Why Business Plans Are Stupid (And What to Do Instead)

Business plans are stupid. They take a long time to write, make a ton of assumptions, and quickly when you start your business you find out that many of your assumptions were incorrect.

So to combat the bloat that is the business plan, various condensed business plans have been proposed. The one that I like the most is the lean canvas - a one-page business plan which focuses on problems, customers, and solutions.

It’s an adaptation of Ash Maurya’s Business Model Canvas, which includes these key sections:

Problem
Solution
Unique value proposition
Customer segments
Unfair advantage
Key metrics
Channels
Cost structure
Revenue streams

My Unique Approach to the Lean Canvas

I fill mine out with a different methodology than what’s typically recommended.

I start off with a general idea of what the business is, then I identify 3 customer segments that I could target. The criteria I use to evaluate which customer segment should be prioritized:

Is it growing?
Does it typically solve problems with money? (IE they’ve got cash to spend)

Once I’ve identified three potential customer segments, I create sticky notes and place them in the customer segment section. These sticky notes should be different colors.

I then go through and fill out each section specific to a given customer segment with the corresponding sticky note color. For example, if I choose SaaS companies and use a yellow sticky note, then when I go to the problem section, I’ll use a yellow sticky note stating what the problem is specifically for the SaaS customer segment.

Why This Method Works

I’ll go over each section in more detail, but for now, I’m going to end up with a lot of sticky notes. The reason I do this is because I want to understand each component from a given customer’s viewpoint. What would be valuable to them? What problems do they face?

By doing it essentially three times, I can identify new or novel ways that might be applicable to the other segments as well.

Start With the Easiest Channel

When I finish with the sticky notes, I look at the channels for each customer segment, and whichever channel is the easiest - that’s the one I’m going to start with.

Why? Because reaching your target market is frequently the most difficult part of your business to figure out. Once you’ve got your target market’s ear, changing anything else in your business model is relatively easy. They’re going to tell you what they need.

However, if you’re unable to reach your target market, you’re SOL. So start with whatever customer segment is easiest to reach.

Breaking Down Each Lean Canvas Section

Now let’s go through each section and what you should put on your sticky notes:

Problem

What are the top problems your product or service aims to solve?
How are these problems currently being addressed by customers?
What are the key shortcomings of existing solutions?

Solution

What are the top three features of your product/service that address the identified problems?
How do these features provide value and solve customer problems?
What benefits will customers experience from using your solution?

Unique Value Proposition

What is your specific, marketable promise to the customer?
What unique benefits does your product/service offer that differentiates it from competitors?
Why should customers choose your product over others?

Unfair Advantage

What unique resources do you have access to that will increase success chances?
What advantage do you have that cannot be easily replicated?
How will this advantage help maintain a competitive edge?

Key Metrics

What are the most critical metrics indicating business success?
How will you measure customer satisfaction and engagement?
What metrics will help track growth, performance, and overall business health?

Customer Segments

Who are the specific groups of people or organizations your business aims to serve?
What are the defining characteristics of each segment?
Which segments are most likely to pay for your solution?

Channels

Through which channels do your customer segments prefer to be reached?
How are you currently reaching customers?
Which channels are most effective and cost-efficient for acquisition and retention?

Cost Structure

What are the most significant costs associated with your business model?
Which key resources and activities are the most expensive?
How can you optimize your cost structure to improve profitability?

Revenue Streams

What value are customers willing to pay for?
How do customers currently pay for similar solutions and what are they paying?
What pricing strategies will you implement?
How much revenue do you expect from each customer segment?

Fat Profit Margins Are Non-Negotiable

Once I’ve filled out all sections and chosen the easiest channel to access, I start breaking out the unit economics.

I never want anything less than 70% profit margins. You need fat profit margins to grow. The biggest mistake new businesses make (besides not locking in acquisition channels) is not having a large enough profit margin to outsource the work.

When I say outsource, I don’t mean just to a freelancer - I mean possibly outsourcing to a freelancer OR hiring someone when you have enough consistent work.

Validate Your Assumptions Fast

Now that you know your unit economics, it’s time to start validating assumptions, beginning with your channels. Develop a methodology to test your channel effectiveness.

The goal: reach 30 of your target customers and set up meetings.

Once you have meetings set up, use them to validate all your sticky notes. Don’t lead your interviewee to give answers you want to hear. Instead, follow the Mom Test advice and ask open-ended questions.

The Perfect Interview Script

Start your interview like this:

“I’ve been thinking about starting a business that helps {target audience} with {their problem}. I haven’t gotten very far, and I just want to figure out how people are dealing with this problem already. So how are you dealing with {specific problem}?”

Then simply wait and listen. Are they showing signs of pain? We want them to immediately get excited because they’re so frustrated with how bad this problem is. If they aren’t showing pain, you probably don’t have a business around solving it.

If they confirm it’s painful, find out how they’re currently solving it. Does it match your assumptions? Is their current method actually better than your proposed solution?

Only after they’ve shared the problem and their current solution should you ask about your proposed solution. If they like it, ask right away if they would pay your specified price to solve this problem immediately. If they hesitate, note they were interested but unwilling to purchase.

Iterate Quickly

You can change your solution - don’t get locked in. Bounce ideas off them to find what resonates and why. In your next interview, test the revised solution. If it doesn’t resonate, fall back to the original.

Keep track of what solutions work. Maybe there’s room for two different products depending on customer needs.

You need to do this 30 times. If nobody is willing to pay out of 30 people, switch business ideas or customer segments. If only one person will pay, switch segments and interview 30 new people.

If more than one person out of 30 is willing to pay for your not-yet-existing product, you have a viable business. Get to work!

Timeline to Validation

How long does this take? I think a good goal is minimum two interviews per day. At this pace, it takes no more than three weeks.

You may want to hire a freelancer to help deliver the first iteration. If you do, make sure they document every step to produce the solution. This allows you to systematize the process and eventually bring it in-house.

Scaling Your Validated Business

Your goal is to automate customer acquisition and fulfillment using employees and AI. Hire in this order:

Executive assistant - helps manage email, appointments, and daily tasks
Fulfillment specialist - oversees delivery of your product/service
Appointment setter - arranges sales meetings
Marketer - manages your specified channels
Sales person - replaces you as the deal maker

Each position can grow into small teams. Typically that means a fulfillment director with a small team, and sales director with small sales and marketing teams. Remember to keep your profit margins high. If you grow beyond 12 people, you’ll likely need to bring in an executive team to start managing the business.

Final Thoughts

This is easier said than done. Setting up 30 appointments is daunting, but it’s essential to validating your business idea.

If you can get just two people out of 30 to hand over their credit card, you’ve got a great chance of success - as long as you can fulfill what you’ve promised.