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Lean Startups Need Business Plans, Too

July 10, 2012
URL: http://www.entrepreneur.com/article/223878

I have a problem with what's called the "lean startup." I like to think I use it as much as I can, and even that I was using that method before it had a name and a major proponent. My problem is the way unsuspecting followers of this great new idea deal with business planning.

Eric Ries popularized the concept with his book The Lean Startup (Crown Business, 2011). It's also associated with Steve Blank, an entrepreneur, teacher and writer. They both deserve a lot of credit. The lean startup is a great framework for entrepreneurs.

Related: How a Lean Startup Can Keep Customers

Wikipedia says a lean startup "advocates creation of rapid prototypes that test market assumptions and uses customer feedback in an effort to evolve the design faster than more traditional product development practices." It's usually associated with an iterative process summarized as "the build-measure-learn" loop.

But here's my beef in a nutshell: When Ries and Blank criticize the business plan, they are talking about a now-obsolete approach: the formal written business plan. They say it gets in the way of the more agile and flexible lean startup process. But what they criticize isn't what a business plan should be. In fact, it's what a business plan shouldn't be.

So it's a bit of a straw-man argument. First, Ries and Blank define a business plan as a formal document that takes a long time to create and isn't flexible, doesn't get reviewed and doesn't get revised. Then they say a business plan isn't useful.

That's sort of like saying getting regular exercise isn't good for you because some people overdo it and end up with joint damage.

It would be better to advocate a type of business planning that could be called lean business planning. That would mean starting small with a business plan that summarizes the current strategy, metrics, milestones, tasks and basic responsibilities. You don't print it, much less edit, polish and publish it. You just use it.

A real business plan should grow organically, just like a lean startup. The process starts with a concrete and specific plan for what's supposed to happen and continues forever with regular review and revision.

Related: How to Craft a Business Plan That Will Turn Investors' Heads

When it's defined like that, the business plan process fits perfectly with the lean process framework. The lean startup process is a continuous cycle based on three repeating phases: build, measure and learn. Good business planning is a continuous cycle based on three similar repeating phases: plan, review and revise. I think everybody in business should have this kind of "lean" business plan.

Ironically, while Ries and Blank both knock the business plan from time to time, they also support the kind of planning process I'm suggesting. It's the misuse of the plan, leaving it static and executing it robotically, that they don't like. Here's a telling paragraph from Ries's book:

"The first problem is the allure of a good plan, a solid strategy and thorough market research. In earlier eras, these things were indicators of likely success. The overwhelming temptation is to apply them to startups too, but this doesn't work because startups operate with too much uncertainty."

Even here, in Ries's own words, you can see that the problem isn't the plan or the planning. It's about spending too much time developing a plan. Implicitly, it's about executing a plan without reviews and revisions.

I'm pretty sure that, if asked, both Ries and Blank would agree that even with a lean startup, you constantly need to think through the goals, steps, metrics, tasks and basic numbers. Just as the business is constantly subjected to measurement and learning, the plan is subjected to frequent review and revision, which brings us back to fundamental planning.

Related: 5 Ways to Hatch Your Next Business Idea