The importance of discovering your plan B
By John W. Mullins and Randy Komisar
If the founders of Google, Starbucks, or PayPal had stuck to their original business plans, we'd likely never have heard of them. Instead, they made radical changes to their initial models, became household names, and delivered huge returns for their founders and investors. How did they get from their Plan A to a business model that worked? Why did they succeed when most new ventures crash and burn?
Every aspiring entrepreneur, whether they desire to start a new company or create something new within an existing company, has a Plan A — and virtually all of these individuals believe that their Plan A will work. They can probably even imagine how they'll look on the cover of Fortune or Inc. magazine. Unfortunately, they are usually wrong. But what separates the ultimate successes from the rest is what they do when their first plan fails to catch on. Do they lick their wounds, get back on their feet, and morph their newly found insights into great businesses or do they doggedly stick to their original plan?
Let's face an uncomfortable fact: the typical startup process, largely driven by poorly conceived business plans based on untested assumptions, is seriously flawed. Most new ventures, even those with venture capital backing, share one common characteristic. They fail. But there is a better way to launch new ideas — without wasting years of your time and loads of investors’ money. This better way is about discovering a business model that really works: a Plan B, like those of Google and Starbucks, which grows out of the original idea, builds on it, and once it's in place, enables the business to grow rapidly and prosper.
Most of the time, breaking through to a better business model takes time. And it takes error, too — error from which you learn. For Max Levchin, who wanted to build a business based on his cryptography expertise, Plans A through F didn’t work, but Plan G turned out to be the ubiquitous PayPal we know today.
Getting to Plan B in Your Business
How can you break through to a business model that will work for your business? First, you’ll need an idea to pursue. The best ideas resolve somebody's pain, some customer problem you've identified for which you have a solution that might work. Alternatively, some good ideas take something in customers' lives that's pretty boring and create something so superior it provides true customer delight, as was the case for the Walkman and the iPod.
Next, you'll need to identify some analogs, portions of which you can borrow or adapt to help you understand the economics and various other facets of your proposed business and its business model. And you'll need antilogs, too. As we have seen from the Apple story, analogs and antilogs don’t have to only be from your own industry, though. Sometimes the most valuable insights come from rather unusual sources.
Having identified both analogs and antilogs, you can quickly reach conclusions about some things that are, with at least a modicum of certainty, known about your venture. But it is not what you know that will likely scupper your Plan A, of course. It's what you don't know. The questions you cannot answer from historical precedent lead to your leaps of faith — beliefs you hold about the answers to your questions despite having no real evidence that these beliefs are actually true.
To address your leaps of faith, you'll have to leap! Identify your key leaps of faith and then test your hypothesis. That may mean opening a smaller shop than you aspire to operate, just to see how customers respond. It may mean trying different prices for your newly developed gadget to see which price makes sales pop. By identifying your leaps of faith early and devising ways to test hypotheses that will prove or refute them, you are in a position to learn whether or not your Plan A will work before you waste too much time and money.
The European Business Review Available at: http://www.europeanbusinessreview.com/?p=1608 - retrieved on July 4th, 2010.
Mulins and Komisar, in paragraph 3, state that the typical business startup process is usually unsuccessful because it
a) does not invest rich sums or waste years on precise planning to design an elaborate business model.
b) shares common characteristics with traditional businesses that have survived crises.
c) expects the business to grow rapidly and prosper faster than all other companies in the market.
d) rejects venture capital funding and does not expect immediate returns.
e) is based on inadequately designed business plans and on market hypothesis that are not previously tested.