As many of you know, business plans have been my "pet enemy" for a long time. Just two days ago, I told an audience that business plans were the death penalty for innovation. Many years ago, I even burned a business plan live on stage in Brazil 🔥 (they only let me do it with a fire marshal standing by). However, today, I'm officially refining my take on the topic.

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Innovation and entrepreneurship are a search challenge, not an execution challenge

Traditionally, the business plan is a 20+ page document with a spreadsheet attached. The document outlines your idea and how you intend to implement it. The spreadsheet outlines your financial projections over several years.

In the context of innovation and entrepreneurship, the lengthy document and colour-coded spreadsheet is total nonsense. Innovation and entrepreneurship are a search challenge, not an implementation challenge.

When uncertainty is high, you're better off admitting that you don't know if your idea is going to work. Your job is to shape, test, and adapt all aspects of your business idea until it's likely to work at scale. The task isn’t to blindly implement what appears to be a great-looking idea outlined in a business plan. The task is to search for:

1. A value proposition that customers care about
2. A profitable and scalable business model

My friend, and inventor of modern entrepreneurship, Steve Blank, likes to muse that "there's a fine line between vision and hallucination", and that "business plans should be taught in the creative writing department". I fully agree. That's exactly why it makes so much sense to combine Steve's Customer Development process, Strategyzer's Business Model and Value Proposition Canvas and Eric Ries's Lean Startup.

Unfortunately, I've observed many people using this as a blank cheque to go ahead and build so-called Minimum Viable Products without a lot of business thinking. This is just as much a waste of money as investing in business plans.

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Business plans should be taught in the creative writing department.”

Steve Blank

Author, entrepreneur, speaker and professor

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The problem with traditional business plans

There are three reasons why traditional business plans are dangerous in the context of innovation and entrepreneurship:

1. We make an idea look awesome and describe its implementation as if we know it is going to work
2. We invest in fantasy numbers as if it were possible to project them over several years for an unproven idea.
3. We don't accept that in the uncertain context of innovation and entrepreneurship, unproven ideas are likely to change more or less radically until they (might) work.

The consequence of the above is that we focus on what might look like a "good idea" and then invest in its execution. Of course we now know that the initial idea often changes more or less radically. Youtube started as a dating site. Nespresso as a business-to-business concept. Nespresso almost got killed by their owner, Nestlé, because they didn't make the business plan. Both had to radically change in order to succeed. Both are now multi-billion dollar businesses that have nothing to do with the original business plan. That's just two examples of many.

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From static business plan to Minimum Viable Business Plan (MVBP)

Here's a better approach. Start with a Minimum Viable Business Plan that you continue to iterate and refine based on the evidence you gather in the market. Here's a sketch of the process that fully builds on what Strategyzer and Steve Blank already preach:

1. Rough out a Minimum Viable Business Plan (MVBP) in a couple of hours (1 day max):

This includes a Business Model Canvas, Value Proposition Canvases, a back of the napkin calculation or spreadsheet of your revenues, and the key hypotheses you intend to test. You fully admit that everything in this MVBP is likely to change.

2. Test and adapt until customers care about your value proposition(s) and refine your MVBP accordingly:

Your MVBP is no longer pure fantasy since you have evidence for customer jobs, pains, and gains (or "problem") and your value proposition (or "solution"). You can now proceed to some evidence-based market sizing. Ideally you also have first evidence for willingness to pay at this stage. You're starting to gather evidence to back up your fantasy spreadsheet.

3. Test and adapt customer acquisition, retention, and pricing and refine your MVPB accordingly:

‍Your goal here is to support your fantasy spreadsheet with real evidence. Equipped with this evidence you can proceed to a more fine-grained modelling of your revenues and ideally costs and profitability.

4. Turn your MVBP into an execution-oriented business plan:

‍Equipped with sufficient evidence for all aspects of your business model you can proceed to scaling. This is the point at which a more traditional business plan could make sense.

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I realized how important it is to sketch out a full business model and rough numbers at the beginning of the innovation and entrepreneurship journey many years ago. First evidence for this came from Dr. Henning Trill when Strategyzer collaborated with him to build up Bayer's Catalyst (Innovation) Fund. He explained to me how much he valued our approach of focusing on business from the get-go rather than just focusing on product. The key is to keep it rough rather than getting stuck in analysis paralysis.

The Minimum Viable Business Plan approach is simply a refinement of the documentation of what I already explained in my post on the phases of the innovation/entrepreneurship journey. It does of course require corporate leaders and investors to see the first sketch as pure fantasy. They need to push teams to provide increasing evidence for each phase of the journey.

Strategyzer is here to help you with tools and insights to not just deal with these challenges but turn them into opportunities for innovation success. We support this process entirely with our Guided programs on the Strategyzer Platform. Accessible to corporations of any size, our sprints and programs include interactive workflows, videos, pre-structured workspaces, and much more.

_{This article has been edited from the original published on Alex's Linkedin.}