by Colleene Isaacs
In every new business I have had the pleasure of being able to build, or at least participate in the process, the ultimate plan that proved successful for the business was not the original idea that got the team on board. My partners and I started out on one path and soon found in each case, for a variety of different reasons, that if we didn’t “pivot” or change course the business had a high probability of failure. Fortunately, we did change course quickly enough, such that resources were preserved and we were able to build and scale the business to a successful outcome. Other start-ups in which I participated made assumptions based on existing businesses and markets, and unfortunately never tested those assumptions. The businesses ultimately failed, because the assumptions were wrong.
I have met MBAs that have plowed considerable resources into researching and defining a business model, only to take so long and be so far off mark, they never got the business off the ground.
Overcoming the Odds
Most new businesses fail within the first five years. Statistics place business failure rate at anywhere from 75-90%. According to the authors of Getting to Plan B: Breaking Through to a Better Business Model – “The research on new product success and failure indicates that it takes fifty-eight new product ideas to deliver a single successful new product.” The authors go on to say “Figuring out what customers will buy is a process – not a guess. And a handful of focus groups or surveys isn’t likely to uncover the answer.”
As entrepreneurs, when we set about to plan a business, we are generally basing our plan on assumptions. Maybe those assumptions have come from discussions with friends, observations on what appear to be possible opportunities, or just from our own sense that we may be “on to something.” But those entrepreneurs that move forward with implementing a plan just on the basis of assumptions usually fail. The one assumption any entrepreneur should make is that all or part of a potential business plan is going to be flawed, and there needs to be a systematic process to determine where the flaws exist. By defining and then systematically testing the hypotheses that are driving a plan, through experimentation, you can eventually arrive at a better plan for your business, or determine your plan will not succeed.
By wisdom a house is built, and through understanding it is established; through knowledge its rooms are filled with rare and beautiful treasures. The wise prevail through great power, and those who have knowledge muster their strength. Surely you need guidance to wage war, and victory is won through many advisers. (Proverbs 24:3-6 NIV)
Any potential business is faced with a mountain of uncertainty – will the product or service really solve a problem? If I build it, will they come? What happens if I’m too successful, or not at all? Did I nail it or miss the mark? What am I willing to accept as a standard for declaring success? There are many moving parts to consider when planning a business.
Will it be a success?
You certainly don’t want to expend the time or money for planning and implementing a business, if you don’t have some reasonable gauge to determine the opportunity for long-term success. That is poor stewardship. Business planning is designed to help you think critically about the key components of the business model. It is an important first step in the process and should not be taken lightly, nor should it be taken as the rigid roadmap to follow. In carefully evaluating your business idea, it is crucial you begin first with the problem you are hoping to solve through your business. What is the real problem your business will attempt to solve? Is it significant enough a problem in which a customer base will be willing to pay for a solution? Can a solution be implemented in a cost-effective manner? These and other questions are factors that should be closely evaluated as part of your planning process.
- Who has implemented a similar plan, are they successful, why or why not?
- Can you improve on the current offering?
- Who is the customer and how will you acquire customers?
- What is your revenue model?
- What do your margins need to be to be profitable?
- What will be your operational costs for doing business?
- What are your working capital requirements?
- What type of skilled labor force will you need?
- What are your start-up costs?
- What type of customer service infrastructure will be required?
- Once established, what are opportunities for growth?
- What type of culture do you want to create?
- Can you begin with a scaled down (minimum viable) offering?
A tremendous amount of effort can go into creating a business plan that ultimately fails. If you already know that most new business ventures have a high probability of failure, then what you want to do is minimize the opportunity to become one of those statistics. You want your planning to help you determine the right thing to build – the thing customers will want and will pay for, and do it in a manner that allows you to test assumptions quickly. The “Lean Startup” approach to business is designed to help an entrepreneur wade through some difficult business decisions, and to test the key assumptions you start with.
I am an ardent supporter of Lean Startup. The process provides a map for building an efficient, cost-effective way to validate your plan, helping you to test your assumptions in a controlled manner, before you invest significant resources in company infrastructure. This process allows you to conduct experiments on your product before you build out your business. Based on your testing, careful observations, and ultimate conclusions, you can go back to the lab and apply tweaks to your product or service.
For example, let’s say you live in an area where access to laundry facilities is limited. Maybe your idea for a business is to start a laundry service. You might begin with one washer and dryer and one employee beside yourself. Initially you begin with keeping your equipment in your home or in a visible location which draws a lot of pedestrian traffic. You market your service to a small population. Your service has 3 separate offerings with different price points. You do a basic wash and dry with a 24 hour turn-around. You do a wash, dry and fold with the same type of turn-around. You offer an upscale service of wash, dry, fold and delivery with a 4-hour turn-around, with a premium price tag. As you begin to test the offerings and gain customers, you can gauge adoption rates, price sensitivity and general customer satisfaction. You can then begin to adjust your services and pricing as you test your model. If you find customers will never flock to you, then all you’re out of pocket is the cost of a washer and dryer!
When you feel you’re ready to take the next steps with your plan, proceed carefully. It doesn’t take a brilliant person to succeed at business, it takes one who is patient to follow a systematic, verifiable process that ensures there is every opportunity to succeed.
So now what? Make your plan, then test it, assuming it is wrong.
Lean Startup by Eric Reis
Getting to Plan B by Randy Komisar and John Mullins
Business Model Generation by Alexander Osterwalder and Yves Pigneur
Colleene Isaacs serves as an advisor to early stage kingdom-focused startups and assists non-profit organizations in under-developed economies to develop sustainable models for income generation. Colleene has over 27 years of business experience and has been the founder of her own restaurant business, as well as a co-founder of a technology-based company. She has served in various management roles for technology companies, including training and development, customer service, business and channel development, and marketing. Colleene has been married to Robert, her high school sweetheart, for 40 years and they have 2 children and 3 grandchildren. Colleene is passionate about using her gifts to help others discover and live out their unique God-imprinted design for His kingdom purpose.
Colleene is part of the ‘Ask a BAM Mentor‘ panel of mentors.