Serial entrepreneur Steve Blank has an excellent post about the value of business models vs. business plans.
He points out the ultimate benefit of making a dynamic business model: being able test your assumptions before you waste time crafting a plan that might not actually work.
Blank compares two early-stage startups: one that had spent the last 3 months researching and writing up their business plan -- while the other spent their 3 months building and testing their business model.
The startup with the business plan was failing.
The one that had been testing their business model in the real-world was debating which seed round offer to go with.
How did that happen?
According to Blank, the key flaw in spending so much time researching and developing a business plan is that you risk discovering that your assumptions were wrong when you finally go out and test it. There's all your hard work, down the drain.
With a business model, however, you take your initial assumptions and immediately go out to get feedback. When you're ready, you can even make a mock-up and do some initial testing with customers. All the while, you keep modifying your model based on what you find.
One is static; the other is flexible.
This doesn't mean that you should throw your business plans out the window. Blank writes, "Putting together the financial model forces you to think about how to build a profitable business. But you just discovered that as smart as you and your team are, there were no facts inside your apartment. Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.
He points out the ultimate benefit of making a dynamic business model: being able test your assumptions before you waste time crafting a plan that might not actually work.
Blank compares two early-stage startups: one that had spent the last 3 months researching and writing up their business plan -- while the other spent their 3 months building and testing their business model.
The startup with the business plan was failing.
The one that had been testing their business model in the real-world was debating which seed round offer to go with.
How did that happen?
According to Blank, the key flaw in spending so much time researching and developing a business plan is that you risk discovering that your assumptions were wrong when you finally go out and test it. There's all your hard work, down the drain.
With a business model, however, you take your initial assumptions and immediately go out to get feedback. When you're ready, you can even make a mock-up and do some initial testing with customers. All the while, you keep modifying your model based on what you find.
One is static; the other is flexible.
This doesn't mean that you should throw your business plans out the window. Blank writes, "Putting together the financial model forces you to think about how to build a profitable business. But you just discovered that as smart as you and your team are, there were no facts inside your apartment. Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.
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