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Business Plan vs. Lean Start-up vs. Business Model Canvas: What's right for you?

Should you create a business model canvas or should you validate your startup using the lean startup approach?

December 13, 2020

Business Plan vs. Lean Start-up vs. Business Model Canvas: What's right for you?

Establishing a start-up is no easy feat, and every start-up requires a lot of groundwork and careful research.

You might have come across the terms business plan, lean start-up methodology, and the business model canvas. While they are interlinked in certain aspects, there is a thin line between the three.

If you're unclear about what they are or which you should employ, this article is for you.

Interestingly, in the long run, you'll probably need at least one of those and cannot do without using any - and we will tell you why.

Business Plan

A business plan is a document that was traditionally used to summarize multiple aspects of the business, services, and products. It includes financial projections, staffing, operations, and more.

When you pitch your business to investors, many modern investors won't care to see a proper business plan document. Still, you should expect they would ask you about every component of such a document. It's how you get to analyze and strategize with your team about the vision of your company. So, while you might not need a "business plan document" in hand while pitching to investors, be ready with all of the business plan components either in a different format or different level of granularity. For example, when discussing go-to-market, you might not have a complete summary of all the possible channels you can use to sell your products but instead have a single slide detailing the channels you'll employ in the next 24 months.

Pros

  • Failing to plan is planning to fail
    If you don't spend time planning all the intricacies needed in growing your business, how well do you think you will do when dealing with them?
  • It helps in clearing your vision
    Putting your vision on paper forces you to outline it. It will help in understanding your business better as well as help in your communication with others. If you fail in communicating the business idea to an engaged investor, how well will you do communicate it to a passer-by on a billboard
  • Summary of many details in one location
    You might have a separate financial plan and a separate marketing plan, but having a single document you can send and communicate multiple aspects of the business is a huge advantage.
  • Exhibit you are serious about this business
    Since a business plan is a comprehensive report, it lets the investors know that you're serious about the company and that you've spent the time to think things through, or at least that you are serious enough to create a business plan for it.

Cons

  • Writing it down doesn't make it right.
    A business plan is an outline of your thoughts about the business with estimated projections. It doesn't mean your company will necessarily go through the described path or that it will hit all the projected numbers.
  • Are you spending extra time analyzing?
    Sure, you do need to research thoroughly, but spending more time on research and exploring might be a fruitless activity. Moreover, it might reflect poorly on you as an entrepreneur. On the one hand, you'll position yourself as process-oriented and detailed, but the flip side is that you might be perceived as rigid and merely lacking a "just do it" mentality.
  • It doesn't have any accountability
    "Everybody has a plan until they get punched in the mouth." Mike Tyson
    What is true about boxing is true about business. It doesn't matter how well you plan. Eventually, you'll need to face reality, and reality will have different ways to surprise you, from projected numbers being off by multiple scales to a new replacement product that makes your offer obsolete. The fact it was documented in a business plan does not help one bit.
  • Nobody reads business plans
    Nobody. Including professional investors. The document's nature makes it indigestible and ineffective for your communication with the different stakeholders. Moreover, each target person might have a specific focus: marketing, finance, or other. While the business plan may include the information relevant for that person, the fact that it is "wrapped" in a lot of boilerplate text make it inferior to a "marketing plan" document

Lean Start-up

The lean start-up is a methodology that focuses on constructing testable hypotheses facilitating viable products. This methodology enables entrepreneurs to answer questions on their business as they go along.

The methodology is described as a scientific approach to creating a start-up and delivering products to customers faster. It reduces risk due to the iterative process and determines if the business model is workable or not. The methodology emphasizes customer orientation, and the lean model ensures capital efficiency, which is required at the start-up stage. By "learning as you go," the company gets a better understanding of its customers and their needs compared with running just on assumptions without testing them.

Pros

  • Decisions are made based on data and facts.
    Only after the hypothesis is tested through research and experimentation, you go forward with your plan.
  • Better customer feedback and stakeholders
    Remember, you will be interacting with customers in real-time. It is an iterative model, and with constant feedback from customers and adaption of the same, the risk reduces before the actual product is released.
  • Smaller development cycle
    As it is an iterative process, you will set a hypothesis and develop the product to test them. It means that creating huge products with no customer feedback is merely unfeasible, and the development of untested assumptions is limited.
  • Increased flexibility
    Before the lean methodology, entrepreneurs would develop full-blown products and companies based on assumptions. If the hypothesis was wrong, the start-up had little ability to shift it due to a lot of sunk cost and framework built into the wrong product. The lean methodology forces flexibility simply since many experiments will fail – which is a good thing! Better fail in an

Cons

  • The product is never "complete."
    It is tough to anticipate what the "final" product will look like as it is the outcome of the team's experiments. That makes all product release milestones artificial ones.
  • Hard to create a solid architecture.
    Since the product is progressing based on a feedback iteration loop, supportive infrastructure development is delayed, sometimes to a point, it is too late. For example, in many cases, you have to "pay upfront" to achieve scalability, but it is complicated to hypothesize and test it.
  • Unrealistic expectations
    In many cases, entrepreneurs get so bogged down in designing experiments to reduce risks, they are blind to the fact that the most significant threat is lack of money and time, and sometimes, you must "just do it" to progress.

Business Canvas Model

The Business Canvas Model is a visual tool created to allow entrepreneurs to capture and communicate a holistic description of their start-up. The Business Model Canvas maps and outlines key features, the product design, and your value proposition. Once completed, it tells you the exact vital points you need to address when building your company. You can describe, design, challenge, invent, and pivot your start-up based on the business model canvas.

The model provides a complete picture of the business that can later be used to test and search using the lean start-up methodology. The tool is a valuable tool for planning, and it needs to be revisited after every substantial experiment in the early days of the company.

Pros

  • Visual representation makes it easy to communicate
    In many senses, the business model canvas is a complete business plan on one page. It is not as detailed and is at a much higher level, but the business model canvas captures the start-up's core activities and challenges.
  • Organized information focuses on core activities
    Since the tools are graphical, it is easy to focus on a specific area, such as customers or channels. This also describes and tests whether the different core activities are streamlined and synergetic or if more scrutiny is needed.
  • It is a qualitative approach
    The business model canvas is designed and written for everyone making it easy to identify possible risks and ensure failure prevention. The focus is on value proposition and the relationship between the various business activities.

Cons

  • The business Canvas Model is not a strategy.
    Once you have a business plan, it is easy to represent it on the model. For any pictorial representation, data and facts are essential.
  • You always tend to narrow it down
    That means that you miss out on a broader view of the economy, environment, and society and missed available components.
  • The market is somewhat ignored.
    It is only about the company's overview, and it does not consider the competitive arena or more significant market/technology trends
  • Not supported by facts
    The business model is created with many assumptions, but one must not take them as facts, and these assumptions must be tested.

Putting the theory into action

Now that we've understood what each term means and how they work, it is time to see how to put them together. Many entrepreneurs take one approach and stick to it, but we would recommend that, first and foremost, you do some experiments and see what works best for you. Search for examples of business plans and business model canvas and read through them. Try to see what makes sense and what is redundant. Once you have a good "feel" on how these two documents can describe a business, we recommend you do the following:

Step 1

create a business model canvas as soon as possible

You should limit this effort to 1 day. Once it is done (and it won't be perfect), mark the parts you feel your assumptions are solid and the parts where you are not sure.

For each item – write a short description of how you'd test your assumption.

e.g., if you assume you can sell your software guided tours via the OTAs, it is worth testing whether:

Do the OTA's sell/push any guided tours today?

If not – why not? No need? Not willing to partner?

If yes, are those 3rd party tours? Are the same tours sold across multiple OTA's?

Step 2

Use the lean start-up mythology to test and answer your questions. Many people think of the lean start-up to build a product, and they are focused on the features. It is a methodology to develop every function of the company. Are your paid ads more efficient using LinkedIn or Tik-Tok? Of course, you can't test every wild assumption, which is why start-ups require a bit of art and a lot of luck. You might step on many "misses," not due to a fault on your end. You didn't find an experiment that validates your assumption.

Step 3

Once an assumption is somewhat validated, spend the time researching and building a document around your research. Having all those documented bounded will create a proper business plan, but unlike the business plan document, this will be a live process that is continuously tested and updated. You will never be DONE writing it, but rather, you'll continually update and change it as you go along.

Concluding Thoughts

Building a successful company takes careful planning, in-depth research, understanding of the market, customer needs, and luck. Everybody knows it. But it does not mean you should try to take shortcuts around planning and building fail-safes into your company. Instead, you should fully employ these tools to build confidence both in your start-up and yourself.

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