Category Archives: About Lean Planning

Why a Lean Business Plan and Lean Business Planning

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So we’ve seen in the previous section that using the term lean in business means focusing on what adds value and avoiding waste. It’s also about taking small steps and evaluating results often.

Why Lean Planning? What are the Benefits?

Who cares about planning? Who cares about business plans, lean or otherwise? Planning isn’t the point; the point is to get what you want from your business, to work smarter, not harder. It’s about better business. Get what you want out of your business.

“However beautiful the strategy, you should occasionally look at the results.” — Winston Churchill

Strategy is focus. Don’t do everything – you can’t – but do the most important things. Don’t try to please everybody – you can’t – so please the people who matter most, depending on what you want from the business.

Develop and execute tactics to make strategy real. Make sure what you’re doing matches what you think is most important. Figure out optimal pricing, channels marketing, and product (or service) developments.

Make sure you are actually executing your tactics by boiling them down to specific milestones and performance measurements. Track results and compare them to expectations. Develop accountability.

Manage your money. Figure out what you expect to sell, use that to figure out what to spend, and make sure you never run out of cash.

Lean business planning isn’t about planning. It’s about business. And getting things done. Run your business to make your life better. Don’t run your life to make your business better.

It Starts with a Lean Business Plan

Lean business planning adopts the ideas of small steps, constant tracking, and frequent course corrections to planning. It includes only what adds value, without waste. It starts with a core business plan for internal use only, just big enough for optimizing the business. A lean business plan has four essential parts:

PRRR Cycle lean business planning
The PRRR cycle in lean business planning
  1. A strategy summary is a bare-bones description of strategy for management use only.
  2. Describe your tactics in a bare-bones description, for management only. Tactics include pricing, distribution, product or service development, financing, and so forth.
  3. Do the essential forecasts including sales forecast, costs, expense budget, and cash flow.
  4. Set execution specifics including review schedule, milestones, task assignments, assumptions, and metrics.

This lean plan is clearly not the “elaborate business plan” that lean startup experts reject. Unlike the elaborate plan, the lean plan doesn’t include carefully worded summaries or detailed business information for outsiders. It is not even a document. It’s a collection of lists, tables, and bullet points.

Keep it Live. Use it Well.

Just like lean manufacturing and lean startups, lean business planning is a process of continuous improvement. It takes small steps, analyzes results, and makes corrections. I’ve revised the classic PDCA cycle to make a lean planning version that I now call PRRR, for plan-run-review-revise. So lean business planning is more than just the lean plan itself. It’s the plan plus regular review and revisions. It’s never finished. Every latest version will need revision within a few weeks.

Add More Only as Needed

As much as the lean startup experts complain about what they call the elaborate business plan, real businesses, in the real world, do occasionally need to present a business plan to outsiders. They have what I call business plan events, when a business plan is required.

But times have changed. You still don’t need the big plan. Do your lean plan and keep it up to date with regular review and revisions. And when somebody asks for a traditional business plan (if they do), then add the extra ingredients you need. That might be a market analysis, maybe an exit strategy, maybe a detailed description of product or marketing plan. Do them as summaries, presentations, or appendices.

Lean Startups and Lean Business

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Lean manufacturing, Lean Enterprise, or lean production, often simply, “lean,” is a production philosophy that considers the expenditure of resources in any aspect other than the direct creation of value for the end customer to be wasteful, and thus a target for elimination.

– Wikipedia

In general, lean means strong with muscle but no fat. Lean means useful. No frills.  It’s not thin, not skinny, just lean.

Lean Manufacturing

The classic PDCA cycle

The concept lean manufacturing started with the Japanese automaker Toyota more than 70 years ago and was adopted by manufacturers worldwide. It focuses only on what adds value. And that avoids waste.

Early on, the lean manufacturing people adopted a four-step process called PDCA, for plan-do-check-adjust. PDCA came from quality control expert Dr. Edwards Deming. PDCA itself (the idea of the cycle, although the acronym PDCA has various versions) became the gold standard for manufacturing efficiency.

The essential idea is to take small steps, analyze often, and keep watching results and correcting. That’s instead of developing big elaborate plans first, then executing in big steps. There’s more review, more revision. That’s what they call lean.

The benefits are obvious. Consider how the pace of change is constantly increasing. Technology advances faster every year. Adopting a lean process seems like common sense to me.

My business experience has been mainly computers and software, but my formal education was literature first, then journalism, and then business. I learned software by doing. And, I confess, I never had the patience for the big software development plan that some of the larger companies and more schooled developers did. I was the kind of entrepreneur who built the product in a way that got it to market as quickly as possible. There were always new versions to come. I never thought it was finished, and I worked with the next steps and a broad larger vision. I moved in the right direction without taking a long time trying to imagine, in detail, the final product. That was right for me. And it was lean by instinct, before I knew anybody called that lean.

 Lean Startups

Eric Ries’ book The Lean Startup first appeared in 2011 and became the biggest thing in startups in this century.

What is it? It’s what the book says, but that’s a different book. For the purposes of definition in this book, here’s the Wikipedia definition:

Similar to the precepts of lean management, Ries’ lean startup philosophy seeks to eliminate wasteful practices and increase value producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.

− Wikipedia

The emphasis there is mine. Keep this phrase “elaborate business plans” in mind when we move to the next section, on the lean business plan.

First, however, more about lean startups (continuing the Wikipedia text above):

This is done primarily through two processes, using key performance indicators and a continuous deployment process. Because startups typically cannot afford to have their entire investment depend upon the success of one single product launch, Ries maintains that by releasing a minimum viable product that is not yet finalized, the company can then make use of customer feedback to help further tailor its product to the specific needs of its customers.

­– Wikipedia

So the lean startup applies the idea of continuous improvement in steps, or cycles, to starting a new business. The lean startup begins with what they call a minimum viable product, then improves in repetitive cycles, each one involving plan, action, checking results, and revising the plan to start again.

The lean startup idea took off. Experts loved it. Both the lean startup and its suggestion of the minimum viable product now appear nearly everywhere that startups are discussed. There are steadily growing numbers of companion books, follow-up books, conferences, blogs, and lean startup experts and consultants. Few serious attempts at getting new startups funded fail to pay homage to the lean startup and minimum viable product.

Is this a fad? No. I don’t think so. This is evolution related to real changes in the business landscape, accelerating technology, and world economies splitting into ever smaller and potentially more efficient pieces. And the fundamental idea is sound: plan more fluidly, take shorter steps, analyze results, and then take more shorter steps. Change is constant, and the pace of change is increasing, so change the way you do business. Make it lean. And that is as true for established businesses as it is for startups.

What is Lean Business Planning and Why It Matters

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You may have heard of the lean startup movement, or lean manufacturing. This is applying the same concept to business planning. It gives you planning so you can follow up with tracking, management, and course corrections, to get the benefits of accountability, having strategies and tactics aligned with specifics, and managing your cash flow. But it also saves you from the drawbacks of the traditional formal business plan document, which is obsolete. So it’s easier, faster, and better. Plan with short bullet-point summaries, a few lists and tables, just the essentials that you need to achieve your business goals.

For the website only, I’ve added the Why a Lean Business Plan? into this first section (in the book that appears before this section, in the front material).

This first section of the book includes three chapters:

Chapter 1: Lean Business: A general summary of what lean business has meant since about 70 years ago when there was lean manufacturing. It continues through to the present, with lean startups, an important trend. The chapter offers background on what lean means in business, and background on the lean startup movement.

Chapter 2: Applying Lean to Planning: This is my application of the idea of lean to the process of good business planning. The fundamentals of small steps, frequent review, and no waste apply to business planning quite well. This chapter summarizes how lean planning is faster, better, and easier than traditional business planning. And – more important – how lean business planning is good for any business.

Chapter 3: General Planning Principles: A review of the five basic principles … of all good business planning. Lean is applying principles effectively.

5 Principles of Business Planning

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These 5 principles of business planning apply especially well to lean business planning and lean business plans. We focus on lean planning here but you can see, if you have experience with business, that they apply to all good business planning. Charles Darwin wrote:

“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.”

  1. Do Only What You’ll Use. Avoid waste. Go forward with small steps. Start with a lean plan and grow it only as needed for business circumstances. Don’t build a big formal business plan unless you have a business plan event and need to show it to outsiders.
  2. Business planning is a Continuous Process, Not Just a Plan. One business plan is of very little use, but the lean business planning process is essential. Keep the plan small and review and revise often.
  3. Good business planning Assumes Constant Change. Lean business planning helps to manage change. You don’t plan on long time frames and then stick to the plan regardless. Instead, your business planning process helps to manage change.
  4. Good business planning Empowers Accountability. Good business planning establishes specific responsibilities, dates, deadlines, activities, and performance metrics. The process includes tracking and following up to manage.
  5. Understand that It’s Planning Not Accounting. Financial projections in business planning are educated guesses, summarized and aggregated to optimize their use in decision making, tracking, and managing. They are not statements, but projections. A projected profit-and-loss table does look like the output of accounting, and that confuses people. It is never exact. It is predicting the future. It is guessing.

Keep these five principles of business planning in mind from the beginning.

Do Only What You’ll Use

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Lean business means avoiding waste, doing only what has value. Therefore the right form for your business plan is the form that best serves your business purpose. Furthermore, for the vast majority of business owners, the business purpose of planning is getting what you want from the business – setting strategy and tactics, executing, reviewing results, and revising as needed. And that purpose is best served with lean planning that starts with a lean plan and continues with a planning process involving regular review and revision. You keep it lean because that’s easier, better, and really all you’re going to use.

Lean planning starts just big enough for management

Consider the illustration that follows. I put the lean plan at the center because the plan is about what is supposed to happen, when, who does what, how much it costs, and how much money it generates. It’s a collection of decisions, lists, and forecasts. It doesn’t necessarily exist as a single document somewhere. You use it to track performance against plan, review results, and revise regularly, so the plan is always up to date. I hope it’s gathered into a single place, as if it were a document, but it doesn’t have to be. And it’s only as big as you need for its business function.

In lean planning, form follows function

The main output, and therefore the main purpose, of the lean business plan is better business, which means getting what you want from your business. That’s what your lean plan is for and that function determines what’s there. Forget the additional descriptions for outsiders until you need them. Wait for that until you have what I call The Business Plan Event. One of the appendices, called Sharing Your Plan, covers how to do summaries, business pitches, and even an elevator speech.

Know Your Market, Yes; Describe, Analyze, Prove – Not Necessarily

You have to know your market extremely well to run your business. Know your market like you know the back of your hand. Know your customers, what they need, what they want, how they find you, what messages work for them, what they read, what they do, and all of that.

What you don’t have to do, however, is include any of that in your lean business plan. A lean plan doesn’t need rigorous market analysis. It doesn’t normally include supporting information — at least, not until later, with the business plan event, when it is actually required.

However, your lean plan is about what’s going to happen, what you are going to do. It’s about business strategy, specific milestones, dates, deadlines, and forecasts of sales and expenses and so forth. It’s not a term paper. Yes, you should know your market. But you don’t have to prove it until you’re trying to find outside investors.

Form follows function: The function of the lean business plan is management, not selling something to outsiders.

You don’t need supporting information. It’s still a business plan without it. It still serves its business purposes. You don’t have to do a rigorous market analysis as part of your plan if you know exactly what you’re offering, and to whom. So what about market analysis? Think about the business purpose. Do you need the market analysis to help determine your strategy? Then do it. Are you ready to go with that strategy regardless? Then don’t sweat the market analysis.

This is ultimately your responsibility. You don’t gather all the supporting information and do a rigorous market analysis just because somebody said you should. You do it if you’re actually going to use it to make decisions, or if your business purpose requires proving that there is an attractive market opportunity. If you have any doubt, please skip ahead to Know Your Market and Know Your Competition, in Section 5, Additional Information. You do need to know; but proving your knowledge isn’t necessarily part of the plan.

So what matters, the point here, is that some alleged experts are telling people it’s not a plan unless it includes market data and market research. That’s just not true. Not for real business planning, and especially, not for lean business planning.

It’s a Continuous Business Planning Cycle, not Just a Plan

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Good lean business planning process isn’t about a plan that you do once. Just like lean manufacturing and lean startups, it’s a business planning cycle of continuous improvement.

Lean Planning is always up to date

With lean planning, your business plan is always a fresh, current version. You never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again. Forget the use it once and throw it away plan. You don’t store it in a drawer to gather dust.

The PRRR business planning cycle in lean business planning

However, this kind of regularly updated planning is clearly better for business than a more static elaborate business plan. With this kind of business planning process, the plan is smaller and streamlined so you can update it easily and often, at least once a month. Your lean plan is much more useful than a static plan because it is always current, always being tracked and reviewed, frequently revised, and is a valuable tool for managing. You run your business according to priorities. Your tactics match your strategy. Your specific business activities match your tactics. And accountability is part of the process. People on the team are aware of the performance metrics, milestones, and progress or lack of it. Things get done.

Furthermore, even back in the old days of the elaborate business plan, it was always true that a good business plan was never done. I’ve been pointing that out since the 1980s, in published books, magazine articles, and blog posts. That’s not new with lean business planning. It’s just more important, and more obvious, than ever before.

It’s business planning cycle not just a plan

So a business plan is not a single thing. It’s not something you can buy, or find pre-written. You don’t do it and forget it, and you don’t find a business plan or have one written for you. If you work with an expert, consultant, coach, or business plan writer, realize that in real use a business plan lasts only a few weeks before it needs to be reviewed and revised. So your value added from the expert has to help you in the long term. If you don’t know your plan intimately, then you don’t have a plan.

Good Planning Manages Change

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One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.

You are not locked in. Your plan will change.

People say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

business planning is like dribbling

And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

Change does not undermine planning; actually, planning is the best way to manage change.

So running a business right requires minding the details but also watching the horizon. It’s a matter of keeping eyes up, looking at what’s happening on the field around you; and eyes down, dealing with the ball – both at the same time.

Which reminds me that dribbling is one of my favorite analogies for business planning. In soccer or basketball, dribbling means managing the hand-eye or foot-eye coordination of the immediate detail while simultaneously looking up and watching opponents and teammates, and developing plays. When I was coaching kids in soccer, I’d try to help them remember to look up and not just down at the ball. The best players did this naturally. Change does not undermine planning; actually, planning is the best way to manage change.

Why good business planning is like dribbling

Here are a couple of additional ways dribbling is like planning:

  1. Dribbling is a means to an end—not the goal. Planning is like that too. It’s about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It’s about managing, allocating resources, and being accountable. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
  2. Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball, or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a wellcoached team: 1) there is a plan in place  and 2) the player knows the plan but is completely empowered to change it instantly, depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes— the opponents doing something unexpected—are also foreseen. The game plan doesn’t lock the players in to doing the wrong thing or failing to respond to developments. It helps them make instant choices, changing the plan correctly…and when they do, the other players can guess the next step better because of the plan.

Good Business Planning Adds Accountability

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It’s much easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability. Good business planning adds accountability via goals, metrics, and tracking.

Lean business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.

What gets measured is what gets done

Metrics are part of the problem. As a rule, we don’t develop the right metrics for people. Metrics aren’t right unless the people responsible understand them and believe in them. Will the measurement scheme show good and bad performances?

Remember, people need metrics. People want metrics. You and your business need metrics. Good business planning adds to accountability.

Then you have to track. That’s where the lean business plan creates a management advantage, because tracking and following up is part of its most important pieces. Set the review schedules in advance, make sure you have the right participants for the review, and then do it.

What gets measured is what gets done

Good teams pull together

In good teams, the negative feedback is in the metric. Nobody has to scold or lecture, because the team participated in generating the plan and the team reviews it, and good performances make people proud and happy, and bad performances make people embarrassed. It happens automatically. It’s part of the planning process. Besides, guilt and fear tactics are the worst kind of fake management.

And you must avoid the crystal ball and chain. Sometimes — actually, often — metrics go sour because assumptions have changed. Unforeseen events happen. You manage these times collaboratively, separating the effort from the results. Your team members see that and they believe in the process, and they’ll continue to contribute.

Planning, Not Accounting: A Critical Difference

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One of the most common errors in business planning is confusing planning with accounting. It’s planning, not accounting. This is true for lean planning too. Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.

Planning not accounting addresses two different dimensions.

Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.

Understanding this difference helps you with the educated guessing involved in making projections. The reports that come out of accounting, called statements, must accurately summarize the actual transactions that happened in the past. For example, a proper and correct Profit and Loss statement in accounting is a report summarizing all the actual transactions recorded as sales, costs, and expenses for a specified period of time (month, quarter, or year).

Forecasts and projections are just educated guesses

But projections, unlike financial statements, are just educated guesses. They aren’t reports of a database of actual transactions. Where accounting reports on records in a database, for projections there is no database. We guess what the totals might be. So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

In the example below, the reported sales of $36,945.00 for services in the month of April of 2014 is a database report. Every transaction recorded in that month is included in the database. The number shown is the calculated total of all the transactions that included sales of a service item. It’s accounting, not planning. It is not a guess or an estimate. It’s a calculated total. On the other hand, the projected sales of $30,000 for some future month is the business owner’s guess – an educated guess, or an estimate – of what the total will be for that future month. That’s planning, not accounting. Nobody imagines or guesses all of the individual transactions that will happen in that month in the future, and then totals them. We guess the total. The database report showing $36.950 is accounting. The projected sales of $30,000 is planning.

It’s a Plan Not a Document

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A lean business plan is not a document. It’s a process.

You start with a simple lean business plan, as shown here in the first four steps in the chart. Then forever after, it’s a cycle:  you review the results, revise the plan, and keep things moving. The plan is never done, and it’s never older than a few weeks. Like steering a car, your lean business planning is a matter of frequent corrections without losing sight of long-term progress towards goals.

For most of the course of a normal business, the lean business planning process is optimal for better management. The process goes on in a cycle of plan reviews and revisions.

There are, however, the special occasions that require more than just the internal lean plan. I call these business plan events. For example, angel investors usually want to see business plans as part of due diligence before investing in a startup. Banks often ask for business plans in the process of approving business loans.  These business plan events require a formal business plan document.  So when there is a business plan event, then (and only then) does the lean business planning company have a practical reason to dress up the plan with descriptions and summaries and create a formal business plan document, a summary memo, a slide deck for a business pitch, or whatever else is required for that business hurdle.