Business Diagnostics Blog

Recent surveys indicate that 10 per cent of Canadians are considering starting their own business in the not-too-distant-future. Most poll respondents indicate that prudent fiscal management and concise small business planning will be key to their success.

In a June 30, 2010 news article in The Ottawa Citizen, certified management consultant Tony Wanless writes that in a recent survey, one in three Canadians said they were interested in starting their own business in the next two years. Of that group, 35 per cent said they’re going to follow through with those plans.

According to Wanless:

If we extrapolate from the survey of 1,010 Canadians by the tax and accounting software maker Intuit, that means about 10 per cent of Canadians plan to start their own businesses soon. If half of those do follow their dreams, that is quite astonishing.

What will also be astonishing, however, is if those thousands of would-be Canadian entrepreneurs proceed as 21st-century entrepreneurs instead of blindly imitating the methodology of 30 years ago.

Anyone who takes up the challenge of business startup today would do well to examine how entrepreneurship has changed in this century.

The biggest change is that today, less is best. Starting a business now is all about less — as in less elaborate business planning; less imitation and more innovation; less step-by-step execution and more going with the flow; less one-way delivery and marketing and more conversation with customers.

This less-is-best concept generally goes against traditional business training, which is based on the old industrial/retail system. Business plans, for example, are about execution of known factors, so if you’re building a factory that is going to be around for 10 or 20 years, you’ll need a business plan. But in today’s world of continuing change, any plan that details steps further out than quarterly or semi-annually is unsuited for anyone starting a small business.

The top entrepreneurship method now is the lean startup, an application of Lean thinking, which is an organizational method of operation derived from the Toyota production system.

In Lean thinking, an organization attempts to eliminate all wasteful effort and cost. Lean thinking means new startups rarely use formal business plans in the beginning because in a rapidly changing world they cannot obtain the information they need to plan several years in the future.

In fact, in 2002, the magazine Inc. surveyed founders from its Inc. 500 list of fastest-growing entrepreneurial companies and found that only 40 per cent had written formal business plans.

Of those, nearly two-thirds said they changed their businesses considerably from their original plan.

The lean startup applies the Lean thinking approach at the crucial period when new companies often have a concept but really don’t know how their businesses are going to evolve.

Since most new businesses — even those in traditional areas such as retail or services — now primarily operate online, this learning process is much easier.

So, what makes a start-up “lean”?

According to Wanless,  a lean start-up features three characteristics:

♦It keeps costs low by using open source and free software. If those aren’t available, it uses low-cost cloud computing (renting software and other services online) instead of initially buying expensive systems and software. They also endeavour to “rent” as many business needs, such as personnel, as possible;

♦It applies agile development when creating products or services. In this methodology, product development borrows from new software-creation models. Agile development is perfect for startups in which the problem (the genesis for all business concepts) and the solution (the business’ answer to the problem) are still fuzzy;

♦It constantly talks with customers, existing or potential, to see how they can improve. It usually begins with a simple product or service and then change or expand it to answer customer concerns. Its main business process is continual customer research and development.

Wanless provides a good example of this modern form of small business development:

Stewart Butterfield of Vancouver, who co-founded with his then wife Caterina Fake a company that had developed a multi-player online game.

The game went nowhere, so they dumped it and began working on an instant messaging application that had features such as game-like experience and the ability to handle photos. That evolved in 2004 into a photo-sharing application that became Flickr, now the dominant photosharing site on the Internet.

Fake, who has since divorced from Butterfield, said the pair couldn’t write a business plan because they couldn’t do any research on where the company might go. “We weren’t planning on building a photosharing site,” she said. “If we had done our research, we would have said we shouldn’t bother because it’s all been sewn up (by competitors).”

Flickr’s story is a tech one, but that doesn’t mean other entrepreneurs can’t learn from it and apply it to their own industry.

The biggest lesson is that in the early years businesses often change as they attempt to find a market niche in which their concept meshes with customer needs.

Determining the most efficient design and composition of a start-up or small, medium or new business requires planning and insight.

Business owners and aspiring business owners must have a firm understanding and appreciation of their business’s capabilities, value and potential.

When the time comes to expand operations to meet changing market conditions and growing demand, owners should have all their business plans in place to allow for financing, if and when needed.

“Business owners have to get their houses in order,” says Mike Thompson, co-author of Business Diagnostics. “Many small and medium sized business owners are faced with growing a fledgling enterprise to meet growing market demand. To access the capital they require, owners should be performing an internal and external Business Diagnostic ‘size-up.’ To determine exactly what they have, what they need and what they qualify for.”

Within Business Diagnostics, business owners are provided a step-by-step process on how to size-up their internal business operation and how to plan a proper course for a startup.

The internal size-up drills down into the company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology.

Meanwhile, Business Diagnostic’s external size-up examines the business environment (political, economic, societal and technological factors) along with prevailing industry conditions.