People are often surprised when they hear that we don’t require a business plan as part of the IGNITE application process.
We subscribe to the view that unless someone has actually developed a product concept: a prototype, a demo, a wireframe, a simulation, something that they can put in the hands of customers AND has interviewed lots of potential customers AND has sold or is on the point of selling something to someone, a comprehensive business plan is based on nothing more than assumptions, guesses, hopes and, worse, dreams.
As such, while a comprehensive business plan does stand testimony to the hard work and commitment of the promoter, it is pretty much useless as a reliable roadmap for how the business will develop.
This approach is based on the ideas of four guys: Steve Blank (http://steveblank.com/), Ash Maurya (http://spark59.com/), Eric Ries (http://theleanstartup.com/) and Alex Osterwalder (http://alexosterwalder.com/). All four collaborate in various ways and their ideas overlap.
In essence, Steve Blank’s key idea is that the most successful start-ups are the ones that concentrate on customer development rather than product development. In his book, The Four Steps to the Epiphany, Steve describes the first two steps as Customer Discovery, making assumptions about who the customer is and why they’d buy from you, and Customer Validation, finding ways to test those assumptions and prove them to be true. This is often an iterative process, discarding old assumptions and forming new ones until you arrive at a set of established facts about your customers. Step Three is
Customer Creation, identifying customers, engaging them and signing them up while Step Four is Company Building, putting the resources and processes in place to grow the business.
Ash Maurya takes a slightly different approach which he describes in his book Running Lean. He advises first identifying a problem and then defining the solution to the problem. This is Problem-Solution fit. The next step is to identify the customer that has the problem – Product-Market fit. Once you have a well-defined customer, a clear problem and an effective solution, you are ready to start to build the business.
A key idea of Eric Ries is that start-ups should move as quickly as possible to a point where they have something to engage the customer: a prototype, a demo, a wireframe, a simulation, something that allows you to assess how the customer actually uses the product rather than how they say they would. (And there can often be a big difference!) Eric describes this and much more in his book The Lean Start Up.
Meanwhile, Alex Osterwalder developed a framework using 9 building blocks that can be used to develop a business model. The first two of these blocks are Customer Segments and Value Proposition, in other words, who are your customers and what are they buying from you. See the overlap with the ideas of Eric and Steve? The other building blocks work their way through Customer Relationships, Channels, Revenue Streams, Key Activities, Resources, Partnerships and Costs. Alex has described this model in his book, Business Model Generation.
Needless to say there is a lot more involved, but that’s the essence of it right there.
Steve Blank posted a blog earlier this year: Blowing up the Business Plan at U.C. Berkeley Haas Business School http://steveblank.com/2015/03/03/u-c-berkeley-haas-business-school-blowing-up-the-business-plan-the-lean-launchpad-i-corps/.
I was particularly taken by his description of what it’s like in the early stages of starting a business:
“Being an entrepreneur is about starting out with no idea whether you are working on the next big thing or something no one wants and certainly no one will pay for. It’s struggling to find the right path forward through chaos and uncertainty. Killing bad ideas quickly and moving on. Staring at the phone while mentally wrestling to pick it up to make that next cold call. It’s having investors tell you that you’re dead wrong and, perhaps with enough customer traction, showing them the path to a new future neither of you could see at the time.”
This is the starting point for IGNITE and we adapt the ideas put forward by Steve, Ash, Eric and Alex to help entrepreneurs through this early phase and on to running a successful start-up.
For more, I highly recommend taking a look at Alex Osterwalder’s Tools for Business Model Generation on YouTube at https://www.youtube.com/watch?t=105&v=8GIbCg8NpBw.
And Steve Blank has a great How to Build a Start Up course on www.udacity.com. Just sign up to udacity and search for ‘How to Build a Start Up’.
Finally, if you are a Harvard Business Review subscriber, there is a comprehensive summary Why the Lean Start-Up Changes Everything at https://hbr.org/2013/05/why-the-lean-start-up-changes-everything/ar/1.
PS: Not to be outdone, I have put together my own 5 Questions Every Start Up Should Answer: Who is your customer? What is their problem? How does what you are offering solve their problem? What is the solution worth to them? How many customers are there? More on this at https://igniteucc.wordpress.com/2015/04/14/5-questions-every-start-up-should-answer/