Entrepreneurship and StartupsBusiness Models
Introduction
“Getting to Plan B” by John Mullins and Randy Komisar is a seminal work that challenges the notion of sticking rigidly to a single business plan (Plan A) and instead emphasizes the importance of iterative learning and adapting (Plan B) to achieve success. The book is structured around numerous case studies and practical examples that demonstrate how companies pivoted from their original plans to thrive. The authors argue that most successful businesses don’t succeed with their initial plan but through a process of trial, error, and adaptation.
Concept of Plan B
The authors start by introducing the concept of Plan B, a more flexible, evidence-based approach to business strategy that relies on learning and adapting rather than rigidly following an initial plan. They suggest that instead of dreaming up a perfect Plan A, entrepreneurs should expect to develop their business models through a thoughtful process of experimentation.
Action Step: When starting a business, outline a flexible approach that allows for changes based on market feedback and evidence.
Five Business Model Components
Mullins and Komisar identify five key components of any business model which require careful consideration and frequent reevaluation:
1. Revenue Model: How you earn money.
2. Gross Margin Model: How you handle costs relative to revenue.
3. Operating Model: Day-to-day operations and logistics.
4. Working Capital Model: Management of cash flow.
5. Investment Model: Requirements for and management of investments.
Action Step: Continuously review and iterate all five business model components based on real-world data and feedback.
Importance of Dashboards
The authors emphasize the use of dashboards as a strategic tool for managing and measuring the performance of these five model components. Dashboards provide a set of metrics that help to monitor whether the current plan is working or needs iteration.
Action Step: Develop a dashboard with key performance indicators (KPIs) tailored to monitor the critical components of your business model.
Case Studies and Examples
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PayPal: Initially, PayPal’s Plan A revolved around sending money between Palm Pilots. However, they pivoted to a web-based money transfer service after observing user behavior and opportunities in the e-commerce space. This pivot exemplified the necessity of adjusting the Revenue Model based on practical user engagement.
Action Step: Regularly gather and analyze user data to identify how customers are actually using your product or service, and be prepared to pivot to better serve their needs.
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Webvan: Initially focused on creating massive warehouses, Webvan failed due to high capital and operational costs. A more careful analysis might have revealed a flawed Operating and Investment Model. This case emphasizes the importance of testing assumptions on a smaller scale before committing heavily.
Action Step: Conduct small-scale pilot tests of your operating model before scaling up to avoid costly failures.
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Google AdWords: Google’s initial Plan A did not focus on advertising. AdWords was a Plan B that emerged when they noticed users reacting positively to relevant ad links. This pivot showed the importance of monetization adaptation.
Action Step: Be prepared to explore alternative revenue streams that align with user behavior and preferences.
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Toyota’s “lean” Production System: Toyota’s approach showcases the iterative improvement in Operating Model. They implemented the concept of continuous improvement (Kaizen) to eliminate waste and increase efficiency.
Action Step: Apply continuous improvement processes to your operations to enhance efficiency and reduce waste.
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Starbucks: Starbucks initially sold just coffee beans and equipment. Observing customer behavior, they pivoted to the café model that provided a place for customers to enjoy coffee made by Starbucks. This change highlighted the intersection of the Revenue Model and Gross Margin Model.
Action Step: Observe and analyze customer behavior for insights into how best to deliver your product or service.
Techniques for Hypothesis-Driven Business Development
Mullins and Komisar advocate for a hypothesis-driven approach to business planning, analogous to scientific experimentation. They promote the Build-Measure-Learn feedback loop to test assumptions systematically.
Action Step: Develop hypotheses about critical elements of your business model and design experiments to test these. Use the results to inform future decisions.
Learning from Analogies and Antilogies
Analogies are comparisons with businesses that have succeeded in similar markets or with similar products (positives), whereas antilogies are comparisons with businesses that have failed (negatives). By identifying these, entrepreneurs can draw insights to avoid failure and enhance their chances of success.
- Analogies Example: Starbucks drew positive analogies from successful Italian coffee bars.
- Antilogies Example: Webvan could have learned from the earlier failures of other online grocery stores.
Action Step: Study both successful and failed businesses in similar domains to inform your strategy and avoid common pitfalls.
Experimentation and Pivot
The concept of pivoting is pivotal in the book. Successful companies continuously adapt their strategies based on feedback obtained through experimentation and market testing.
Action Step: Establish a culture that embraces change and supports experimentation. Use real-world data to guide strategic pivots.
Role of Advisors and Mentorship
The authors stress the importance of having mentors, advisors, and a robust network. These relationships can provide critical guidance, additional perspective, and support in times of uncertainty.
Action Step: Actively seek advisors and mentors experienced in your industry to provide guidance and feedback on your business strategies.
Financial Management
Effective financial management, particularly in the Working Capital Model, is vital. The book highlights companies that mismanaged cash flow and suffered as a result. Proper financial planning and management of cash flows ensure operational stability and support the ability to pivot when needed.
Action Step: Implement stringent financial management practices, including periodic reviews of cash flow and working capital.
Conclusion
“Getting to Plan B” is a comprehensive guide urging entrepreneurs to adopt a flexible and evidence-based approach to business planning. By focusing on learning and adapting through iterative processes, using dashboards for performance monitoring, applying hypothesis-driven development, and learning from both successes and failures, business leaders can navigate challenges and pivot their strategies effectively to create more resilient and successful ventures.
Final Action Step: Embrace the journey from Plan A to Plan B as an essential part of entrepreneurial success, continuously learning and adapting based on concrete evidence and strategic insights.