In Praise of the Lean Business Plan

Confession: I wish I’d come up with the term lean startup. I love the term and, for that matter, the idea behind it. Credit for that goes to Eric Ries, author of the book The Lean Startup, and Steve Blank, blogger, entrepreneur, and sometimes professor (at Stanford and Berkeley both, no less, which I guess is also a feat) who’s adapted it and popularized it along with Eric.  If you’re curious, here is the Wikipedia definition:

“The Lean Startup … relies on validated learning, scientific experimentation, and iterative product releases to shorten product development cycles, measure progress, and gain valuable customer feedback. In this way, companies, especially startups, can design their products or services to meet the demands of their customer base without requiring large amounts of initial funding or expensive product launches.”

I also wish I’d named my last book The Lean Business Plan instead of The Plan-As-You-Go Business Plan. Jerry Calmes, then the publisher at Entrepreneur Press, and his marketing team and my marketing team at Palo Alto Software and I spent weeks trying to find a title that described my revised sense of business planning, which is very much in tune with the ideas behind the lean startup: keep it small, expect it to change, review and revise often, use it to steer and manage your business. Plan-as-you-go was the best we could come up with. We would have loved the lean business plan if it had occurred to us.

The sense of flexibility, rapid change and iteration in the lean startup makes perfect sense with business planning too. Both startups and business plans need to reflect the rapid change in business landscape as technology advances.

Regardless of the name or label, business planning has in fact changed in recent years. It has become leaner and more agile. The long-winded formal business plan is obsolete. Nobody should postpone business in the name of developing a business plan. No business plan should be long-winded or formal. And any realistic useful business plan is obsolete in a few weeks.

As military leader and former president Dwight Eisenhower once said: “The plan is useless. But planning is essential.”

Here are some tips for adopting lean business planning (even if I call it plan-as-you go) for your business. And this is for your business, regardless of whether or not you need a plan document to take to a bank or show potential investors. This is for running your business better:

1. The first and most essential component of the plan is the review schedule. Set up a set day of the month for taking an hour or two and reviewing the plan, looking at actual results and comparing them to the plan, and revising as necessary.

2. Always list assumptions. The best way to tell whether you need to change a plan or stick to a plan is to look at whether assumptions have changed. In today’s world, the assumptions change quickly. When assumptions change, the plan has to change.

3. Keep it short, simple and just big enough. It’s not a text. It’s a loosely related collection of modules. Use bullets and don’t sweat the style, format or editing. It can live on your computer in different files for different components. Spreadsheets are great for financial projections, bullet points for strategy and focus, and lists for tasks and responsibilities and metrics and milestones.

4. Keep it focused on its business purpose. For most of us, it’s about managing better, as in breaking long-term goals into meaningful steps and defining metrics and tracking results. In some special cases, it’s for communicating with outsiders. If it’s not a document for bankers or investors, don’t waste time making it pretty. Don’t waste time writing out what everybody in the company already knows.

5. Always include milestones. Those are specific lists of what is supposed to happen and when, how much it costs or brings in, and who is responsible for it.

6. Always include basic numbers. Cash flow is the life-blood of the business and you can’t afford not to plan and manage for cash. In practice, it takes projected sales, costs, expenses, assets, liabilities and capital to predict cash.

And that’s what you can call a lean business plan. Don’t ever expect to finish it, because when the plan’s finished, your business is finished.  And don’t expect it to be right, because management isn’t about guessing right, but rather knowing how and in what direction you guessed wrong and how to correct. 

About the Author

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, doing social media business planning at smbplans.com, and blogging at timberry.bplans.com. Stanford MBA. Married 42 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.