Being an entrepreneur can be highly rewarding, even though it might be stressful as well. The sense of accomplishment one gets, due to the fantastic opportunity of taking into your hands your destiny, and the great sensation of being contributing with something valuable to the world, is certainly attractive to the adventurous ones who aim to start a business. Adding to this, who knows? you can even be able to make a fortune.
But the reality of leading a Startup isn´t always this rosy, as sometimes it’s hard to make your business flourish.
In 2013, Steve Blank writing for Harvard Business Review reported that 75% of all start-ups fail. A new approach has been developed to address the kinds of problems that exist that cause start-ups to fail. Blank calls this the “lean start-up”. In his words:
“It favours experimentation over-elaborate planning, customer feedback over intuition and iterative design over traditional ‘big design up front’ development”
All of this has the impact, according to Blank, of making start-ups less risky. But as yet, few businesses have opted for this approach, despite its many advantages.
One of the fundamental elements of the lean start-up approach is that it challenges the concept of business planning. After all, realistically it is very challenging to be able to plan five years out, as most business plans do, with cash flow, profit and loss and balance sheets that are supposed to be accurate. With a goal of researching and understanding all of the challenges in advance, knowing how much money you are going to make and how, precisely, you are going to do it, a business plan is like a map that guides success. The problem is that no business plan can genuinely be all that realistic. They are based on assumptions that are made up, after all. Of business planning, Blank (2013) says:
“No one besides venture capitalists and the late Soviet Union requires five year plans to forecast complete unknowns. These plans are generally fiction and dreaming them up is almost always a waste of time”.
Everyone knows it, but this is just the comfortable, accepted way of doing things so start-ups stick with it, hoping that they’ll be able to show that they have a killer product or service and that they can get investment.
Blank’s description of the lean start-up suggests that there are better ways to get ahead. There are three elements that make this approach better than a fictional planning process. The three main elements to this are considered to be:
1. Sketch out your canvas
According to Blank, lean start-up business entrepreneurs realize that they have a bunch of guesses about what is going to happen. Rather than developing a complex, involved and in-depth business plan they roughly plan what they might do and what could happen. This approach is known as business model canvas. Sketch out your hypothesis was an idea proposed by Alexander Osterwalder and allows entrepreneurs to see at a glance the different “building blocks” of the business on one page only. This is a far cry from a 20 page storybook business plan. The areas reviewed in the canvas are key partners, key activities, key resources, value propositions, customer relationships, customer segments, channels, cost structure and revenue streams. In Osterwalder’s words, “Founders go wrong when they start to believe their business plan will materialize as written. I advise entrepreneurs to burn their business plan – it’s simply too dangerous to the health of your business”. Luckily Osterwalder has proposed this alternative approach.
2. Listen to Customers
Here’s a revolutionary idea that really shouldn’t be so ground breaking, but somehow is. Entrepreneurs involved in start-ups go and ask customers what they think about the business model. In fact, they do not just ask customers, they also ask partners and others that may be involved too. They get ideas together and then they immediately ask people what they think. It’s hardly rocket science, but this approach, known as “customer development” as Blank refers to it “get out of the building” is worryingly rarer than you’d think. All the while these savvy entrepreneurs refine their approach and continually improve the model to a smaller or larger degree until they finally hit on a combination that works.
3. Agile Development
Agile development is quick and embraces customer feedback rapidly to speed up the product lifecycle by years. The approach focuses on quick cycles of development that are repeated continuously, producing a “minimum viable product” each time. That product is then tested with customers, feedback accrued and a new short burst of development occurs to again develop another minimally viable product. In this way the product is continually being refined quickly and responsively to the needs of those that will actually use it. It certainly cuts down on the fiction of a five year plan.
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.