Business planning vs lean startup for business success. Which one is more effective or do both lead to business success?
This article examines questions about both the traditional business planning and the lean startup methods and business success.
Business planning vs lean startup for business success – definitions
What is business planning?
Business planning is made up of a variety of activities which entrepreneurs may utilize as a whole, or simply choose as part of the business planning process. Typically, people view business planning as the single act of writing a business plan.
However, its specific activities are not mutually exclusive with lean startup activities. The constituent parts of business planning may be executed as a whole, or may be chosen separately.
What is lean startup?
The phrase “Lean Startup” stems from the popular press book by Eric Ries in which he drew primarily on his (Ries’) personal experience in founding a company along with some consulting work.
Further development of the ideas around lean startup methods comes from Steve Blank who defines three principles of lean startup as: hypothesis creation, customer development, and agile development.
Lean startup borrows from the idea of lean manufacturing in the sense of eliminating waste and pushing production and supply as late in the process as possible to delay purchasing until the last moment.
Hypothesis creation represents the belief that founders begin with little more than untested hypotheses.
Customer development represents the approach of interviewing and interacting with customers in order to verify or discard the hypotheses.
Agile development conceptualizes that minimally viable products (MVPs) are deployed quickly to verify the hypotheses that are believed to be true. These concepts are often practiced by entrepreneurs and taught at incubators and
accelerators but there is little academic research to support these practices.
Business planning vs lean startup – effectiveness
What three aspects must be considered in terms of business planning effectiveness?
The effectiveness of business planning is considered on the basis of three factors namely: uncertainty, limited prior information, and the lack of business planning structures.
The presence of these three suggest that business planning may be less effective.
How does uncertainty affect the effectiveness of business planning?
In terms of uncertainty, although an unstable and uncertain environment would benefit most from planning because planning can reduce uncertainty through facilitating faster decision-making.
However, emergent strategies seem to be more effective at controlling uncertainty. Therefore, suggesting that uncertainty makes planning efforts less effective. However, planning is a more appropriate strategy for risky environments – depending on the extent to which an entrepreneur is accurate when predicting the future.
How does limited prior information affect the effectiveness of business planning?
Startups and new small businesses tend to lack limited prior information necessary to make effective plans. As such, when they pursue novel strategies, planning seems to be less effective or abandoned all together after they have been made, and as they move forward. This is often due to insufficient support structures. For plans to be effective, businesses need to have structures in place – both to plan and make use of those plans.
Although such organisations can create history quickly because it takes shorter time to send and receive feedback.
In addition, planning itself serves to motivate these fledgling organizations.
How does lack of business planning structures affect the effectiveness of business planning?
Business planning structures must be in place for plans to be effective. Structures must be in place to both plan and make use of those plans. However, new businesses tend to lack the organizational structures relevant to create and use plans. This makes new business enterprises ignore or abandon plans after they have been made. Often due to insufficient support structures.
Therefore, business planning has more benefits for established businesses with data and history to support both the plan and the planning process. Despite this however, research has shown that even when businesses change their plans over time, there is little effect on business performance.
Business planning vs lean startup – business success
Does business planning lead to business success?
There are many instances where people have attested that business planning reliably increases business performance.
However, it isn’t very clear, how business plans contribute to business success.
Infact, some may say that no business plan survives first contact with a customer, and they’ll be right.
This lack of clarity with regards to the relevance of business plans is often cited by many of it’s critics who are in favour of the lean startup.
Lean startup methods are drawing increasing attention. Although, many prominent business schools continue to offer business planning courses, and bookstores are filled with books about how to write a business plan.
Many entrepreneurial programs have adopted the lean startup methods as well.
The lean startup methods continue to draw increasing attention in entrepreneurial communities.
Lean startup methods could be heard in training sessions and in everyday conversations within startup ecosystems, among accelerators, incubators and in other spaces.
Does lean startup lead to more business success?
Both academics and practitioners have discussed the benefits and limitations of the lean startup models. A key point of agreement is the discussion about how these processes help entrepreneurs avoid the pitfall of launching products that no one actually wants.
Despite all the popular attention given to the lean startup methods, there is little empirical research to sufficiently support the use of lean startup methods and their effectiveness in terms of business success.
Which is better business planning vs lean startup?
While practitioners seem to embrace lean startup methods, academics have offered little in terms of direct investigation
into those methods. Most of the research on lean startup methods focuses on cognitive processes. These limitations call into question the efficacy of lean startup methods.
To that end, more research is needed to see how lean startup methods relate to new venture success especially in comparison to business planning.
This is particularly important as new venture formation activities are the practices that can legitimize the business.
Conclusion – Business planning vs lean startup for business success
Business plan vs lean startup. The article considered questions and answers about aspects of both business planning and lean startup methods.
Although business plan is the more traditional approach and has been around longer and often used in business schools, practitioners seem to embrace the lean startup methods.
Although, none is without its own limitations, business plans have been subjected to more empirical research than the lean startup methods.
Despite some research and growing popular sentiment that question business planning, schools still teach it.
In addition, support organisations and investors such as business Angel Networks encourage entrepreneurs to write business plans.
While there may not be conclusive evidence that business planning will always increase performance, under certain conditions, business planning does seem to be beneficial.
Especially for new ventures, business planning may or may not have a positive effect on success, but it is unlikely to have a negative one.
Lean startup is a process with several component parts from which an entrepreneur may select without needing to accomplish each task.
Moreover, these component parts may be used in conjunction with business planning activities. As it is seen in real life, many entrepreneurs often employ aspects of each.
Interested in the research?
Read: The road to entrepreneurial success: business plans, lean startup, or both?
By Chris Welter (Miami University, Oxford, Ohio, USA) and Alex Scrimpshire, Dawn Tolonen and Eseoghene Obrimah
Xavier University, Cincinnati, Ohio, USA
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