No Plan Survives First Contact With Customers – Business Plans versus Business Models

I sourced this from Steve Blanks great website.

I thought it relevant and compelling for any Service Business with Customers (that would be everyone except startups) because instead of holing in up in your apartment like a entrepreneur, organisations display similar behaviours. They write marketing plans, spend advertising money and all the time with expensive segmentation studies under their arms, they seek to connect with their most important customers.

The issue with that is that customers never act or respond in the way you expect them to. They are ungrateful for the things they will be appreciative of and the smallest thing which you almost didn’t implement receives rave reviews.

Why is this? Because humans are complex and most people structuring the interactions with their customers live nothing like them. They earn more, live in different suburbs, are probably more educated and make too many assumptions about how easy or simple their service is.

That’s why the advice in the following article is so important for not only start-ups, but for more established companies too.

That’s where using a Service Design approach whereby you first spend time really listening and understanding customers is so important. The value isn’t in the hours spend listening and writing (most research firms can do that) to your customers, its in the ability to not only synthesize that information, but then design a better way(s) to deliver it so it makes sense for customers (desirable), operations (feasible ) and Shareholders (financially viable).
Enjoy.

For more information on how to embrace customer contact, give Proto Partners, Australia’s leading  Service Design consultancy a call.

No campaign plan survives first contact with the enemy
Field Marshall Helmuth Graf von Moltke

I was catching up with an ex-graduate student at Café Borrone, my favorite coffee place in Menlo Park. This was the second of three “office hours” I was holding that morning for ex students. He and his co-founder were both PhD’s in applied math who believe they can make some serious inroads on next generation search. Over coffee he said, “I need some cheering up.  I think my startup is going to fail even before I get funded.” Now he had my attention. I thought his technology was was potentially a killer app. I put down my coffee and listened.

He said, “After we graduated we took our great idea, holed up in my apartment and spent months researching and writing a business plan. We even entered it in the business plan competition. When were done we followed your advice and got out of the building and started talking to potential users and customers.” Ok, I said, “What’s the problem?” He replied, “Well the customers are not acting like we predicted in our plan!  There must be something really wrong with our business. We thought we’d take our plan and go raise seed money. We can’t raise money knowing our plan is wrong.”

I said, “Congratulations, you’re not failing, you just took a three and a half month detour.”

Here’s why.

No Plan Survives First Contact With Customers
These guys had spent 4 months writing a 60-page plan with 12 pages of spreadsheets. They collected information that justified their assumptions about the problem, opportunity, market size, their solution and competitors and the their team, They rolled up a 5-year sales forecast with assumptions about their revenue model, pricing, sales, marketing, customer acquisition cost, etc. Then they had a five-year P&L statement, balance sheet, cash flow and cap table. It was an exquisitely crafted plan. Finally, they took the plan and boiled it down to 15 of the prettiest slides you ever saw.

The problem was that two weeks after they got out of the building talking to potential customers and users, they realized that at least 1/2 of their key assumptions in their wonderfully well crafted plan were wrong.

Why a business plan is different than a business model
As I listened, I thought about the other startup I had met an hour earlier. They also had been hard at work for the last 3½ months. But they spent their time differently. Instead of writing a full-fledged business plan, they had focused on building and testing a business model.

A business model describes how your company creates, delivers and captures value. It’s best understood as a diagram that shows all the flows between the different parts of your company. This includes how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others and where your company can work with other companies or partners to implement your business.

This team had spent their first two weeks laying out their hypotheses about sales, marketing, pricing, solution, competitors, etc. and put in their first-pass financial assumptions. It took just five PowerPoint slides to capture their assumptions and top line financials.

This team didn’t spend a lot of time justifying their assumptions because they knew facts would change their assumptions. Instead of writing a formal business plan they took their business model and got out of the building to gather feedback on their critical hypotheses (revenue model, pricing, sales, marketing, customer acquisition cost, etc.) They even mocked up their application and tested landing pages, keywords, customer acquisition cost and other critical assumptions. After three months they felt they had enough preliminary customer and user data to go back and write a PowerPoint presentation that summarized their findings.

This team had wanted to have coffee to chat about which of the four seed round offers they had received they should accept.

A plan is static, a model is dynamic
Entrepreneurs treat a business plan, once written as a final collection of facts. Once completed you don’t often hear about people rewriting their plan. Instead it is treated as the culmination of everything they know and believe.  It’s static.

In contrast, a business model is designed to be rapidly changed to reflect what you find outside the building in talking to customers.  It’s dynamic.

“So do you mean I should never have written a business plan?” asked the founder who had spent the time crafting the perfect plan. “On the contrary,” I said. “Business plans are quite useful. The writing exercise forces you to think through all parts of your business. Putting together the financial model forces you to think about how to build a profitable business. But you just discovered that as smart as you and your team are, there were no facts inside your apartment. Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.

A “design attitude” or a “decision attitude”? Two must haves for Service Business CEO’s

I read with interest a recent article by Lucy Kimbell where she related what I see as one of the key differences between a Design Thinking approach and more traditional management approaches.

There is no doubt that the traditional management approach is no danger of going anywhere and nor should it. It is well entrenched and serves to enable people in organisations to make the majority of decisions quickly and efficiently.

For those very same organisations who have larger and more important decisions to make and more often than not  ‘don’t know what they don’t know’ there is another option to complement their traditional approaches. Using a Design Attitude enables organisations to develop a range of new and alternative options instead of forcing them to choose between their current options.

Most CEO’s will move in order to move forward make a decision based on current options and why wouldn’t they? They have achieved that role as a result of making decisions in the traditional manner – why change a proven formula?

Because the world they now operate in is different to the one that those successful decisions were made in. Companies now face far more channels to market, a greater potential for disintermediation from new competitors and are far more removed from customers than they have ever been – despite drowning in data.

We recently undertook some Service Design work in the financial services sector and after spending time with customers, staff and then more customers uncovered a large problem. It was large because it was preventing their most profitable customers from doing more business with them and it was caused by their chosen business model.

A big problem.

On the surface, changing a company’s business model is not a quick, easy or inexpensive decision. The Management’s approach was to face the issue that was preventing significant customer growth by choosing between available options – a Decision attitude. ‘I have 3 options which is the best (or least bad)’.

Using a Service Design mindset we first set out to establish the ideal Customer Experience and work back from that point using the two other filters of feasibility (can we do it) and viability(can we make money from it )

In taking a Design attitude, we approached the problem by deciding there was very little chance they could or would change it and anyway we had the skills and a Design attitude which enabled us to look at a variety of ways we could solve the customer problem by generating new options to choose from.

The outcome, the requirement to invest $5 million was removed from the decision set and a variety of alternative methods to achieve the same outcome with no capital investment added in.

When next you are asked how you demonstrate the value of Design Thinking and Service Design, connect the cost of the traditional decision versus the cost of using a  ‘Design Attitude’.

In this case, an annual interest cost of $200,000+ versus just a fraction of that.

The take-away – there is a time and a place for both. Its important to know when and how to use both to maximise all stakeholders value.

Lets not be shy in highlighting the significantly greater potential for transforming growth by using a Design Attitude versus the more traditional Decision Attitude.

For more information on how to balance the two, give Proto Partners, Australia’s leading  Service Design consultancy a call.

The eight new rules of customer service

The eight new rules of customer services

A good article by Smart Company and tapping one of the best minds in the business. I recently completed some work for a financial services firm and post GFC, the perspective of customers of independence vis a vis established and connected businesses has transformed in the last two years. Customers in Australia whether materially affected by the GFC or not have a different view of the service businesses they interact with and these businesses would do well to better understand this new mindset and what it now means to deliver outstanding service.

Of course using Service Design in Australia to address this is new, but hey our goal is to improve the service experience of all Australian customers, one service business at a time. Here are 8 rules to do just that.

The Australian economy might have sailed through the recession relatively unscathed, but don’t think that customers haven’t been changed by the GFC.

That’s the message from international marketing guru Paul Bennett, the managing partner of global design consultancy IDEO, which organisations including Nokia, Intel, Bank of America and the Bill & Melinda Gates Foundation go to for inspiration and business ideas.

Bennett’s recent trip to Australia saw him add to his growing fan base after a series of cheeky, insightful, clever presentations on the future consumer. SmartCompany caught up with him at the L’Oreal Melbourne Fashion Festival (LMFF) and couldn’t resist asking Bennett to help create a take-home version of his keynote for those who missed out.

Bennett, who heads up IDEO’s European bureau and is its chief creative officer, highlighted how well Australia has come through the GFC, but described “apocalyptic” market conditions in Europe and the Americas over the past three years.

“For everyone else it sucked royally,” says Bennett in his take-no-prisoners style. “Consumer sentiment has radically shifted.”

This period of crisis has been much more than an economic crisis for consumers, according to Bennett. He says it has been a moral crisis, with the economic decline being a symptom of deeper problems.

“People were spending and borrowing like there was no tomorrow. Then tomorrow came and the shit hit the fan,” says Bennett.

Here are is eight new rules of customer services:

Rule 1: Consumers are really thinking about what they need, why they need it and if they need it.

There is a new morality among many consumers, Bennett says: “People are acting less like traditional ‘consumers’ and more like citizens who are expressing their values through what they consume.”

Ideo holds regular Facebook “conversations” to gather intelligence from around the world. When IDEO posed the question – where is consumerism going? – a major trend through this IDEO Facebook conversation was a focus on health, learning and knowledge. People in London, Dubai and everywhere in between were talking about fresh air, drinking water, education, equality and quality experiences.

If these respondents are the new consumer, then clearly businesses with a real sense of purpose have a competitive advantage.

Rule 2: It’s back to basics. Simplicity is what the world needs now. Embrace it.

Bennett cites psychologist Barry Schwartz’s theories in his book The Paradox of Choice: Why More is Less where Schwartz rejects the idea that freedom of choice in Western society is a sign of modern progress. Schwartz describes “an explosion” of choice for consumers that has paralysed rather than liberated them.

For example, in his supermarket aisle there are 175 salad dressings to choose from. At his local entertainment store, it is possible to construct 6.5 million different stereo systems from products on offer. (It’s well worth watching Schwartz in action on www.ted.com.

Rule 3: Have a meaningful purpose.

Ikea was on to this idea early with a series of commercials in 2007. Ikea’s “purpose” is what matters in these ads, rather than showcasing a range of flat-packed furniture, we see homes from around the world and the tagline: “Home. The most Important Place in the World.”

Rule 4: Forget about selling products, deliver service.

In March 2010, Bennett went to the Apple flagship store on Fifth Avenue to have his computer fixed during a New York trip. The Manhattan store is right by Central Park, with a glass, shrine-like box out front. Beyond the theatrics, Bennett was blown away by the service. For starters the store is open 24/7, his laptop was fixed for free, it was even polished.

“The experience was a lot nicer than those luxury stores down the street,” he says. This service, rather than the laptop, is what cements a consumer relationship. The stores have tribes of concierges that help customers find their way to the right service area, rather than just having various departments that customers must find.

In order to do this, the staff needs to be really engaged in making the customer’s experience great and they have to really understand the product. Bennett’s way of describing the right kind of staff is that “their eyeballs are burning, they have passion-filled eyes”.

Rule 5: Play well and collaborate.

Brand partnerships are also an important trend Bennett has been observing. Brand sponsorship has been around for at least a century (Coca-Cola has been sponsoring New York’s Madison Square Garden for 100 years), but these partnerships are different. On March 26, Retailer Gap Inc announced a strategic partnership with Brand Republic, a subsidiary of Busby Holdings (that operates Aldo and Guess stores) to open up to 15 Gap stores in Australia. Woolworths is in partnership with HSBC bank to offer credit cards.

This trend is about big brands sharing the stage, rather than the brands fighting each other for their slice of the market.

“Innovation isn’t a one-man band,” says Bennett. “Build networks, coalitions, partnerships and alliances that add to the business, add to the whole pie, not just your slice.”

Rule 6: Have a dialogue with customers, not a monologue.

Listening to customers, really listening, sparking a conversation can lead to new business ideas. IDEO doesn’t just do its market research on Facebook. It is still a fan of wine and pizza market research nights. Its session with baby boomer mums across the US resulted in the idea for a Keep The Change account for client Bank of America, with every purchase from this special savings account, being rounded up to the next dollar, channelling extra money into the savings account.

According to IDEO, this campaign has led to more than 12 million new customers for the bank, proving that savings really is the new black. Bennett’s tip: “Keep listening to customers, keep the conversation going and constantly look for feedback; that’s where great new business ideas (and revenue streams) can emerge.”

Rule 7: One click and you are out.

Acknowledge the power of the internet, especially the immediacy of tweeting, and manage the risk. Bennett’s favourite example at the moment is the filmmaker Kevin Smith who claims he was kicked off a Southwest Airline for being too fat in March 2010. He tweeted his plight and the story went international within hours. Southwest has since apologised but the damage was done. Bad customer service travels really, really fast. It’s not about your website, it’s about the web and how people use it.

Rule 8: Small is the new big.

From little things, big things grow. A little idea from a series of dinners about a new type of savings account can gain incredible momentum if it is allowed to develop.

“Stop waiting around for the big idea and build on the small ideas,” Bennett says.

Secrets of the biggest selling launch ever

Been away for a while, time to return to improving the service experience of Australian customers one Service business at a time using Service Design and spending the time to really understand customers and how they view companies.

Below is an article from Seth Godin. Lots of lessons for all companies but as I see the world through the lens of service companies, imagine using these principles as a launching pad for idea generation for Service Businesses. Amazing!

Secrets of the biggest selling launch ever

Apple reports that on the first day they sold more than $150,000,000 worth of iPads. I can’t think of a product or movie or any other launch that has ever come close to generating that much direct revenue.

Are their tactics are reserved for giant consumer fads? I don’t think so. In fact, they work even better for smaller gigs and more focused markets.

Earn a permission asset. Over 25 years, Apple has earned the privilege of delivering anticipated, personal and relevant messages to their tribe. They can get the word out about a new product without a lot of money because one by one, they’ve signed people up. They didn’t sell 300,000 iPads in one day, they sold them over a few decades.

Don’t try to please everyone. There are countless people who don’t want one, haven’t heard of one or actively hate it. So what? (Please don’t gloss over this one just because it’s short. In fact, it’s the biggest challenge on this list).

Make a product(service) worth talking about. Sounds obvious. If it’s so obvious, then why don’t the other big companies ship stuff like this? Most of them are paralyzed going to meetings where they sand off the rough edges.

Make it easy for people to talk about you. Steve doesn’t have a blog. He doesn’t tweet and you can’t friend him on Facebook. That’s okay. The tribe loves to talk, and the iPad gave them something to talk about.

Build a platform for others to play in. Not just your users, but for people who want to reach your users.

Create a culture of wonder. Microsoft certainly has the engineers, the developers and the money to launch this. So why did they do the Zune instead? Because they never did the hard cultural work of creating the internal expectation that shipping products like this is possible and important.

Be willing to fail. Bold bets succeed–and sometimes they don’t. Is that okay with you? Launching the iPad had to be even more frightening than launching a book…

Give the tribe a badge. The cool thing about marketing the iPad is that it’s a visible symbol, a uniform. If you have one in the office on Monday, you were announcing your membership. And if it says, “sent from my iPad” on the bottom of your emails…

Don’t give up so easy. Apple clearly a faced a technical dip in creating this product… they worked on it for more than a dozen years. Most people would have given up long ago.

Don’t worry so much about conventional wisdom. The iPad is a closed system (not like the web) because so many Apple users like closed systems.
And the one thing I’d caution you about:

Don’t worry so much about having a big launch day. It looks good in the newspaper, but almost every successful brand or product(service) (Nike, JetBlue, Starbucks, IBM…) didn’t start that way.

A few things that will make it work even better going forward:

Create a product(service) that works better when your friends have one too. Some things (like a Costco membership or even email) fit into that category, because if more people join, the prices will go down or access will go up. Others (like the unlisted number to a great hot restaurant) don’t.

Make it cheap enough or powerful enough that organizations buy a lot at a time. To give away. To use as a tool.

They are brilliant as usual