Finding a better way to plan for results

The Lean Startup – Eric Ries

The Lean Startup – How Constant Innovation Creates Radical Successful Businesses by Eric Ries (Penguin Book, 2011)

ONE of the single most repeated pieces of advice business owners get is to use a business plan. Therefore, we invest a lot of time and effort into our planning. With a good business plan, we are told, we’ll be able to succeed!

However, we often find that it is not easy to know exactly what the best way forward is. You may find, like many others, that it is rather difficult to describe in your business planning document what must be done and then get it done. And when the business plan is done, it is as if the reality has very little to do with what you descried in the document…

One of the most significant complaints about traditional business plans is that they take too long to produce – so long that by the time the business plan is completed, the environment has changed to such an extent that the plan itself is redundant. The lack of flexibility in adjusting to changed circumstances is one of the main reasons for scepticism towards business plans and for it ending up in the proverbial “bottom drawer” of most business owners.

Here enters the “lean start-up” idea, which was born out of this frustration with old-style business plans.

The MVP is the early version of a new product that offers enough value to users to attract their attention. It allows the business to get real product information back from users.

In the last five years or so, more and more entrepreneurs starting out with businesses, realised that convoluted plans, based on detailed market research, may be very suitable for stable and homogeneous markets, where you can predict with a large level of certainly what the day after tomorrow will look like. However, in circumstances such as the prevalent conditions of the tech industry, the need is for quicker decision-making, shorter business cycles and options to “pivot” a business plan into something totally different should things not work out as anticipated.

Entrepreneurs such as Eric Ries realised that traditional business plans are just not suitable under such conditions. Ries, who was involved in several new ventures in Silicon Valley, tells a tragic story of wasting months, if not years, in writing business plans and developing products, which ended up being rejected by the intended users. In his book, The Lean Startup – How Constant Innovation Creates Radical Successful Businesses, he explains how he came to understand that it just took too long to get to the point where you realise that you have to change your plan to something else.

Ries learnt from the well established “lean manufacturing” principles developed by companies such as Toyota in the 1980s, and applied these principles to the startup landscape. In The Lean Startup he explains some very useful principles in planning that circumvents the shortcomings of the traditional planning approach.

One of the key concepts he introduces is that of a Minimum Viable Product, or MVP, as a way of addressing the problem of spending too much time on the planning and product development without knowing if the business will find traction within the market. The MVP is the early version of a new product that offers enough value to users to attract their attention, but which is not perfect yet. It allows the business to get real product information back from users, without wasting lots of time on refinement. With the MVP you’re able to test the main assumptions of the business and learn as early as possible how to refine the business model. If a radical adjustment (or “pivot”) is needed, you would not have wasted too much time and money!

Another insight introduced by Ries is how continuous development should be part of your planning approach. You are therefore never done with your plan, or put differently, your plan is always changing. Therefore you can immediately implement what you learn and the product adjustments you make do not have to wait for a future major re-assessment. The lean approach puts emphasis on the continuous evolvement of your business model. You’re focussed on reducing the cycle times and therefore preventing the pitfall of traditional planning approaches where the plan is long redundant by the time you are busy implementing.

Many other entrepreneurs followed Ries’s example in writing and speaking of their experiences in applying the principles of lean startup – to such an extent that some call this the “lean startup movement”. If this sounds like something for you, The Lean Startup is the best book to start with.

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