjust quickly.