Don't Go Too Lean. On America's Main Street, Business Plans Still Work.
As Silicon Valley’s lean startup method quickly gains popularity, many entrepreneurs are led to believe that the business plan is dead. While today a one size fits all solution hardly works as in years past, the business plan is certainly not a thing of the past. The lean startup method’s minimum viable product strategy has worked well for startups seeking venture capital funding, but Main Street business owners outside Silicon Valley need to approach things with a slightly different strategy.
The lean startup method, promoted by Eric Ries, recommends developing technology quickly and then immediately launching it to customers, then gathering data, tweaking and relaunching the product all in a short period of time. This is an excellent way to quickly determine whether your product is truly resonating with your target audience without heading too far down the wrong development path.
Related: Trim the Fat From Your Startup
Many entrepreneurs have argued that this process has replaced coming up with a business plan altogether (though the creators of the lean startup method actually never adopted this stance). But use of the lean startup strategy alone is simply not effective for new entrepreneurs entering the nontech business world outside Silicon Valley. Main Street America businesses are different from those in Silicon Valley in that they’re very rarely seeking venture capital and have different types of expenses and revenue growth. Thus, they’re better served with a slightly modified method that focuses more on planning.
The modern business plan. The days of lengthy documents that take months to develop might be gone, but plans shouldn’t be ditched altogether, despite what lean startup followers may think. Today’s small businesses can use many of the ideas from the lean startup methodology while still planning ahead to ensure a stable future.
A Main Street business plan should include the following elements:
1. An executive summary. Also known as a pitch, this should include charts and images to tell your story quickly and efficiently.
2. A financial plan. Develop an expense budget, a sales forecast, a profit and loss statement a cash flow forecast and a balance sheet
3. An action plan. Set goals and milestones with accountability.
4. Performance tracking. Compare actual financial results with your planned financials and other key metrics.
Once your plan is in place, review the planned numbers against actual results and analyze any discrepancies. Why were the numbers wrong? What assumptions did you make that did not prove true? You may have thought you could collect money from your clients every 30 days. But as you review and compare your results for a few months, you may realize that you are collecting money every 55 days.
With this information, you can easily respond to the implications these calculations will have on your cash flow by making necessary changes to prevent any problems. This is where the Silicon Valley’s strategy comes into play. To make sure you don’t veer too far off course with a faulty plan of action, you need to make small adjustments, every three to four months, based on the variance between your plan and your actual results.
Planning pays off. Combining aspects of the traditional business plan with Silicon Valley’s minimum viable product strategy approach works well for Main Street firms. A recent survey by my company, Palo Alto Software, of about 400 small business owners found that those who had put together a plan and tracked their progress regularly had higher hopes for the year ahead. According to the survey, 79 percent of companies with a business plan say they are better off financially as compared with how they felt a year ago, while only a third of small businesses without a business plan can say the same thing. Additionally, nearly 75 percent of established companies with a business plan in place expect to grow more than 10 percent this year, compared with 17 percent found for established firms without a plan.
Silicon Valley’s lean startup method offers a highly effective strategy that quickly determines which startups will succeed. Main Street America, however, needs to pair this concept with a more structured business-planning process to avoid running out of cash and experience growth and profit. Today’s business world requires entrepreneurs to be flexible; planning and tracking enables them to do so while ensuring a more stable financial future.