Ask an entrepreneur, if he had stuck to his original business plan and done well. The answer most likely will be “No”. Most well-known companies — say, Google, Starbucks, PayPal or even Pantaloon in India — have done well only after making radical changes to their original business plans. Entrepreneurs and start-ups must realise that the probability of their original business plan failing is very high, and thus they should be prepared to quickly get back on their feet and morph or change the original plan with a better one, says John Mullins, associate professor of management practice at London Business School and co-author of the book, Getting to Plan B, (with Randy Komisar of Kleiner Perkins Caufield & Byers). Mullins who was in Delhi recently, spoke to Amit Ranjan Rai on the uncertainty new businesses are fraught with and the way to go about changing the original business plan to Plan B.
Your book strongly asserts that the original plan with which a company starts off usually fails. Why do you say so?
I think it is widely known that Plan As usually fail, but it is not widely talked about. When this book came out and entrepreneurs saw the title, they said, “Oh, yes, it is about Plan B.” If you ask investors, how did they make money, they’ll tell they didn’t make it on the original plan, but on the second or third when the entrepreneur adapted the original plan and found a better plan. Rarely do initial plans with which entrepreneurs begin work the way they have been planned. Almost always there are twists and turns on the road.
Companies that created fabulous business models did so mostly on their second, third or fourth try, in the case PayPal, its seventh try. It took PayPal’s Max Levchin seven tries to found the right model to monetise effectively his crypography expertise.
But why do original plans fail?
That’s because it is practically impossible to predict exactly what will happen. You can’t usually predict what customers will buy, when they will buy, and what will they be ready to pay. You can’t predict what it will cost you to attract that customer in the first place or the competitive challenges that will surface as you develop your ideas.
There is just so much that you don’t know, you can plan all you want and you can plan to death. As Dwight D Eisenhower once said: “Plans are worthless, but planning is everything.” So you’ll have to plan, but you have to understand at the same time that your initial plan is going to go wrong. Now, that’s difficult for many people to accept but that’s the truth. In stable well-understood environments, planning works well but in unstable or uncertain environments, like those in which entrepreneurs usually operate, planning is more likely not going to be right.
But a lot of research and ground work goes into reading the markets correctly and finding the right business model.
Shouldn’t the emphasis be on making a better Plan A (than moving to Plan B), so that the initial investment that goes in is better utilised?
The challenge is not to make a better Plan A, the challenge is to recognise that however good your Plan A is, it is probably not very accurate. So your mindset, as you enter a process, should be to work out the best plan and at the same time, to get beyond that initial plan. Get it into the market and see if the market can tell which parts of that plan are correct, and which are off base, so that you can quickly adapt to the reality. Plan As are mostly partly correct, but not completely correct.
So, how should entrepreneurs move from Plan A to Plan B? Is there a framework?
You have do a couple of things. You have to look back in time and see what people have done before. We call these analogs — examples of other companies that have done something similar to what you are going to do. There are many analogs out there, portions of which can be borrowed or adapted to help you understand the economics and various other facets of your proposed business.
Next, you should also consider what we call antilogs — examples of companies that have done things in a way they should not have. Learn from their mistakes and be sure not to repeat them. For instance, there were some MP3 players already existing when Apple created the iPod. One of them, called the Diamond Rio, was the clunkiest and least user-friendly device one can imagine. Apple’s Steve Jobs looked at it and said we’ll build an MP3 player, but it’s not going to be anything like this.
Then probably, you will have to take some leaps of faith — beliefs you think hold the answers to your questions despite having no real evidence that these are actually true.
Leaps of faith.... Can you explain with an example?
When Steve Jobs turned Apple from an innovative design-led PC manufacturer that wasn’t making much money into a music industry powerhouse, he had to wrestle with the fact that he didn’t knew certain things. He didn’t knew if people will pay to download music over the Internet when they were actually stealing music through Napster and similar applications. Jobs looked back on what had gone before and said, Sony has sold 300 million walkmans, so there is a market for portable music. But Napster had 26 million users downloading music everyday. So, was there really a market for selling music over the Internet?
His leap of faith was that he can get customers to pay ¢99 a tune for at least some of the music they download. But he had to test that leap of faith, so he called up The Eagles’ drummer Don Henley and said he wants to put the Eagles library on the new thing he is going to do at Apple called the iTunes. Would he do it for a price of ¢99 a tune?
Jobs got a few musicians on board and went to the record companies and said that artists want do this and that he needed them on board to solve this problem that Napster has created and make some revenue through online music. Apple is a different company today, more than half of its business comes from music.
Any example of an Indian company that moved from Plan A to B that you find striking?
Kishore Biyani’s Pantaloon is a good example. Biyani was in the business of making men’s pants and he thought that the retailers were so bad that he can do a better job himself. He began studying retailers from other countries such as Walmart and Marks & Spencer. His genius was that he took the best from some of the western concepts and applied them in a uniquely Indian way.
For instance, the first Big Bazaar stores he opened were very neat and orderly. But then he realised that the stores were so orderly that people would just walk through them and never stop to pick anything up. So he decided to mess up the stores a bit and create a more bazaar-like environment to make them more comfortable for Indian shoppers who were used to the chaos of the bazaar.
So Biyani’s genius was in copying the backend, the supply chain efficiencies from Walmart and Marks & Spencer, and changing the front-end in-store experience to one that Indian consumers were more accustomed to.