For years, companies have been creating elaborated business plans annually. They spend lots of time writing down their vision on the market, their competitive position, pricing strategies, marketing plans, sales targets, product launches, predicted financial results etc.
In larger companies, these plans are made on various levels and the result is a huge document that ends up in a drawer of a desk. The people in the company that are involved in realising the targets won't look at it till the end of the year, to prepare themselves for the annual performance review. Business plans take too long to write, are seldom updated, and almost never read by others. Nevertheless, documenting your hypotheses is key.
Modern companies, start-ups and scale-ups have a simpler approach to planning and budgeting. Most of them use two instruments that are very effective, yet simple to use: Lean Canvas and OKR's. In this article, I would like to introduce these two concepts.
Lean Canvas is a 1-page business plan template that helps you deconstruct your idea into its key assumptions. It is adapted from Alex Osterwalder’s Business Model Canvas and optimized for Lean Startups. It replaces elaborate business plans with a single page business model. It is fast, concise, portable and effective. Companies like HP, Amazon, Intel and Dell have adopted this model.
Lean canvas contains 9 blocks, that need to be filled in and the result is one page that contains all the aspects that are important for the companies strategy. It contains these blocks of information:
A brief description of the problem(s) that you will be solving, and how these are solved today. Each customer segment (CS) you are thinking to work with will have a set of problems that they need solving. In this box try listing the one to three high priority problems that you CS has. Without a problem to solve, you don’t have a product/service to offer.
You describe the solution that you create for this problem.
These are the numbers that describe how good your solution is and how well you are doing. Every business, no matter what industry or size, will have some key metrics that are used to monitor performance.
Unique value proposition
A compelling message that states why you are different and worth paying attention.
Why are you ahead of the competition, what is it that others don’t have an can not easily get? Unfair advantage can be insider information, a dream team, getting expert endorsements, existing customers, rights to content etc.
How will the product or service reach its final destination? Are you using distributors, branch offices, resellers, partners, direct sales via the internet, retailers?
List your target customers and users.
List your fixed and variable costs.
List your sources of revenue.
OKR is an abbreviation of Objectives and Key Results. It is a goal system, used by Google, Uber, Intel and others. It is a simple tool to create alignment and engagement around measurable goals.
The objectives can be both quantitative and qualitative. The Key results are the metrics to the objective and are always quantitative.
The philosophy behind OKR is that if the company is always reaching 100% of the goals, they are too easy. OKR’s are stretch goals. The usual recommendation is that on average you should achieve only 60-70% of them.
The charming thing about OKR’s is, that it is a bottom-up cascading system. Higher-level goals are being discussed with lower-level departments and people, and how they can contribute to those goals. The lower-level employees then define their own goals, which in combination should make up the higher-level goal. Then these goals are the source for the level below and this process repeats itself, until all employees, at every level of the organisation, have their personal goals set. Check out the vlog below, which is about OKRs.