Lean Planning revolves around mapping the road ahead through a plan-as-you go approach. It strips away the need for detailed business plans by focusing on minimal planning combined with closely tracking performance and quickly make altercations in order to grow strategically at faster rates.
Lean Planning allows entrepreneurs to pick the best business model to get from point A to B with as few bumps along the road as possible. Mapping your company’s future means knowing what your business can do — and more importantly, understanding what is viable. Sabrina Parsons, the CEO of Palo Alto Software, joined us at an OEN workshop on Lean Planning to breakdown the process:
- Understanding the difference between opportunities and distractions.
- Creating strategic goals and objectives to help the decision making process.
- Having a clear view where you want to go, and picking the best route to get there.
- Knowing the goals that everyone in your company is rowing towards. The team needs to row together in the same direction.
- Determining and understanding your Lifetime value.
Determining your Lifetime value is critical — and it varies between industries and businesses. For some companies, Lifetime Value revolves around the average revenue per user (ARPU). For others it’s about the the average revenue per account (ARPA). In order to get people to invest in your company, you need to give them details in terms of ARPU and ARPA.
- Test your audience
- Find your persona
- Know your numbers in and out
- Figure out the important things to track
- Budget and Forecast
1) Test your Audience:
“Test pricing, conversion rates and a cohort of customers,” says Parsons. Get enough metrics to understand if this is a viable business model for your company. Markets are constantly evolving and people buy services and products for different reasons today than they did a decade okay. Ten years ago people bought Macs because they loved the brand and were Apple aficionados. Today they buy them because it’s sexy, popular, and the cool thing to do.
Testing your audience will leave little room for error — and allow you to make well-informed business decisions.
It’s also helpful to find a similar business with a similar business model and ask for advice– other entrepreneurs are eager to help as long as you’re not competing with them.
2) Find your persona:
Build the persona by talking to a lot of potential customers -“the more you understand your persona the easier it is to do bottom up forecasting.”
A really important piece of forecasting is really understanding your target persona. Who are you selling to?
3) Know your numbers:
With no numbers you are selling a fantasy– if people believe you and you start to run the business when the snow storm hits you’re going to get in trouble — the investors are not going to be happy. If you haven’t met your numbers you’re proving to the business investor that your numbers aren’t working.
4) Figure out the important things to track:
- Newsletters: If you send out a newsletter, track leads from the newsletter. Be able to answer if readers become customers or not. And know exactly how much revenue is made per newsletter.
- Track customer information through credit card readers: For example, Square provide you with excellent tools for surveying/tracking customers.
- Examine traffic on your Website — know if it translates into new customers and/or sales — you can use Google Analytics to monitor click-throughs and conversion rates for specific goals.
- E-mail marketing — tools such as mail chimp can help you determine the effectiveness of any e-mail marketing.
- Track your impressions and click rates on social media
5) Budgeting & Forecasting
According to Parsons, 60 percent of businesses that failed in the U.S. were profitable. “They’re failing because they are not forecasting,” she says. “You need to forecast your accounts receivable, accounts payable…it’s the biggest mistake I see when I see people pitch at Angel Oregon,” she says. Someone will ask for 2 million dollars — and investors want to know where the funds are going. Why would an investor want to give money to someone who doesn’t know exactly where the money is going? That’s why it’s critical to do a cash-flow forecast and show exactly why you need 2 million in your cash flow forecast. As an entrepreneur ask for the money you need.
Parsons believes that more often than not entrepreneurs either don’t ask for enough money and are forced to fund raise again — or they ask for too much and give up more of their company than needed. This is a double edged sword. The lesson: know your numbers and ask for what you need.
For Parsons there are two different ways of forecasting. One is optimistic — and the other is realistic. When Parsons forecasts for sales goals she is rosy and optimistic– she wants to get sales people excited about selling their product/service. But when she forecasts for expenses she does so as a COO — realistically and conservatively. “It’s a really careful dance of the unknown because you have to make the numbers you sign up for,” she says.
What is your experience with Lean Planning? We’d love to hear how it’s impacted your business.