Got an Idea for a Startup? – Time to Write the Business Plan, Right? Think again.
When many of us went to business school, we learned that the path to entrepreneurial success starts with a well-crafted business plan, a solid pro forma and a reasonable ability to execute that plan. Follow that formula and you were on the path to certain riches, we were taught. I can’t tell you how many entrepreneurs have followed this path that ultimately lead to a failed startup or two, myself included.
After attending a workshop presented by Alexander Osterwalder, the creator of the Business Model Canvas, I learned that the formula above was predicated on the false belief that startups are simply a smaller version of a large company. We now know this is simply not true. Existing firms start with known products and customers. Startups have neither of these. What they have is a set of hypotheses and assumptions about a business model that might lead to success. The key issue is accepting that a business model for a startup truly is a set of guesses. So, how do we organize these guesses in way that makes sense? It’s called the Business Model Canvas, developed by Osterwalder through the help of 470 practitioners around the world.
The Business Model Canvas is a tool that is currently considered a best practice in entrepreneurial circles and allows a startup to visually categorize its hypotheses into a series of 9 boxes forming a business model. It is organized in a very deliberate manner where the right side of the canvas centers on the customer and includes boxes for the value proposition, customer segments, distribution channels, customer relations and revenue streams. The right side focuses on the operational necessities such as key resources, key partners, key activities and related costs. Altogether, they form a neatly packaged set of hypotheses designed to be used in primary customer research. Accompanying the canvas are several tools that Osterwalder’s team at Strategyzer have developed to guide the process of testing your hypotheses with real customers. Used together, startups have a tremendous set of tools to validate their business model early in the process, saving great pain, headaches and likely money.
This tool is not meant to displace the business plan, which certainly has value at the appropriate time such as raising funds or documenting your strategy. BUT, without validating the model first, proving there are real customers who value and will purchase your product, the business plan is nothing more than a wonderful piece of creative writing. The canvas and related tools can help you bring evidence you plan. This is the best predictor of success.
For more information about the canvas, or to download it, visit www.strategyzer.com. Wade Steenhoek is an Entrepreneurship Lecturer with the University of Iowa and runs the Des Moines cohort of Venture School. He can be reached at [email protected] or 515 418-0365.
