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Getting to plan B

Getting to plan B, by John Mullins and Randy Komisar, is an important book. In short, the thesis of the book is that successful startups very often had to change their initial business plan. To quote Mullins and Komisar: "If the founders of Google, Paypal or Starbucks had stuck to their original business plans, we'd likely never had heard of them." The startup process, largely driven by poorly conceived business plans based on untested assumptions, is seriously flawed. And the authors to give a few interesting examples of business plans changes that were successful. If only for this, the book is important because, despite many criticisms, business planning remains the cornerstone of entrepreneurship courses at business school, and well honed business plans are a must-have to pitch venture capital. The fact that no business plan survives the first encounter with reality seems to bother no one in industry. Importantly, the flaw does not lie in some limitations of the planners. In other words, it is not because of poor planners that business plans are useless, or even harmful. It is the very process of planning that is problematic. Behind the notion of planning lie the idea that to control the future, we need to predict it. However, recent research on entrepreneurship by Sarasvathy (see the concept of effectuation) showed that in uncertain environments, it is simply not possible to predict the future. Hence prediction is really a gamble.

Based on their experience (Mullins is a professor at London Business School and Komisar is a VC), the authors acknowledge this and propose a process to make corrections to an initial idea through comparison (compare your idea with existing models that work or don't work to learn from them), leaps of faith (uncertainty can only be solved by actually making a reasonable hypothesis and going for it rather than accumulating data), experiments (to resolve uncertainties) and data-driven corrections to the model. These four points are applied to the five elements that determine any business model's economic viability: its revenue, gross margin, operating, working capital and investment models.

As we progress through the book, however, the sense of excitement wanes a bit. Indeed, several interesting examples of successful plan B conversion are given, but one starts to question whether the framework used is not overly oriented towards a financial view of the venture. It is certainly necessary for a venture to succeed to get its economic equation right if value is to be created eventually, and the book give many useful hints and rules to check this. But is it sufficient? Take the case of Amazon, which is described extensively in the book. It took 8 years for Amazon to become profitable, but was it really a plan B? Or rather, wasn't it a case of a successful concept that 1) Needed time to scale, and 2) Needed to be streamlined from an operational point of view? If so we are not talking about a plan B so much as we are talking about scaling a business whose concept is unchanged throughout. More interesting is the case of Paypal, given at the beginning of the book.

What would indeed be really interesting would be to take the concept of plan B further and really focus on the elements of the business model that come first, ie the products and the markets. Indeed, I would venture to suggest that in Mullins and Komisar's book, the product's shadow is everywhere, but the product itself is not much to be seen. If we acknowledge that most plans A are destined to fail, and that take off usually happens at plan C or D, and sometime much later, then the question becomes "how do you manage the switches?" This is not rhetoric. There is money at stake. Sarasvathy and Kotha describe how Realnetworks started as a TV channel and ended-up as the leading video streaming solution on the Web. That's typical plan B switching, but before we look into Realnetworks' economic model, we must understand how you start as a TV channel and end up with a streaming solution. That is a hell of a plan B iteration.

In conclusion, "Getting to plan B" is a wake up call and as such reading it should probably be made mandatory in any MBA course on business venturing. But the book really calls for further inquiry into the very process of transformation that startups undergo in finding their sweet spot in terms of products and markets. And in this, much remains to be done.

Posted by Philippe Silberzahn on December 13, 2009 at 03:10 PM in Book reviews | Permalink


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