Business Plans

This is a sequence of blog posts that discusses how to quickly develop a simple business plan, based on Agile Business Strategies™. At the end of each post, click on Go To The Next Section to read the next section.

Writing a business plan often strikes fear into the hearts of business owners and entrepreneurs. That’s because, traditionally, writing a business plan is seen as a painful experience filled with anxiety and nail biting. What’s the solution to this madness? Write a fast and simple business plan that generally outlines your idea. And don’t spend very much time writing this document. If you write more than ten pages, you’re too far ahead of yourself. You don’t yet have the facts, which can only come from testing the product on potential customers.

Your business approach might benefit greatly from developing an Agile Business Plan™. This concept is based on writing a simple document that describes your business model, but is written after the first iteration of your product. I advocate following the same methodologies as those described in the first section of the book, ‘Plan, Finance and Start Your Business Right Now!‘. The book defines how to use these fast ‘agile’ strategies to launch (or revamp) your business.

A business plan is only a useful tool when you have a very good understanding of your customer. Here’s the important message:

Wait to write a business plan until you’ve gone through at least one iteration of developing your product and listening closely to customer feedback.

A business plan is still very important; just don’t let the process of planning get out of control. The exercise of creating a business plan forces you to think clearly about the company’s potential. But as your knowledge of the product you’re creating grows, so should your business plan—accurately and based on facts rather than assumptions. You define the business as you go along, in the same manner as you develop the product— iteratively.

Refining Products and Business Models

Product development and business planning go hand-in-hand, as the testing process often reveals the business model. You can develop your business plan along the same timeline as your iterative product testing and development. Your business model may change dramatically after you develop a prototype and begin making iterations.

The fast, iterative approach to agile product development provides a natural timeline for refining and improving your business model. Refining a business model takes place after each iteration.

One of the primary goals of testing your product is to find the most appropriate business model. If you write a plan without testing your idea, the plan is often useless as soon as the ink is dry. You have no way of knowing critical information before testing the product.

As you update your planning document with data derived from each level of testing and subsequent product rollouts, you’ll find that the plan is no longer a just a plan. The document can evolve into an operations manual based on actual facts.

Flexible Business Models

Flexibility in adopting new ideas based on feedback is key to the evolution of your business. One of the problems with a business plan is it’s just that—a plan. An unproven idea. Avoid becoming caught up in sticking exactly to any plan you’ve created, whether it’s a written business plan or a plan in your head that you believe is the only possible outcome. Your customers should dictate how your business evolves, not your plan. Nothing is ever written in concrete. Your focus revolves around developing a solid product and understanding your customer. Anything less falls short of giving your customer what they want and prevents you from driving maximum revenue into the company.

Write A Fast And Simple Business Plan

With a simple business plan and the results from a test period, you can begin to understand how much cash will flow in and out of the business. You should also have a good idea whether you’ll have sufficient net revenue to make the business worthwhile. Importantly, you’ll know how much funding is likely required to start the business and if the company will generate enough cash to pay back any loans or investors. For the most part, businesses run into a cash crunch when they fail to accurately identify how much capital is needed to support the business through its first three years.

Primarily, the most important reason for writing a business plan is to discover, for yourself, whether your business idea has merit. You must convince yourself whether starting a business is worth the effort. Is the business model worthy of your time or of presenting to investors? Why would an investor give you money before seeing proof that the idea has been tested on some level and is likely viable? Small businesses typically take at least three years before achieving any degree of success. That’s a lot of your life to invest in a business that may or may not succeed. It’s tremendously practical to decide whether the business is a good idea before spending that kind of time and effort.

If you believe that starting your business is a foregone conclusion, remember that the jury is out until you have the facts in hand. Keeping an open mind dramatically improves your odds of success. Test rather that assume.

After you’re convinced the product is viable, your task is to write a short business plan that’s based on what you’ve learned from the development process and to define goals for the next iteration.

The best way to write a business plan is to write it simply and quickly.

Don’t spend a lot of time writing the business plan. Write a very short business plan with simple, ballpark financial projections. There are three main areas to focus on:

• Describing the product from the customer’s point of view, not yours. Why will the customer buy the product and what problem does it solve for them? How much are they willing to pay (not how much you think they should pay). If you don’t know this information then you shouldn’t be writing your business plan yet.
• Understanding how much everything costs to make your product and how much net profit you’re likely to earn. If you’ve tested a prototype of the product, then you’ll likely know this information.
• Setting goals to achieve in the next iteration of the product.

That’s it. At least, that’s it for the first iteration of your business plan. The business model will become more sharply focused with each iteration, providing an increasingly clearer picture of the business. You’ll have a much better understanding of your financial forecasts, costs, personnel, marketing, operations and future products.

This is an on-going process that becomes the lifeblood of your company, as incorporating customer feedback organically leads to innovation. Knowledge of what your customer wants translates into a strong, positive cash flow driven by a flexible, adaptive business model. The bottom line? Innovate and thrive.

 
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