Business Plan vs Business Model
I have just re-read for the third time Steve Blank’s awesome post on business plans vs. business models. I have been thinking about something writing along a similar idea for quite a while, but obviously don’t have the same level of experience as Steve Blank! However, since I’m currently living this I feel like I can justifiably write about it.
My startup, OfficeDrop, doesn’t have the traditional 30 to 60 page word processor written business plan. We’ve written a lot down, but haven’t created a traditional 60 page business plan to supposedly guide our growth. And the writing we do do is usually done in a slide deck.
Steve writes about capturing a business model on slides. We’ve sure got a lot of slides! They are a good way to put our thoughts together and communicate them with each other and our investors.
I think the most important document in our startup is our financial model, which is build in a spreadsheet. It “memorializes” our assumptions and contains our results from operations. (I say memorializes in quotes because our assumptions change pretty quickly.) I call it our “business model.”
I prefer spreadsheets for business models, probably because of my financial background. I like the ability to put the important assumptions into a “living” sheet, so that when an assumption is changed the entire output changes and then compare actuals to our key assumptions. You don’t quite get that flow in a PowerPoint presentation or a Word doc.
We need to know how much experimenting we can do with our current pot of cash. We also need to carefully monitor the cash we gain from our revenues. As the marketing guy, I also need to understand the cost of acquiring a customer and how much they are worth – (stuff like churn rate and average monthly revenue per customer really matters to me.) A spreadsheet allows me to automatically update at the end of each month and compare against the assumptions. Oh yeah, and understanding the initial cash flows of our startup is pretty important. Spreadsheets do that, not Word docs or PPT.
Spreadsheets do have problems capturing some of the pivots a startup has to do. For example, we have just release a free desktop scanning software download that helps get paper scanned directly into Google Docs from most standard scanners. This is a pretty big departure with our current model of providing subscription scanning services and online document management. But it is a test that plays off our all of the technology we developed and all our experience in cost effectively scanning small batches of paper documents.
What is the problem with a spreadsheet as the basis for a business model during a pivot? Well, I think we understand the costs of launching our desktop software, which are captured in the spreadsheet. But the upside is a lot more complicated. The issue I find when introducing a potentially major change in a business model captured in a spreadsheet is that it takes a freaking long time to create a legitimate Excel model vs. a legitimate potential strategy captured in a PowerPoint slide. But as we test our assumptions and generate data, I’ll be sure to fill out our spreadsheet and see where the chips are falling.
On a side note:
I do think business plans have a purpose and could be useful for a traditional set of startups. If I was launching a restaurant or a law firm, I’d probably write a business plan. Obviously I like to write, and putting things down in a structured business plan could be helpful when business innovation is less important than finding a way to make an existing business concept work. The nice thing about a lot of the business plan templates floating around is that they are a bit like Mad Libs for starting a business. But I’d still build a financial model spreadsheet!