- July 2, 2017
- Posted by: pblafrica
- Category: Blog
It is the norm for any business advisor speaking to newbies starting on the journey of entrepreneurship, to suggest that they start their business by doing a business plan. In fact, for many financial institutions, this is a core requirement for financing. But then, do business plans really work?
We have to accept that natural law of success: failing to plan is automatically the recipe to fail. Hence, failing to plan is planning to fail, so goes the adage. It therefore goes that planning in itself is a critical component in starting out as a business. It just cannot be wished away. Studies done to evaluate the relationship of business planning and success rate of the same give a direct correlation between the success of business and planning. This has been the theory that has been peddled all along by conservative business trainers, coaches and tutors.
But doing a business plan in itself is tedious. It requires input of many hours and abstract thinking, of where the entrepreneur needs to see his business in the foreseeable future. in actual sense, for one to do a practically applicable business plan, it would require technical expertise and this is not only discouraging, but expensive in the course of time. Its implementation too is another issue altogether. Business plans are rigid and structured that are almost always not flexible to the constantly changing conditions on the ground. This in effect implies that the conditions at the time of formulation of the entire plan are not guaranteed to be similar at the time of implementation.
Business markets change almost on an hourly basis and hence, relying on a plan drawn up in the past for the present situation would almost always result into failure. Hence a fluid, more adaptable system of business planning especially for startups is needed. Its implementation is even hampered by its cumbersomeness. No plan is less than a page and hence it requires that one has to ruffle through the numerous sheets of paper to get a point.
Faced with these challenges, Alexander Oxerwalder developed a simpler, fluid and highly adaptable business planning tool, which he aptly named the business model canvas. The model was planar and hence visualization of the business was simpler and less tasking as opposed to the conventional business plan.
The model has nine critical components: value proposition, key activities, channels, customer segments, customer relationships, revenue streams, key resources, key partnerships and cost structures. It defines clearly and in a diagrammatic, planar form, how a business is going to create value for its target clients, what activities it will involve itself in in achieving this, how it will deliver this value and through which means, what strategic partners it would create linkages with, cost factors associated with its activities for maximum revenues, in a simple structure.
It is aptly called a model because it is fashioned to adapt to the conditions on the ground. Hence, if the cost factors change, or the taste and preferences of the target market niche change, the model is adjusted to ensure that the maximum returns are obtained at the tail end. It therefore ensures the concerns of the business stakeholders are taken care of at all times.
The Business Model Canvas (Picture: Courtesy)
On the contrary, a business plan cannot adapt to conditions on the ground. Therefore, any shift destabilizes the entire plan and hence, it is considered rigid. The business model canvas is based on experiential operationalization and hence, concepts and theories are tested before full implementation. Ideas are tested using the model. For the plan, this is not possible. The input to output process flow is fixated on the process major, with the theorized output quality and quantity realized at the terminal end of the entire process chain. The thought process is also exclusively applied on paper rather than testing on the ground.
The business model canvas also is more result oriented with a special emphasis on the how to component of achieving results and returns to the shareholder. The business plan is deficient on this. It only dwells on the final result or outcomes rather on the techniques and strategies to attain that. On another front, the business model canvas is more visual. As said before, it is planar as opposed to the business plan which is voluminous and made of several pages. It is more of hypothesis and theory than being practical. Hence, it is nearly impossible to visualize the business from the initial stage of idea conceptualization, through to implementation and finally, delivery of the final product to the desired market. The business plan therefore falls short in representing the business as a vision which the business model perfectly does.
Startups in their humble beginnings require fluid and agile tools that would perfectly fit into the business system and enable the outfit adopt to the ever changing business external environment. A business plan would not be able. It is a known fact most who draw up business plans eventually discard them since their implementation is near improbable. If you are currently operating a young enterprise, or in the threshold of starting one, it is time you change with the times and draw up a business model canvas. That is assured to work out fine!
The writer is an acclaimed business author of Passionpreneurship Demystified and Business Networking: How To maximize on your contacts for Business and Professional Growth. He is also a Personal Branding and Business Coach with PBL Africa. In case you need assistance to give your business or professional a jump-start, he can be reached via the following contacts:
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