Ditch Your Business Plan

Sounds odd coming from a guy who started his company by winning a business plan competition, but I’ve learned a lot since then. Business plans treat startups like “little big companies”, but startups are different. Trying to run a startup or a new service or product in a big company like an established organization is bound for failure.

I want to introduce to you a tool that is far more effective than any business plan you will ever write, it is called the Business Model Canvas.

This is part 5 of our Lean Innovation Series.

I want you to learn how to use this excellent tool in as little time as possible, but before you start the business model canvas you want to make sure that there is a market big enough to be worthy of your efforts. There are three numbers to know to estimate your market size; Total Addressable Market (TAM); Served Available Market (SAM) and Target Market.

Let’s say you are working on a new smartphone app that records, tracks and shares workout data. The TAM for your product would be the 1 billion smartphone users worldwide, but you are making an app in English and it will only be available for the Iphone. The number of users who have an Iphone and who speak predominantly English would make up your SAM. Your target market are the athletes, who speak English and have Iphones – a much smaller group that your TAM or SAM.

Is your target market large enough to justify your new product? If it is, it’s time to start your Business Model Canvas. For each step you will write a series of briefs describing in detail what the founders are thinking. Keep the briefs short (max 2 pages and use bullet points). I’ll do the best I can to summarize this in one post, but for details pick up a copy of “The Startup Owner’s Manual” by Steve Blank and Bob Dorf.

  1. Value Propositions – This is the product or service being offered to your customers. Briefs to create are:
    1.  Product or Company Vision – Most companies become successful with more than one product. What do you want your company to become?
    2. Product Features and Benefits – Features exist only to solve a customer problem or meet a need. Start with the problems you are solving and then create features to fix the problems. How will customers use and benefit from your product (or service)?
    3. Minimum Viable Product – What is the simplest version of your product or service that will solve your customer’s core problem, which they will be willing to buy? The MVP is what will get you out of the office, asking for the sale.
  2. Customer Segments – Who will you serve and how will you reach them? Prepare the following briefs:
    1. Who are the end users, influencers, recommenders and economic buyer of your product? You’ll need to find a path to the Economic Buyer.
    2. Customer Archetype – Who is your customer, where do they work, who is their boss, are they married, how many kids, etc.
    3. A Day in the Life – Detail how your buyer spends their day. Where will you be able to grab their attention?
  3. Channels – How will your product get from your company to your customers? How many channels will you pursue? Create briefs for each.
  4. Customer Relationships – Briefs required:
    1. How will you get customers into your sales channel/funnel?
    2. How will you keep them as customers?
    3. How will you grow additional revenue from them over time?
  5. Revenue Streams – Answers the following:
    1. How much/many will you sell?
    2. What is the revenue model (one time sale, subscription, pay per use)?
    3. How much will we charge?
    4. Does all the above add up to a business worth starting?
  6. Key Resources – What physical, financial, human and intellectual property resources will be required? Write a brief for each.
  7. Key Partners – Partners provide capabilities, products or services that the startup either can’t or would prefer not to develop itself. Think about batteries for a new device you are creating. Your brief should include all key partners, what they will provide and what you will provide in exchange.
  8. Key Activities – What are the key activities required to deliver your product and make your customers happy? How will you accomplish these activities? Examples included Production, Customer Service and Sales.
  9. Cost Structure – What will all of the above cost to put into place? How long until the business is cash flow positive?

Whew! That wasn’t quick but if you can create “guesses” to each of the questions posed above, you will be ahead of 99% of the “business planners” out there.

Next step is to take our guesses out into the real world and find out if people really care about what we are doing!

Thank you for being a part of our values driven community!

Business Model Canvas courtesy of “The Startup Owner’s Manual” by Steve Blank and Bob Dorf.

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