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Why You Should Scrap Writing That Business Plan And Become a Lean Start-Up

It’s the perfect formula: write a business plan, get investors on board, introduce a product and then sell, sell sell. But a new movement known as the lean start-up is turning it all upside down.

Wayne Gosling

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Start-ups are either a hit or a miss

Statistics will tell you that launching a new business is going to be a hit and miss affair. The formula goes: Write a business plan, pitch to investors, introduce a product, build a team then sell and market like hell.

That’s all good and well but there a myriad of potential setbacks on the road that you could never predict – the fatal ones would mean the end of the road for the business. This concern is no different for larger organisations.

In attempts to drive innovation how often have innovation teams’ timeous and expensive work come unstuck the moment the concept attempts to leave the paper it has been designed on?

The lean start-up: Experimentation over planning

A countervailing movement has emerged that turns this supposed perfect formula on its head, and it is called the lean start. Its methodology favours experimentation over planning, customer feedback over the founding teams’ intuition and iterative design versus large send on development before launch.

The lean start-up concept was developed by Eric Reis, a Silicon Valley veteran, who realised that start-ups can shorten their product cycles by using a series of business-hypothesis-driven experimentation; iterative product releases and what he calls validated learning.

Ries’ overall claim is that a large amount of overall risks associated with bringing a product to market can be avoided or realised quicker and the initial large amount of funding previously required would now be avoided.

Why the original formula doesn’t work

A supposed time tested formula has been taught to us at schools and universities across the world. But, after watching decades of startups following this regimen, three things have become plain to see:

1. Business plans more than likely change after first customer contact. Like Mike Tyson said “Everybody has a plan until they get punched in the mouth.”

2. The 3 year forecast investors and stakeholders ask for isn’t worth the paper it’s written on. They are more than likely dreamed up because of the plethora of unknowns.

3. Startups and innovation teams within a business are not smaller versions of a large company. They don’t unfold in accordance with a master plan. They fail, learn to adapt or die.

The revised formula

While existing companies execute on a business model, start-ups and innovation teams are searching for one. This key distinction is at the heart of the lean method and shapes its definition: A temporary organisation designed to search for a repeatable and scalable business model.

Why move to lean

At its essence, the lean method seeks to build on a concept quickly, learn whether the concept is commercially sound then leaving the business owner to decide whether to pivot to a new set of hypotheses or persevere with the current ones.

Wayne Gosling is the joint CEO (with Daniel Guasco) of Groupon South Africa – a multibillion-dollar global operation and currently the fastest growing company in history.

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Start-up Advice

Start-Up Law:  I’m A Start-up Founder. Can I Pay Employees With Shares?

Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.

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Every early stage start-up company battles with restricted cash flow and not being able to pay market related salaries to their employees. Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.

Can I pay salaries with shares?

South African labour laws require that employees be paid certain minimum wages, and “remuneration”, as defined within the Basic Conditions of Employment Amendment Act, either means in ‘money or in kind’.  ’In kind’ does not include shares or participation in share incentive schemes, as determined by the Minister of Labour. As such, there is no room for start-ups to completely substitute paying salaries with shares or share options. However, there is no restriction in topping up below market related salaries with equity via an employee share ownership plan (‘ESOP‘).

Related: 7 Ingredients Of Small Business Success Online

Employee Share Ownership Plans

There are a variety of ways in which employees can be incentivised, and it will always be important for the start-up founders to consider what goal they wish to achieve by incentivising their employees.

ESOPs can be structured in several ways, for example: employees may be offered direct shareholding in the company, options for the acquisition of shares in the future; or alternatively, a phantom / notional share scheme can be set up.

ESOPs permit employees to share in the company’s success without requiring a start-up business to spend precious cash. In fact, ESOPs can contribute capital to a company where employees need to pay an exercise price for their share options or shares.

The primary disadvantage of ESOPs is the possible dilution of the Founder’s equity. For employees, the main disadvantage of an ESOP compared to cash bonuses or bigger salaries, is the lack of liquidity. If the company does not grow bigger and its shares does not become more valuable, the shares may ultimately prove to be worthless.

Related: 7 Strategies For Development As An Entrepreneur

Key Features

Some key features to consider when setting up an ESOP are:

  • ELIGIBILITY – who will be allowed to participate? Full time employees? Part-time employees? Advisors?
  • POOL SIZE – what percentage of shares will be allocated to incentivise employees?
  • RESTRICTIONS – will employees be able to sell their shares immediately?
  • VESTING – will there be a minimum period that service employees will have to serve with the start-up to receive the economic benefit of his or her shares?

Employee share ownership plans are great corporate structuring mechanisms for attracting and retaining employees, as well as fostering an understanding of the company ethos and encouraging loyalty and productivity. It is essential when implementing an ESOP that all the tax implications are considered and that the correct structure and legal documentation are in place.

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Beauty Of Failure: The Art Of Embracing Rejection

In this piece I will try demystify failure, and look into why it should be embraced and not feared.

Jordan Stephanou

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“Chaotic”, “uncertain”, and “rollercoaster” are three words that would effectively describe almost any entrepreneurial journey. If death and taxes are certainties in life, then failure and taxes are the only two guarantees in business.

If failure is (to some degree at least) inevitable, why should we fear it? In this piece I will try demystify failure, and look into why it should be embraced and not feared.

1. It’s Part of the Job

We can start by separating failure into two different categories – micro and macro-failure. If a macro-failure can be considered as the overall failure and shutdown of the business, micro-failures can be seen as the day to day events that go wrong – that potential client that hangs up on your cold call; the sales pitch that gets the soft-no response of “we’ll call you”; the product launch that no one pitched up to. As Mark Manson puts it, business (as in life) is just a process of becoming less wrong over time.

Everything is a hypothesis that needs to be tested, and the process of business is applying the learnings from each hypothesis – each micro-failure – to be less wrong next time to move the business forward.

As Seth Godin says, “The cost of being wrong is less than the cost of doing nothing”. Embrace being wrong. Rejection and failure are part of the job.

Related: The Art Of Embracing Rejection

2. Opportunity to Refine

There is one undoubted truth about every failure – and that is, each failure gives an experience to dissect and learn from. The Roman Emperor Marcus Aurelius had a similar view; that to one person a situation is good, and to another, that same situation is bad – Only perception decides.

As an entrepreneur, it is important to adopt this stoic thinking of managing your perceptions. Look at situations rationally, and perceive rejections as opportunities to refine the product that the market really needs – not the product you are forcing on your market.

3. With each Failure, Fear it Less

fear-of-failureOne of the great things about rejection or failure, is that the more often you are exposed to it, the less you fear it. In fact, micro-failures can become such a common part of an entrepreneur’s day, that you stop even noticing them as failures at all.

You may look back on a day with multiple rejections from prospective clients as a normal day on the path to building a business. The goal is to get to that point as quickly as possible.

4. One Less Avenue

In the beginning, any failure will elicit a strong emotional response, however, when it becomes embraced as part of the journey, as crazy as this sounds, you may even get excited for the next rejection or micro-failure.

Why? Because each micro-failure takes away one possible path you could go down in your business. Entrepreneurs tend to be highly ambitious, highly idealistic people. This may result in wanting to do too many things, take the business in too many directions simultaneously, and run before walking.

The beauty of failure is it re-clarifies the path, stops the entrepreneurial mind from getting carried away, and brings everything back into perspective. What’s better than pursuing 1000 potential clients? Pursuing 999 higher potential clients.

Eliminate avenues that aren’t right for your business as quickly as possible so that you can spend time on providing best possible product or service for the ones that are right.

Related: 10 People Who Became Wildly Successful After Facing Rejection

5. Practical Tip to Embrace Rejection

So with all this theoretical talk out of the way, how do we get over that fear of failure to see the beauty of it? Start by watching Jia Jang’s TED talk of 100 Days of Rejection: https://www.ted.com/talks/jia_jiang_what_i_learned_from_100_days_of_rejection. The talk genuinely impacted my life. I have since implemented an annual (and much less impressive) 10 days of proactive rejection in my life. The goal is for 10 days, to do anything in any aspect of life that you would do if you weren’t ruled by fear. Ask yourself today, “what would I do if I wasn’t scared?”

The goal is to actively seek rejection to remove the power of fear from damaging your business’s potential.

Finally, I believe we should get our heads around the idea of celebrating our failures. Go for a drink as a team and give a toast to that failure even more than if it was a success. After all, if life is more about the journey than the destination, surely we should celebrate and cherish every event of the journey along the way?

Every event that happens will be critically important in forming the empire of a business that you are building. Take a step back, see the big picture, and smile whenever it doesn’t go as planned. See the beauty of failure.

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6 Resources For Start-ups Looking For Funding

Here are 6 online resources that can help you pay the bills and grow your business at the same time.

Josh Althuser

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Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.

Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.

1. Kickstarter

kickstarter-logoAt one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.

Visit Kickstarter here.

Related: 4 Tips To Secure Funding For Your Start-up

2. Toptal

toptal-logoThose who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.

Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project. 

Visit Toptal here.

3. Appbackr

appbackrIf you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.

Visit Appbackr here.

Related: 7 Strategies For Development As An Entrepreneur

4. Gust

Gust logoInvestors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.

With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters. 

Visit Gust here.

5. AngelList

angellist-logoNot just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.

Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.

Visit AngelList here.

Related: 6 Steps To Building A Million-Dollar Ecommerce Site In 60 Days

6. Seedrs

seedrs-logoFrom top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.

Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.

Visit Seedrs here.

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