It’s a common habit inside companies: individuals and teams have a flood of great ideas that can create value for customers and the business. Leadership’s first reaction is to pick an idea and instruct people to develop a detailed business plan.
It’s a habit that will do more harm to an organization, because the company will be focused on refining and perfecting an untested idea. Business plans are great documents for executing on a known and validated idea, but they’re not useful if you’re just starting to search, design, and test new value propositions and business models.
In response to the audience question, Strategyzer co-founder Alex Osterwalder responded with a clear and killer argument:
Your #1 goal is to reduce the risk of failure and uncertainty. A business plan will maximize those risks.”
Co-founder of Strategyzer
That statement gets senior leadership every time. What leader doesn’t want to reduce the risk of failure around business ideas? As Scott Cook, co-founder of Intuit, has said about his own company:
Behind every big failure at our company, there was a marvelous spreadsheet.
Founder at Intuit
So if not business plans, then what?
1. Trust experiments over experts
A business plan assumes you know all the answers for a given idea. That’s hardly the case. Teams spend hours and hours compiling fantastic forecasts, and will spend tons of money hiring people to build technology or products that have no evidence to support their success. You can always make the numbers look good in a plan and argue how well it will work, but the plan will mean absolutely nothing without rigorous testing and evidence. It’s a fine line between vision and hallucination.
Companies like FLO TV (under Qualcomm), and Better Place (a provider of battery switching stations for electric cars) both failed because of great plans full of assumptions and forecasts that never turned out to be true. Both companies started building expensive infrastructure and technology well before understanding if the assumptions around their value propositions and business models would work. Those were some pretty expensive failures, and they didn’t have to be. Better Place managed to raise and squander $850 million because the company assumed its plan would work.
Get started with: 10 Essential Links For Testing Your Value Proposition & Business Model
2. Explain that innovation isn’t expensive
There’s this myth that big company innovation has to be expensive, and we know that’s just not true. Innovation is really a series of calculated investments in a portfolio of experiments. Rather than placing all of your resources and budget into one big “wild ass gamble”, leaders should be encouraged to test many ideas cheaply, and gradually increase investment as more evidence is gathered.
So encourage executives to embrace very quick and cheap experimentation. This will allow teams to gather evidence and validate or invalidate assumptions. Scott Anthony from Innosight believes that companies can set up an inexpensive innovation engine in just 90-days. The process of agile and nimble testing will reduce risk because teams will be learning faster and iterating the idea based on the knowledge gathered. You’ll also go-to-market quicker with a better sense of what your customers really want.
Burn your business plan before it burns you.”
Co-founder of Strategyzer
The failure of a big and loved idea can be damaging to the reputation of the team, leadership, and organization. And rejecting that business plan early on in favour of testing and gathering evidence will help your company avoid disaster.
In fact, Alex has been known to encourage burning business plans before they burn you to really drive the point home. Sounds harsh, but we can guarantee that bringing in a business plan very early on with a new idea will hurt your chances of being successful.
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