Not every entrepreneur needs to start their venture with an in-depth business plan. Simple business concepts or those that require no funding can get by with a more pared down proposal. Tim Berry, Founder of Palo Alto Software, lean business plan expert, and author of a free online book about the topic talked to us about how entrepreneurs can use these streamlined plans.
Small Business Centre: What is a lean business plan?
Berry: A lean plan is a business plan for internal use only. It’s not an elaborate business plan or document, but instead a collection of bullet points, lists, and tables. As I said in a recent post, it’s what’s going to happen and when; who’s responsible for what; and what’s expected for sales, expenses, and cash.
When is it appropriate to use a lean business plan?
Berry: All businesses should use the lean plan methodology, and a traditional plan becomes useful only in special case business events such as applying for a bank loan or seeking outside investment. In those instances, entrepreneurs can use the lean plan as a great first draft, and then add summaries, market analysis, more explanations, and a lot of background information to make it into a traditional plan.
What is the current thinking about lean plans?
Berry: As time goes on, more of the traditional business plan occasions are satisfied by a lean plan. The trend in business plans is towards smaller, more summarised plans, such as lean plans. And angel investors are likely to be happy with a combination of a lean or just slightly bigger than a lean business plan combined with a pitch presentation, summary memo, and executive summary.
What are the components of a lean business plan?
Berry: It includes four parts, the first of which is strategy. In this section you will strategically focus on specific target markets and specific business offerings, like your products and services, in order to match what the target needs and wants. You’ll also outline your business identity based on strengths, likes, core competence, and ultimate goals. Remember, these should be just a few bullet points, not a long, difficult text. They are reminders for the owner and management team.
Next, you’ll need to set your key tactics. Tactics are the guts of the marketing, product, financial, and management team plans. Remember to reduce them to bullet points for internal use only when setting tactics for pricing, channels, social media and other marketing, product launches, service upgrades, and recruitment.
The next step is to write down your concrete specifics. This includes key assumptions, important milestones, task responsibilities, and performance expectations in objective numbers like sales, units, deliveries, presentations, lead generation, proposals, calls, and other measurable objectives.
Finally, you’ll need to address your essential business numbers. Include your sales forecast, spending budget, and cash flow. Focus on drivers and connecting interdependencies because the benefit is in the tracking and planning verses the actual management as an ongoing process.
As someone who is part of an angel investment group, what makes some lean business plans stand out and grab your attention?
Berry: I’ve been an active member of our local angel investment group since it started, and we have never invested, and probably never will, in a startup without a plan. We rule out companies based on summary information only, and then we study companies based on the pitch, summary, and business plan. We only do due diligence, which is a detailed analysis of the business plan, on startups we like.
What we look for in a business is a good product-market fit, good potential growth, scalability — which is the ability to grow volume without proportional growth in headcount and fixed costs — defensibility, a management team with startup experience, and the likelihood of them wanting an exit or liquidity event in 3 to 5 years.
If you could only tell readers one thing about creating a lean business plan, what would it be?
Berry: Make sure you review and revise the plan regularly. Real business planning is about management, not show, and the management comes when you track your progress against the plan. Take note of what wasn’t expected, and make decisions to improve things based on the differences between the plan and the actual results.
For more small business advice and tips, make sure you visit the “Business Planning” section on the Small Business Centre.