Executive Summary
Getting to Plan B: Breaking Through a Better Business Modelwas written by John Mullins and Randy Komisar. John and Randy met in California in the late 2006, when John was spending several weeks in California researching business models. Randy believed starting and growing a successful entrepreneurial company is a process that can be learned, and he learned some things he was eager to share. John Mullins is an associate professor and holds the David and Elaine Potter Foundation Term Chair in Entrepreneurship at London Business School. He has also published three books and more than forty articles. His researches won national and international awards. Randy Komisar is the author of the bestselling book The Monk and the Riddle, about the heart and soul of entrepreneurship. Getting to Plan B is the product of the experience and the knowledge of John and Randy since 2006.
In this book, John and Randy discuss how and why plan A probably won?t work. The book stated that; ?the research on new products success and failure indicates that it takes fifty-eight new products ideas to deliver a single successful new product?. Breaking through to get from plan A to plan B is about discovering or developing a business model that really works and not by duplicating the models already in existence. Business model is the pattern of economic activity, cash flowing into and out of your business for various purposes and timing. The book gives many different important business terms and their definitions, which help identify the right way to build a successful business plan. The authors discussed that there is a process that can lead to the discovery of a new and more attractive customer offering, and a potentially attractive plan B. This process can be followed systematically by outlining its four key building blocks:
Analogs: Successful predecessor companies that are worth mimicking in some way.
Antilogs: Predecessor companies compared to which you explicitly choose to do things differently, perhaps because some of what they did has been unsuccessful.
Leaps of Faith: Beliefs you hold about the answers to your questions despite having no real evidence that these beliefs are actually true.
Dashboards: is a tool that drives an evidence based process to plan, guide, and track the results of what you learn from your hypothesis testing.
Every business model comprises five key elements which are the content of the model, the building blocks that underlie the financial statement that will eventually measure the company?s results. These elements also answer one or more key questions that help determine the economic viability of any business that might be pursue. The five elements includes;
Revenue Model: Who will buy? How often? How soon? At what cost? How much money will you receive each time a customer buys? How often will they send another check?
Gross Margin Model: How much revenue is left after direct cost of what sold is paid?
Operating Model: What money must be spent to support the sale?
Working Capital Model: How early can customers be encouraged to pay?
Investment Model: How much cash is paid up front before making any profit?
This book is inspired by the stories of more than twenty companies that have successfully transitioned from plan A to a much more promising and productive plan B. Whether your idea is for a start-up or a new business unit within your organization, Getting to Plan B contains the road map you need to reach success.
The Ten Things Managers Need to Know fromGetting to Plan B
1.??????????? Plan A probably won?t work, therefore, Getting to Plan B is about how to avoid getting stuck in a rut, missing real opportunities, or worse, closing your doors.
2.??????????? The research on new products success and failure indicates that it takes fifty-eight new products ideas to deliver a single successful new product.
3.??????????? Running out of cash isn?t a cause; it?s a symptom or a signal that the company?s business model didn?t work.
4.??????????? It is valuable to compare your business to other companies (Analogs and Antilogs).
5.??????????? Use Dashboarding which is a methodical way of focusing your precious time and money on removing the critical risks that threaten your business laid plans, it makes you and your team focuses your attention on what?s most important right now.
6.??????????? It is important to test your leap of faith, which are the beliefs you hold about the answers to your questions despite having no real evidence that these beliefs are actually true.
7.??????????? Mixing and matching, not simply copying Analogs is the best way forward.
8.??????????? Should outline the five elements in a business model, to determine the economic viability and whether the business is likely to run out of cash or not.
9.??????????? The best ideas are those that solve somebody?s pain, some customer problem you?ve identified for which your solution might work.
10.??????????? Plans are useless but planning is indispensable.
Full Summary of Getting to Plan B: Breaking Through to a Better Business Model
Getting to plan B: Breaking Through a Better Business Modelis a book written by John Mullins and Randy Komisar. John and Randy met in California in the late 2006, when John was spending several weeks in California researching business models. At that time Randy was thinking about similar issues from his venture capitalists prospective. Randy believed starting and growing a successful entrepreneurial company is a process that can be learned, and he learned some things he was eager to share (Mullins & Komisar, X). John Mullins is an associate professor and holds the David and Elaine Potter Foundation Term Chair in Entrepreneurship at London Business School. He also has published three books and more than forty articles in variety outlets (Mullins & Komisar, Xi). His researches won national and international awards. Randy Komisar is originally a Lawyer; he served as CFO to GO Corporation, CEO of Lucas Arts Entertainment, breaking new ground in digital gaming and entertainment, and CEO of Crystal Dynamics. Randy is the author of the bestselling book The Monk and the Riddle: the Art of Creating a Life While Making a Living, about the heart and soul of entrepreneurship. Getting to plan B is the product of the experience and the knowledge of John and Randy since 2006.
As John Mullins and Randy Komisar explain in Getting to Plan B, new businesses are fraught with uncertainty. To succeed, you must change the plan in real time as the inevitable challenges arise. In fact, studies show that entrepreneurs who stick slavishly to their Plan A stand a greater chance of failing-and that many successful businesses barely resemble their founders? original idea. (Harvard Press, 2009)
Moreover, John and Randy discuss how and why plan A probably won?t work. Breaking through to get from plan A to plan B is about discovering or developing a business model that really works and not by duplicating the models already in existence. Business model is the pattern of economic activity, cash flowing into and out of your business for various purposes and timing thereof that dictates whether or not you run out of cash and whether or not you deliver attractive returns to your investors (Mullins & Komisar, 4). The book gives many different important business terms and their definitions, which help identify the right way to build a successful business plan. John and Randy say that there is a process that can lead to the discovery of a new and more attractive customer offering and a potentially attractive plan B.
Chapter 1 ?Don?t Reinvent the Wheel, Make It Better?
This chapter is about learning from the experience of others, using both successful and failed activities to support your decision and help you develop your own hypotheses to build your business. As mentioned in the book, ?Picasso had a saying: he said good artists copy, great artists steal? (Mullins & Komisar, 20). The chapter discusses three main points when deciding on how to start your search:
Analogs:Successful predecessor companies that are worth mimicking in some way. The book stated that; ?the research on new products success and failure indicates that it takes fifty-eight new products ideas to deliver a single successful new product?(Mullins & Komisar, 3).
Antilogs:Predecessor companies compared to which you explicitly choose to do things differently, perhaps because some of what they did has been unsuccessful(Mullins & Komisar, 6).
Leaps of Faith:Beliefs you hold about the answers to your questions despite having no real evidence that these beliefs are actually true (Mullins & Komisar, 7).
This process doesn?t ever get to an end; you always need to search for analogs, antilogs and leap of faith to keep your business running in the best shape and form.
The chapter offers three different examples for business that learned from their predecessors? successful and not successful ventures. They also offer unique lessons about getting to plan B and share common theses. For instance, how analogs and antilogs can play an important role in helping business owners getting from plan A to plan B or plan Z. Also, how analogs and antilogs can be used, they can?t simply be copied, innovators can mix and match them and give them their own unique twist.
The most interesting case was about Apple. How Apple branched out from being known for their personal computers to being mostly famous for IPod and ITunes. Apple firstly got the idea of the IPod when they were searching for a new big product in 2000, since the company had struggled competitive personal computer industry and was in need to some dramatic reinvigoration. At that time, there was an appetite for digital music. Apple used some analogs to guide them entering to plan B, starting with Sony?s Walkman, a successful product introduced in 1979. The IPod was launched in 2001 contributing revenue in the first year of 3 million. Getting further, Apple wanted to complete the picture, by selling music as well. The best example was Gillette. As discussed in the book, apple was already selling razors (the IPod) but they wanted to sell the razors blades (music). Apple used another analog to support this step, Napster, the analog showed that an online music store with free music is successful. With a bold leap of faith that people would pay for music to download it on their IPods, ITunes was born in 2003 with million downloads sold on the first day.?
Chapter 2 ?Guiding Your Flight Progress?
This chapter is about the process of dashboarding. Dashboarding allow the managers to identify the leap of faith that would mean life or death to their companies. As a result, they could focus their scare time and precious resource on resolving those issue before moving on to tackle the next set of hurdles.? To get the most out of dashboarding, there are three things that matter the most:
The quality of the question you ask to identify your leap of faith
What you do with the data
The speed at which you get on with your next steps (Mullins & Komisar, 62).
Dashboardsis a tool that drives an evidence based process to plan, guide, and track the results of what you learn from your hypothesis testing(Mullins & Komisar, 7). It keeps track of the most critical indicators of how they are proceeding on their journey. Dashboards usually change over time and emphasis quantitative measure even though it may include some hypotheses that maybe qualitative. In a dashboard you will most likely find:
Your leap of faith
The hypotheses you will test
The metrics you will use to measure your results
The results of your hypothesis test over one or more periods
The insight you draw for decision making, based on the results you?ve obtained (Mullins & Komisar, 40)
Every business model comprises five key elements which are the content of the model, the building blocks that underlie the financial statement that will eventually measure the company?s results. These elements also answer one or more key questions that help determine the economic viability of any business that might be pursue. The five elements include;
Revenue Model (Chapter 3)
Gross Margin Model (Chapter 4)
Operating Model (Chapter 5)
Work in Capital Model (Chapter 6)
Investment Model (Chapter 7)
Chapter 3 ?Air, Food, and Water?
Chapter 3 is the first of five chapters that address the above key elements. The core of any successful business is to find a customer pain, and your task is to resolve the pain while making profit. The book suggests making a bug list- a list of things you encounter that are not quite right, or not done as well as you think they should be (Mullins & Komisar, 83). This chapter guide innovators on how to build a healthy, working revenue model in which customers pay. Revenue is money given by customers in return for whatever it is the sold product or service.
Revenue Modelexamines six questions:
Who will buy?
What will they buy?
What pain are you resolving for your customers, or what delight are you offering?
How often? How soon? And how much or many will they buy?
At what price will they buy, and on what basis will they pay?
With what effort and cost on your part?(Mullins & Komisar, 60)
These questions need to be answered with evidence from chapter 1 and chapter 2 not hopes. It should also be considered that if the only source of cash is investors rather than customers, it?s unlikely that you?ll actually get any investors.
The chapter views three cases that support how questions on the revenue model are answered. The most interesting was bout Google, the story shows how a key analog, antilog and leap of faith helped Google eventually uncover customer pain that turned the company from having no revenue in its early day into not only the world?s fastest growing search engine, in addition one of the world?s best money making machines.
Chapter 4 ?Avoiding Rocks and Hard Places?
Gross Margin = Revenue ? cost of goods sold
The goal of this chapter is ensuring sufficient gross margin (sometimes called gross profit) so that the firm has the financial freedom to expand, pay investors, and cover other costs. The gross margin model addresses a simple question; how much revenue is left after you had paid the direct cost of what you have sold? In today?s market, new digital technologies are enabling new gross margin models in which COGS approaches zero.
Gross Margin Modelis constructed out of three building blocks:
The spread between price and COGS, in both absolute and percentage terms (how low can you drive COGS, and how high can you drive your prices, customer wiling?)
Managing your gross margin mix (what are the gross margin percentage you will earn on the revenue generated from the various portions of your product mix, what are the relative proportions of revenue you expect the high margin and low margin portion of your product mix to account for?)
How can your gross margin model gives you competitive advantage in a way that others in the industry lack?(Mullins & Komisar, 111)
After reading the three cases for this chapter, the most appealing one was the Toyota case. The bases for Toyota Motor Company?s success were four terms:
Kanban: the just in time system,
Jidoka: built in quality,
Muda: eliminating waste, and
Kaizen: to constantly improve.
These terms turned out to be a recipe for manufacturing acumen and a superior gross margin model.
Chapter 5 ?Trimming the Fat?
This chapter emphasizes on how to use analogs and antilogs to rethink the operating costs. The foundation of building the operating model is known by accountants as the chart of accounts (Mullins & Komisar, 114). The operating model addresses one question; other than the cost of goods or services you have sold, what else must you spend money one to support the sale?
Operating Modelis drive by three strategic questions:
What level of cost, expressed in absolute or percentage of sales terms, will your company incur in each of the operating cost categories?
Which of these costs can be reduced or eliminated entirely?
Which of them should be increased in line with your planned strategy?
The cases analyzed in this chapter show how increasing or decreasing the operating cost can affect the business sometimes positively or negatively. Some operating cost stays the same while some may vary with sales, this is a point that needs to be studied carefully while dividing the operating cost into; fixed and variable cost.?
Chapter 6 ?Cash is the King?
Working Capital = Current Assets ? Current Liabilities
The goal of this chapter is to get business owners thinking in a strategic sense rather than profit about cash and cash flow. Since cash is the king as most entrepreneurial circles say, failure to earn profit won?t put the business out as long as there is still cash but running out of cash even if the company is profitable, puts it in a critical situation.
Working Capital Modelhas three strategic questions that need to be asked:
Considering the revenue model, when can you encourage customers to pay? Can you get them to pay earlier? Why or why not?
How quickly or slowly must you pay key suppliers and employees? What are the industry norms? Why might you be able to alter them?
How much cash (measured in days) must you tie up in inventory or other paid items before they are ready to be sold? (Mullins & Komisar, 156).
For many companies a negative working capital is the fuel for getting to plan B, therefore, it?s worth searching for and working for. The negative working capital model offers benefits since it makes it easier and less costly to get into business in the first place, and it makes it much easier for the business to grow. The chapter also mentions that getting to negative working capital won?t happen for those who confine their managerial attention on the companies income statement, since building a working capital is all about the balance sheet (Mullins & Komisar, 154).
Chapter 7 ?It Takes Money to Make Money?
??????????? This chapter talks about the most difficult part in setting a business model, which is raising money. Usually the less money you need to rise up front is the better. You should always consider other methods than putting cash when investing in a start up business, like borrowing, leasing or outsourcing it for less cash up front.
Investment Modelis about figuring out two things:
How much cash you?ll need up front to get into business?
Your investment model aims to take you through the rocky period until it can consistently generate enough cash to achieve break even cash flow, so they don?t need to invest no more (Mullins & Komisar, 158).
These two phases includes seven important questions used when developing an investment model:
The Prelaunch Phase:
What are the hard assets you?ll need to prelaunch? What will they cost to buy, rent, or lease?
What are the development activities that must be completed before you launch? What will they cost?
What are the leap of faith you must test prior to launch? What will it cost to test them?
Which of the above can you delay or find a way to do without, or do more cheaply or simple?
The Post launch Phase:
What revenue and gross margin can you generate to contribute to your ongoing costs?
How lean an operating model can you run pre-breakeven?
In addition:
?Which key leaps of faith, if proven, will signal stepwise reduction in risk? How much cash will it take to reach each of them, and how much of your funding can be postponed until later? (Mullins & Komisar, 160)
This chapter included a very interesting case from my point of view, it?s about the telecom industry, comparing between Skype and Vonage. The book mentioned that Skype had $ Zero marketing investment in their first year but they were able to sign up 7 million users, while on the other side Vonage spent 6 million on marketing to be able to subscribe 1.4 million users after 4 years ( which caused an operating loss of 3 million). Skype and Vonage case show that to start a new company, isn?t not always necessary to have a big upfront investment, especially if the founder have the expertise to spend their own time to design a compelling product before investment is needed like in the case of Skype.
Chapter 8 ?Can you Balance a One-Legged Stool?
??????????? This chapter explains how the five business model elements work together to create successful companies and cash for growth. Business models are not built one element at a time, in order for the business model to work, you?ll need to consider all the five elements together as a package and determine how each influences the other.
The chapter examines three highly entrepreneurial companies whose success rested on a combination of the business model elements, each of these cases shared three common themes:
The founder created a thoughtful combination of two or more business model elements that was fundamentally different from current industry practices, the industry existing plan A
The business model grew out of a customer focused strategy
The strategy that favorable implications for generating and sustaining positive cash flow thereby enabling the founders to rapidly grow to business.
The strategy as expressed in the five business model elements is what drives cash flow, profitability, and growth, as ultimately reflected in the financial statements, whether planned or actual (Mullins & Komisar, 180).
Chapter 9 ?Getting Started on Discovering Your Plan B?
??????????? This is the last chapter in Getting to Plan B; the chapter summarizes everything that was discussed in the book, it also give advises, and conclusions. In addition, it provide a clear outline on how you can start immediately with the information you have been learned. The chapter also mentioned that the three sources of raising cash are:
Gross margin nirvana
Negative working capital
Investment model
The chapter pinpointed some clues about why don?t most business plans deliver, including:
Far too many business plans are written in the first burst of enthusiasm without a shred of real evidence to support their assertions
The plans assume that most everything is already known upfront
The rampant uncertainly about what lies ahead goes entirely unacknowledged.
John and Randy doesn?t advise readers to have a plan B upfront because a contingency plan would probably be just as flawed as plan A that previously didn?t work. They also added, ?Your time and talent are scarce commodities, so we suggest that you not even think about plan B until your dashboarding takes place? (Mullins & Komisar, 212).
The final step is putting everything that was learnt in the book to work, by designing a business model grid that includes all the business model process and content. After analyzing the business model grid you will have three things:
A series of short paragraphs that collectively describe your plan A in considerably more details than the one liner at the top of the business grid
Some dashboards to both set your planned route towards possible, but as yet unknown, plan B and to correct as your venture evolves
All of which, taken together, comprise, in effect, the strategy you initially envision, viewed though a business model lens
I really enjoyed reading this book, especially with the cases discussed by the end of every chapter. I also learned many new facts that I never considered before, for instance how investment can be approximately zero and still build a huge business. I?ll defiantly recommend this book to others who need to build a strong base of information about how to move from plan A to plan B and make it work better.
Personal Insights
First, choose one of the following two bullet items to write about:
Why I think:
The author is one of the most brilliant people around?or is full of $ %, because:
I think the authors are really brilliants since they wrote their experience of many years in this book. Also the most interesting thing about this book is how it?s outlined; they divided each chapter into three parts. First, the information the authors are giving about business models. The second part is cases from today?s business world to support the information given. The third and the last, is a summary, question & answers with John and Randy and a model checklist about the chapter. The process they discussed is designed for learning and discovering rather than for pitching and selling, which makes it worth more.
With business conditions today, what the author wrote is ? or is no longer true ? because:
This book was written in February 2009, which is not long time ago; therefore what the authors wrote is true about business conditions today. The authors discussed a simple process designed to guide business people go through steps so they can move from Plan A which didn?t work in the beginning to Plan B which will probably work better.
Then, all of the following bullet-items are mandatory to write about:
If I were the author of the book, I would have done these three things differently:
1.??????????? I would have definitely used more pictures and diagrams.
2.??????????? I would have explained the figures provided more clearly.
3.??????????? I would have used less business terminology in chapter 6 ?Working Capital Model? to make it easier to understand.
Reading this book made me think differently about the topic in these ways:
1.??????????? How and why Plan A probably won?t work.
2.??????????? The Five elements of a business model and how they work separately and together.
3.??????????? Up front Investment in marketing a product can be Zero and still the business can succeed and attract more customers than businesses with heavy marketing plans.
I?ll apply what I?ve learned in this book in my career by:
1.??????????? When Plan A doesn?t work, I don?t need to panic and go out of business instead I should start getting to plan B.
2.??????????? Learning from the experience of others, using both successful and failed endeavors. This procedure will save me time, effort and benefit me since I?ll learn from others mistakes and achievements.
3.??????????? The most important point when thinking about starting a new business is identifying customer pain. Then finding a solution that believe resolve it, or an opportunity to offer consumer delight where it is absent today.
Here is a sampling of what others have said about the book and its author:
INC. magazine talked about Getting to Plan B in September 2009. Leigh Buchanan wrote a review about the book discussing the book content; ?Entrepreneurs rarely nail their business models the first time around. Some of the most successful companies are unrecognizable from their young, naive selves. But after rejiggering, their founders came out aces. You can, too?. The magazine rated the book category 7 on a scale from 1-10. Buchanan also mentioned; ?Mullins?s research into business models and Komisar?s experience with his portfolio companies are buttressed by extensive use of secondary sources?.
Harvard Business Press also talked about the Getting to Plan B in September 2009 explaining; ?The authors provide a rigorous process for stress testing your Plan A and determining how to alter it so your business makes money, solves customers? needs, and endures?.
Bibliography
Getting to Plan B. Retrieved September 2009 from
http://hbr.org/product/getting-to-plan-b-breaking-through-to-a-better-bus/an/2669-HBK-ENG
Mullins & Komisar, 2009. Getting to plan B: Breaking Through a Better Business Model. Boston, M: Harvard Business Press.
Review: Getting to Plan B. Retrieved September 2009 from http://www.inc.com/magazine/20090901/review-getting-to-plan-b.html
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To contact the author of this Summary and Review of ?Getting to Plan B? please email W0365679@selu.edu.
Biography
David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:
Management Concepts (http://toptenmanagement.blogspot.com/)
Book Reviews (http://wyld-about-books.blogspot.com/) and
Travel and International Foods (http://wyld-about-food.blogspot.com/).????????????????
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