Will a business plan ensure the success of my small business? If I don’t need financing, why do I need a business plan? Isn’t it true that most of these plans reside in a desk drawer or file cabinet, never to see the light of day?
There are essentially two purposes for a business plan.
The traditional, lengthy one with all the details is used when you need to present to a potential lender or investor. This should include everything, including your marketing plans, operating plans, and financial details.
The other plan is for internal purposes. It is a shorter document to keep you and your team aligned on purpose and priorities.
Creating a business plan greatly increases your chances of succeeding in your business. Doing this homework for your company forces you to think things through. For example, do your assumptions make sense?
A comprehensive business plan will help you answer many important questions. You’ll have to do a lot of research; there’s no way around that! But the more variables you consider, the greater your chance for success.
So why doesn’t everyone do this? There are several reasons, the most obvious is that creating a business plan requires lots of tedious and time-consuming work. Maybe you don’t know where to begin, or you just don’t understand why a plan is needed in the first place. (Some people may be lazy or complacent, but not you!)
Consider an alternative approach
Perhaps you should consider the alternative approach: the Business Model Canvas (BMC). Initially proposed by Alexander Osterwalder in 2008, the Business Model Canvas “is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential tradeoffs,” according to Wikipedia.
A BMC offers several advantages for a new venture. First, it allows you to see the big picture – it’s like the picture on the outside of the 1,000-piece puzzle. It helps you determine how the pieces fit together.
Next, it allows you to be creative in how you approach the marketplace. Do you want to be like everyone else in your industry, or is there an innovative opportunity to be different? You can test various approaches before you commit your resources.
Finally, it helps you identify your hypotheses – those guesses and assumptions you’re basing the business on – so you can test them quickly and inexpensively. You can find out what really works in the marketplace and what you thought might work but doesn’t resonate with customers. It helps you explore ways you can pivot your business to achieve greater success.
If a typical business plan is 40 or more pages, why is the BMC only one page? They are two different approaches. Think of BMC as a photograph, and a business plan as a written description of the same thing. A picture is worth a thousand words.
Learn how to pivot
What is the structure of this single-page plan? The BMC’s one-page diagram has nine cells: Customer Segments, Value Proposition, Channels, Relationships, and Revenue Model comprise the left side of the canvas (the customer-facing side of the business) while the right side includes Key Resources, Key Activities, Key Partners, and Cost Structure (the “behind the scenes” part of the operation).
What is pivoting? If you ask any successful entrepreneur how their business evolved, they will almost always tell you that the business started off in one direction that didn’t work out so well, but something different – often unexpected – did work, and that’s how they became successful. You do what works. The switch from “what you started doing” to “doing the new, somewhat different thing” is called a “pivot,” taken from basketball. You keep one foot planted (in your Vision or core idea about who you are) and move the other foot (do something different or something in a different way). It’s a process of learning and growing and changing to discover and deliver what customers want.
A quick way to learn about BMC and how to build your own is to watch a YouTube video entitled: Business Model Canvas Explained. If you have questions, feel free to email me at firstname.lastname@example.org and I’ll try to point you in the right direction.
Dennis Zink is an Exit Strategist, business analyst and consultant, a Certified Value Builder and SCORE mentor, and past chapter chair of SCORE Manasota. Dennis created and hosts “Been There, Done That! with Dennis Zink,” a nationally syndicated business podcast series and “SCORE Business TV” available at Time4Exit.com. Dennis led a SCORE team to create the Exit Strategy Canvas and Exit Strategy Roadmap program that provides a real world methodology for business equity realization. Email him at dennis@Time4Exit.com.
This article originally appeared on Sarasota Herald-Tribune: DENNIS ZINK: How does the Business Model Canvas work?