Who Needs a Business Plan?
Editor’s note: This post is part of a series featuring excerpts from the recently published book, The Startup Owner’s Manual, written by serial entrepreneurs-turned-educators Steve Blank and Bob Dorf. Come back each week for more how-tos from this 608-page guide.
Unlike many other startup processes, Customer Development is deep, detailed, and rigorous. There’s no time line, no “magic bullet,” and lots of opportunity to hit a brick wall, pivot, recover, and start over.
As we’ve seen startups and big companies both deploy the process, a set of vital “ground rules” emerged to guide people before they get started.
(Get the complete set of rules in the The Startup Owner’s Manual.) For now, we’re going to focus on the two most powerful of all—the rules that help determine your ultimate success: Get total team buy-in, and get out of the building where your customers (and facts) live.
Rule #1: Success begins with team buy-in.
The “learning and discovery” part of the Customer Development philosophy can be immensely disorienting to a founder, engineer, or investor who has spent his or her career executing a plan. For Customer Development to succeed, everyone on the team—from investor or parent company to engineers, marketers and founders—needs to understand and agree that the Customer Development process is different to its core. Everyone must accept the process, recognizing that this fluid, nonlinear search for a business model can sometimes last for years.
Customer Development changes almost every aspect of startup behavior, performance, metrics, and, as often as not, success potential. It’s not just a “nice to do” while executing the revenue model in the back of the business plan. Customer Development reinvents the business model on the fly, iterating often and pivoting whenever indicated. Founders must embark on this process only once the entire team and board understand and agree that it’s interactive, necessary, and worthwhile and that it changes the benchmarks and metrics along the way.
Rule #2: There are no facts inside your offices, so get out of the building.
On Day One, the startup is a faith-based enterprise built on its founders’ vision and a notable absence of facts. The founders’ job is to translate this vision and these hypotheses into facts. Facts live outside the building, where future customers (prospects, really) live and work, so that’s where you need to go.
Nothing is more fundamental to Customer Development, and nothing is harder to do. It’s much easier to write code, build hardware, have meetings, and write reports than it is to find and listen to potential customers. But that’s what separates the winners from the losers.
Founders committed to Customer Development, gather firsthand experience about every component of the business model. Firsthand experience, by definition, cannot be delegated. Why founders?
- Key customer feedback points are random, unpredictable, and often painful to hear. Employees hate to deliver bad news to higher-ups.
- Employees have far less at stake and seldom listen as acutely, and they don’t get heard adequately when they report back.
- Consultants have even less at stake than employees and often either tell the client what he wants to hear or deliver messages that lead to more consulting.
Only a founder can embrace the feedback, react to it, and adeptly make the decisions necessary to change or pivot key business model components.
Bonus Rule: No business plan survives first customer contact.
There’s only one reason for a business plan: Some investor who went to business school doesn’t know any better and wants to see one. But once it has delivered financing, the business plan is fundamentally useless. Entrepreneurs often mistake their business plan as a cookbook for execution, failing to recognize that it is only a collection of unproven assumptions. A revenue plan blessed by an investor, and composed overwhelmingly of guesses, suddenly becomes an operating plan driving hiring, firing, and spending. That’s insane.
The difference between a static business plan and a dynamic business model could well be the difference between a flameout and success. Startups should dump the business plan and adopt the flexible business model.
A business model describes the flow between key components of the company in nine boxes on a single sheet of paper. Among the key components: value proposition, key customer segments, customer relationships (and how to get them), channel, revenue streams, and more. The business model is both the starting point and the scorecard for Customer Development progress. Learn more about it in Alexander Osterwalder’s famous book Business Model Generation.
Want to know more? Check out more excerpts from The Startup Owner's Manual below or go here.
STEVE BLANK | Columnist | Founder, E.piphany, Convergent & Zilog
Steve Blank is a retired Silicon Valley serial entrepreneur turned educator who developed the Customer Development methodology that changes the way startups are built. His book The Four Steps to the Epiphany launched the Lean Startup movement.
BOB DORF | Columnist | Co-author, The Start-up Owner's Manual
Bob Dorf is co-author with Steve Blank of The Start-up Owner?s Manual. He?s founded seven companies and invested in or advised more than a score of start-ups. He teaches Customer Development at Columbia Business School.