Business plan RE:IMAGINED
The business environment is ever-changing and the pace of change is even faster in the digital economy. Planning and forecasting methods may not be effective in a dynamic and constantly changing market where there's volatility, uncertainty, complexity and ambiguity. The ideas or assumptions on the business plan needs to be validated. A business plan shouldn't be seen as just a check box to obtain funding. It's an invaluable tool to grow your business. Of course every business requires capital to build new products and services, thus it's important that the business plan is factual. Having a business plan that is based on facts is guaranteed to show value to shareholders or investors, i.e. who wouldn't want to invest in a company that is delivering value to customers, making money and in the process benefiting the economy. Most business plans that I've seen are unrealistic and unfortunately fail to deliver value to customers and investors. A new innovative approach to business planning is necessary in order to create new sustainable sources of growth. It starts with strategic thinking and business model design. Businesses of all sizes, small, medium to corporate needs to embed strategic thinking and business model design skills onto their company's DNA.
Businesses fail for many reasons, research suggests the following top 5 common reasons:
Lack of planning
Not satisfying customer needs
Ineffective financial management including lack of funding
Leadership failure and retaining inadequate management team
Lack of uniqueness or point of differentiation
Let's look at three tools that we can use to create new innovative business models and thus fostering company's success.
1. Design thinking
No business plan is cast and stone. Design thinking helps organizations to stay competitive. It uncovers real customer needs, clear business goals, allow organizations to create and test solutions that are relevant to customers. You can use design thinking techniques, i.e. ideation, prototyping possibilities, iterative development and experience map to unleash your business model potential. Figure 1 illustrate design thinking process.
Figure 1 Design Thinking Process
2. Customer value proposition canvas
The customer value proposition canvas helps you to visualize, design and test how you create value for customers. It enables organizations to understand the patterns of value creation. This significantly helps in designing your products and services with the customer in mind. Figure 2 below depicts value proposition canvas using mobile ice cream shop example.
Figure 2 Value Proposition Canvas
Adapted from Business model generation and strategyzer
3. Business model canvas
A business model consists of value add elements that, when taken together creates, captures and delivers value. It's always a good idea to start by developing a strong customer value proposition. The business model complements a business plan and is like an architectural blueprint for strategy to deliver company vision and mission. Figure 3 below represents a business model canvas using mobile ice cream shop example.
Figure 3 Business Model Canvas
Adapted from Business model generation and strategyzer
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Building a lean business plan
1. Customer value proposition
In the digital era where customer experience is on top of mind for most organizations, the most important thing to get right the first time is to define customer value proposition, i.e. solve customer problems, satisfy customer needs or find a way to create value for customers using products/services or digitized solutions, i.e. leveraging digital technologies. Organizations that are innovating to solve customer problems are likely to succeed. Design thinking and value proposition canvas integrated with business model canvas are some of the great tools that can help you design ground breaking business models that are customer centric and beneficial to your business.
2. Industry research and analysis
Does the market allow your company to make money? Is the industry growing and structurally attractive? It's important for new and existing businesses to understand latest business and technology trends thus leveraging industry research and analysis. This will enable them to understand the competitive landscape better, i.e. regulatory environment, interest rates, demographic trends, inflation, economic growth etc. and to plan effectively. Changes in the business landscape may positively or negatively affect your business.
3. Marketing plan
What will the business sell and to whom? Is there a market demand for your products or services? How will your products or services be priced? A good business plan should describe type of products or services, key resources, supporting processes and how the company will successfully launch its products and services into the marketplace. The marketing plan helps to determine customer segment, target market and the company's unique selling point. How long does it take to acquire a new customer? How much does it cost to support a customer? How easy is it to retain a customer? These are all important questions that a good business plan should answer.
4. Operation plan
How much capital is required to support sales? How much does it cost to produce and deliver the product or service? A good viable business model is where the cost to produce products and services is relatively low and margins are high. Organizations or companies should adopt new ways of working, i.e. Agile, Lean startup methodology and DevOps to remain relevant. A design thinking approach to product development, for example ensures that a prototype is produced first subsequently testing the minimum viable product before launching the product to market. Operation plan helps to identify business assets, key processes, resources, activities, partners that will enable the company to deliver customer value proposition or digitized solution.
5. Financial plan
At what level of sales does the business begin to make a profit? And even more important, when does cash flow turn positive? The financial plan must support your business model. It's extremely important to ensure financial sustainability of the business. If the company is successful, how will the investors eventually get money out of the business? Can the business be listed or taken public at some point in the future? A good business plan is about achieving the bottom line. It should monitor and track forecasted numbers for your products and services. This should be done regularly, at least monthly or quarterly to measure overall company's performance.
6. Risk and Opportunities
Risk is inevitable and avoiding it is almost impossible. A good business plan should assess everything that can go wrong or right from identification of opportunity to harvest. The management team must be able respond appropriately depending on the situation, therefore the company must ensure that it hires the right talent, at the right time for the right reasons.
7. Strategy and Implementation Roadmap
The business plan outlines tactics to achieve business vision and strategy. Based on my discussion with some of the entrepreneurs and startups, an up to date business plan and strategy is a nice to have. Strategy is key to realize company's vision, whereas the business plan is necessary to achieve strategic objectives. Research suggests that most small businesses and startups that fails lack strategic planning skills. Strategy is about finding your competitive advantage and using it to win or simply put winning should be intentional and well planned. Most startups are good at creating ground breaking business models and fail at sustaining them. To measure successful execution of the business model, it is essential to identify key drivers for success or failure, i.e. for a subscription model, it will be anticipated renewal rate, new subscribers or churn rate. A great business plan should ultimately be able to land a good deal.