What follows is a post from Dr. Atul Teckchandani, one of the great professors teaching Entrepreneurship at CSUF.
The current philosophy in entrepreneurship is being “lean.” In a nutshell, this approach advocates continuous innovation of the firm’s business model. The notion of going into stealth mode for a year and then suddenly appearing in the marketplace with the next great new thing that (you hope) everyone wants is foolish. It is better to get something out into the market quickly (called a “minimum viable product”) and then tweak it based on customer input. The lean start-up philosophy advocates a very thorough strategy for how to seek customer input and use it to determine the next iteration of the product.
Some believe that the lean startup methodology renders business plans obsolete. Such statements are extreme and make assumptions about business plans that simply are not true – or at least, no longer true. A business plan is not a step-by-step template for how to create a successful business. Such a document is impossible to create. Instead, it is a detailed analysis of whether pursuing this business opportunity makes sense.
This analysis starts with planning and testing the firm’s business model (for a great tool that can be used, check businessmodelgeneration.com). A vital part of doing so involves getting feedback from potential customers, suppliers, etc. After researching and revising the business model, entrepreneurs can expand on some elements of it to better assess the opportunity. The revenue and cost assumptions from the business model can be used to create more detailed financial statements to assess whether the firm can be profitable and to estimate how much money is needed to launch the firm and keep it going till it is cash flow positive. Thorough research in refining the business model also gives entrepreneurs a good sense of the most critical skills needed to launch this business, which is information that can be used by entrepreneurs to assess the strengths of their current team and to determine how to address any perceived weaknesses.
While the business model is arguably the most important piece in assessing whether a business should be launched, there are other important issues that must be considered before launching a business venture. And while the business plan can be seen as a synthesis of this effort, it is by no means the end goal. We live in a world that is constantly innovating, which means that the assumptions in your business plan must be validated again (and again, and again…). As such, it is not the business plan document itself that is important, it is the hard work and research that went into producing the information that ultimately went into that document. In other words, it is more important for entrepreneurs to master the process of how to gather and analyze information because that is how they can make sure the business is staying relevant in the eyes of its customers. After all, if customers value what the firm is making, that goes a long way towards building a successful business.