Many businesses, particularly start-ups, spend unnecessary time and money creating long-winded business plans that don't help them.
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I'm not saying business planning isn't important. But writing detailed business plans that never get looked at again, or don't say much of real value, is useless if you haven't assessed business viability. It is putting the cart before the horse.
A common mistake made by people who come to me for advice on starting a business is that they focus on irrelevant tasks that don't add value. My mantra is always do things that give you the maximum return on investment.
I use a business model canvass to help business people and entrepreneurs validate their business as a first step. It is quicker than a business plan and is a great way to map out an idea, allowing it to be understood, tested and improved. It eliminates all the fluff of a traditional business plan and focuses on what's important. The detail is useful if a more detailed business plan is needed down the track. Larger organisations including Uber and Skype have used the business model canvass as a starting point.
My mantra is always do things that give you the maximum return on investment.
One of the reasons why jumping straight into a business plan is a bad move is that by the time it is written it can be out of date; things have changed. You are better off spending some time and money with a business mentor or product designer or testing product or services to make sure the business model and offering is going to fly.
The business canvass model is a one-page sheet with nine key decision areas.
- Value proposition. What customer problem are you solving? What value does your business offer them and how does it meet their needs? Why should customers choose you over alternative suppliers - what is unique or attractive about your business? Knowing your key competitors and their offering is crucial.
- Key activities. What tasks and activities are key to delivering your value proposition for the success of your business?
- Customer segments. Often people come to me saying everyone is their customer. This is rarely the case. Who are your real customers and what are their characteristics and personas? Are certain customers more profitable or likely to want different offerings?
- Customer channels. How will you reach your customers to sell, service and communicate to them?
- Customer relationships. How will you interact with your customers? Online, or bricks and mortar? How will you manage acquisition, retention and ongoing communication?
- Key resources. What do you need to deliver your value proposition? This includes people, equipment, intellectual property and product inputs.
- Partnerships. Who are your critical suppliers, collaborators and business referrers and how will you manage relationships with them? What activities do they perform for you and what value do they add to your business. How will you source them?
- Cost structure. What are the costs to do the things outlined above? Initial and ongoing.
- Revenue streams. What is your pricing strategy and how much revenue will that create for various levels of client numbers? Do different customer segments create different revenues?
The last two points are crucial and often overlooked. Many business plans I see are heavy on goals, environment descriptions and SWOT analyses. Some of that is important. But at the end of the day you may have a great and unique product idea, but if it is going to cost you twice as much to deliver it than you will get paid, then it is time to refine the offering or go back to the drawing board.
This process can initially be a dot point exercise. With a basic assessment of viability you can then move to making a few t-shirts or ceramic tiles or developing and testing your app.
That way you can quickly, and cost effectively, affirm if the offering is sound, customers like them and want to buy them at your expected price, and the costs you estimated are accurate.
Ditch the detailed business plan and get clear on strategy, validating your offer and your business viability.
