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Friday, July 1, 2022

Lean Startup: Don’t "Just Test It"

This is a guest post written by Rasmus Bjerngaard from Northcap venture capital fund. Photo: Shutterstock

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The lean startup approach is at times interpreted as action without planning and measuring. The logic is: “We don’t know the road ahead so we cannot plan. Instead, let’s take a lean startup approach and ‘just test it’.”

That’s misunderstood and not lean startup. Lean startup and ‘just testing’ requires planning and measurement to work.

The Value Of Measuring And Planning

Time and again, I meet the opinion that it’s not worth measuring and planning in the early phases of a startup because everything changes anyway. Some will even say that it’s not possible to plan. Others find it an obvious need.

The Lean Startup methodology is quoted as proponent for not doing business plans and just go execute. That’s in my opinion misunderstood often because ‘the plan’ is misunderstood as an old fashioned rigid business plan.

The Purpose Of Planning

Execution is key but it needs direction. Why are we doing this (purpose)? What do we aim to achieve (objectives)? How do we know we are successful (KPIs)? When and how do we get there (plan)? And at what cost (budget)?

To ensure we execute effectively we have to define what we want to achieve — our objectives. To ensure we know (and agree) what successful execution looks like we have to define how we measure it — our Key Performance Indicators.

We aim to achieve the KPIs because then we are executing on our business objectives successfully.

By defining and prioritizing objectives and setting up KPIs we explicitly choose what is important to the business and the KPIs are typically mappable to a customer benefit.

A side effect of defining objectives and KPIs is that we talk about our efforts in terms of (customer) benefits rather than features — no more creating ‘cool’ features that never really get into use. Another side effect is that measurability has to be built into the product from the get go.

So it’s not about planning. It’s about executing effectively and measuring. The plan is merely a tool to ensure we do it.

If we don’t execute well there can be two reasons: Either we are under performing and we need to take corrective actions, or the objectives and KPIs are wrong and we need to correct them. In either case action is required and the plan needs an update.

Thus, the plan also works as a learning instrument that is continuously updated as we develop the business and get wiser. It keeps us focused and requires us to explicitly define — and revise — what success is.

We put our best effort into making the plan but we shouldn’t (and cannot) avoid mistakes when venturing into unknown territory. Instead we should aim to ‘fail fast’ — the faster we test our assumptions the quicker we learn and the less the cost.

Make It Useful As A Tool

Think about the format – A long Word document with a lot of words is not useful as a tool. Instead, go for an easy to overview graphical diagram. The first month or two of the plan should be detailed to a level where it is clear what action needs to be taken. For example use Scrum and do a product backlog with user stories (that define KPIs) which later translate into Scrum tasks.

In Other Words

With the plan we know what we change and take conscious decisions about it. Changing the plan is no problem; on the contrary, it is a problem if we don’t measure and change the plan when it is needed. That’s why the plan is there — to know what we change.

Combine With A Business Case

As a related note I recommend combining the plan with a business case. In the business case we model the value creating activities through our business, link it to KPIs and define our business model. Ultimately we can generate our P&L forecast based on it but keep it simple in the beginning. It requires us to get a deep understanding of our business and helps us reflect on our priorities and KPIs. With this, the planning becomes easier. Just like the plan, the business case will change as we learn, and we will have to update it, so keep it light.

This guest post is written by Rasmus Bjerngaard, General Partner at Northcap – a Danish venture capital fund investing in ICT B2B and B2B2C startups in Northern Europe.

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