Business Plan vs. Business Planning

Essentials of a business plan

Business Plan’s secret sauce is the process of “Business Planning”; the “Business Plan” is an outcome

Business plan is a very popular word. Don’t believe me? Just check Key Word planner, there are over forty thousand searches every month, much more than any other related word. Is this hype deserved? The answer depends on who you ask? I am neither a supporter nor a hater. However, I want to debunk the myth of the Business plan and introduce the importance of Business Planning. Usually, it implies that the Business Plan is the resulting document of business planning. In that sense, a business plan is a tool for business planning. The lean canvas is another tool used for business planning. No matter what tools you use, the tool is a frame work to help you think through the trenches of your business model. You must emerge from this with a harvest of actionable tasks that will reduce the risks and uncertainty associated with your business. Success of a startup depends to a large extent on how these tasks are executed. Validating the assumptions and refining the business model in a timely manner is the key to startup success.

Let us see an example of how the business planning process helps identify key assumptions and risks. Let us assume your product is a team messaging app. For simplicity assume you only have one revenue stream from product development teams. At $20 per month for a team and an operating cost of $500K per year, you reckon you will need 2084 customers (500,000 annual op expense divided by annual revenue per customer i.e. 20 times 12 or 500,000/20/12) to break even. Now, look at the assumptions built into this – you probably are aware of the alternatives available and what they charge; so, will customers pay you $20 a month?  Is there enough value differentiation between your product and the competitive choices to justify your price? (ASSUMPTION CHECK REQUIRED). Let us look at it from another angle. You need 2084 paying customers for a year. What is your conversion rate? How many potential users do you have to reach for this? (ASSUMPTION CHECK REQUIRED). How will you reach the required leads? Do you have enough resources planned in the operating expenses? (ASSUMPTION CHECK REQUIRED). Think of your plan as a layered cake and you slowly peel away the layers to expose the core assumptions. My upcoming blog discusses on using lean canvas for this. Let me conclude by saying that no matter how you do it – a power point pitch, word document, lean canvas, or excel spreadsheet – the exercise of doing the business plan is invaluable in clarifying the value of the product or service, the strategy and the business model. Let me know what you think of this…If I missed something or do you have something to share with us.

 

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