How to Know Your Business is Viable (Even if You Don't Have a Business Plan)
I don’t have a business plan. If you are a small business owner or creative entrepreneur reading this, my guess is that you don’t have one either, and you might be wondering, "do I really need a business plan?" For one thing, in small business, things are changing constantly. Long-term planning feels, at best, futile, and, at worst, impossible. Additionally, if you have gotten by so far without a business plan, you must not need one. You don't have time to do unnecessary work.
My personal take is that, unless you need to bring on investors or borrow money, you probably don’t need a formal, written business plan for your small business. However, you do need a method to test the strength of your business or idea and understand whether it can be viable in the long-term. Writing a business plan is a helpful tool for this, but it’s not the only tool out there.
Below I’ve summarized three ways to test the viability of your business even if you don’t have a business plan.
The Story Test
Your business needs to tell a story that makes sense and resonates with your audience. Evan Baehr and Evan Loomis, serial entrepreneurs that have seen hundreds of startup pitch decks, put it this way:
“Entrepreneurship is about telling a story that connects the deep needs of a group of people with a repeatable solution.”
According to Baehr and Loomis, the story of your business takes a variety of forms, all of which need to make sense to the hearer.
Your personal story - How does your background or personal history make you uniquely positioned for your business or business idea?
Your customer’s story - What is your target customer’s current experience, and how does your product or solution improve it?
Your industry’s story - Are there factors at play in your industry that are providing a unique opportunity for your solution?
When you tell the story of your business, in any or all of these above formats, is it compelling, leaving people curious and wanting to hear more? If so, you pass the story test.
The Business Model Test
Even if you don’t have a business plan, you need to have your head around your business model, aka, how you propose to make money. Understanding your business model requires estimating the revenue that you expect to earn from your business as well as the costs that you will have to incur in order to earn that revenue. This kind of exercise is definitely challenging, but is also critically important for you to understand what it will take for your business to be viable.
For example, many interior designers, when they are getting started in the industry, are not comfortable with the complicated and intimidating purchasing side of the interior design business. As a result, many designers want to stick with design fees as their sole revenue stream. The problem is, as many designers eventually figure out, it is near impossible to run a profitable interior design business without purchasing. Without multiple streams of revenue, the business model isn’t viable.
When you develop a reasonable, realistic projection of your revenue and expenses, does your business generate a profit that justifies your effort and investment in the business? If so, you pass the business model test.
The Assumptions Test
Even the most professional and polished business plans are essentially a collection of guesses about what might happen. Your business is based on a number of un-tested assumptions about your customer’s needs, the usefulness and relevance of your solution to your customer, and the amount of money that they will be willing to pay for it.
The third test you can apply to your business is to identify the assumptions underlying your business idea and figure out a way to test them in the real world with real customers. If you don't have real customers yet, you can use simple but effective tools – such as focus groups, one-on-one interviews, prototyping, and other proven methods – to get feedback from people that fit the profile of your target customer.
For example, one of my goals for this year is to develop a digital offering. Earlier this year, I came up with an idea for an online course that I thought was brilliant. However, I took the sound advice of Amy Porterfield and decided to do some target customer interviews before investing a ton of time into the idea. And, guess what? I found out during these target customer interviews that my idea didn’t really resonate with people. My assumption about what my target customer needs was off-base, and I changed my plan as a result of this basic testing.
Do your key assumptions hold up when tested with real customers? If so, you pass the assumptions test.
Failed One of the Tests? Pivot, Don’t Quit
Just because you fail one of these tests doesn’t mean you should quit. Use the opportunity to pivot, tweak, and adjust. On the other side of these simple, but effective, tests, your business or idea will be even stronger.
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