4 Elements of a Lean Business Plan

A formal, traditional business plan is a document prepared by entrepreneurs that is full of details, descriptions and designs for presentation to investors or lenders. It provides extensive, detailed information and data about the business model, but it’s not necessarily a useful tool to help business owners manage their operations.

Once the owners secure the funding for their proposed new business, the formal business plan goes on the shelf. It’s generally not used as a guide to run the business and is not pulled out again until the next presentation for more funding.

But small business owners need to manage their business and that’s when a lean business plan becomes the most useful management tool.

​Read More​: How Can a Business Plan Help My Small Business?

The idea of creating a lean business plan began with lean startups in Silicon Valley looking for investors and funding. Investors and venture capitalists wanted something from these aspiring startups that could give them a quick overview of the proposed business. They didn't want to slog through a document that was several hundred pages long to understand what the business was about. They needed a simple document that quickly presented the core principles of the business idea.

A lean business plan filled this need. It gave them only the essentials needed to grasp the idea and focus of the business and a brief description of how it would make a profit.

A lean business plan starts with a simple, core business plan that involves regular reviews and revisions. A lean business plan is like an operating manual for a product. It contains only the basic steps every business owner needs to follow to direct and control their operations.

A lean business plan is not a traditional business plan; it’s not even a document. It's more of a roadmap or a route with a collection of lists, tables and bullet points combined with the action steps needed along the way to accomplish the business model.

The lean planning process includes a strategy, tactics, review schedule, milestones, assumptions, sales forecast, expense budget and cash flow projections. It uses bullet lists as short reminders of the objectives, not lengthy, wordy texts. The idea is to lay out a plan and steer your company along the described route toward its goals.

A lean business plan has four simple parts: strategy, tactics, essential numbers and execution

Business owners can use a business model canvas template to develop their strategy with a business model canvas. It will define the key elements that make up the operations of the business model in a simple, easy-to-follow form. The strategy crystallizes the focus of the business. The basic elements of a strategy would include:

• What the business does and its values
• The target customer segments that you want to reach
• The problem you’re solving for your target market
• Your solution to the problem and what value proposition it provides to your customers
• Why your product’s competitive advantage makes it better than the competition
• The revenue streams that will produce a profit
• The business strategy section is much like the executive summary found in traditional business plans

​Read More:​ Preparing the Figures for Your Business Plan

Tactics are what you do to accomplish your strategy. They are the day-to-day action steps that you and your employees take that will lead to accomplishing your goals. Here are some examples.

​Market analysis tactics​ - The answers to each of these questions will identify the action steps in a marketing plan:

• What products and services are you offering?
• How will the products be positioned in the market?
• What sales channels will you use?
• Where will you sell your products and services?
• What makes your products unique from your competitors?
• How will you promote your products and services?
• What is the pricing strategy for your products?
• Will you have an online presence with social media or will you sell through physical locations?

​Financial and administrative tactics​ - These are a few funding and administrative tactics

• How are you funding your operations? Debt or equity?
• What is your projected cash flow on a weekly or monthly basis?
• How many people do you need and how will you recruit and train them?
• What is the operating budget?

Here are a few examples of employee actions and responsibilities that originate from tactics:

• Sales staff will make X number of calls per week resulting in X number of sales.
• Production managers will maintain the costs of manufacturing within certain expense parameters.
• Inventory managers will keep inventory levels within the target turnover ratios.
• Administrative personnel will be proactive in collecting accounts receivable.
• The CFO will meet with bankers to set up lines of credit.
• Marketing staff will conduct surveys to determine a competitive pricing structure.

Tactics identify what each employee will do. They’ll define each person's role in the business and their contribution to reaching the business’s goals.

​Read More​: What do Financial Ratios Tell You?

Prepare financial projections of your various revenue streams, spending categories and cash flow to identify your target numbers. Forecasts don't have to be accurate, but you must make them, especially sales forecasts. The same goes for projecting expenses. They can always be adjusted as conditions change.

These forecasts will form the basis or milestones by which to monitor and gauge the performance of your business. Examples of weekly or monthly essential numbers could be as follows:

• Revenues by customer and product segments
• Gross profit margins
• Overhead expenses
• Net profit margins
• Cash flows
• Cash balances in the bank
• Accounts receivable aging
• Inventory levels
• Working capital levels
• Debt-service coverage ratios

Tactics mean nothing unless they come with specifics: what is supposed to happen, by when and who will be held accountable and responsible. This is the foundation of execution. Here’s the process:

​Review schedule​

Pick a date and a time, and stick to it. It could be something like 9 a.m. on the 3rd Tuesday of every month. If you leave your regular reviews to be done whenever you have time, they'll never get done and you will lose the major benefit of the lean business planning process.

​Assumptions​

Make a list of the assumptions you made when creating your projections. Then when you're comparing actual results to the projected figures, you can look back at your assumptions and see if they need to be changed. If so, you can revise your future projections based on the updated assumptions.

Milestones

Milestones are things that you expect to happen, when you expect them to occur and who is responsible. They are the markers that record your progress toward your goals.

When your essential numbers indicate that you're not hitting your target milestones, you identify the problem causing the deviation and make revisions to get back on the right path.

Metrics

While milestones mark progress, performance metrics measure how well managers and employees are doing their jobs. Performance metrics can be tailored to the specific needs of your industry.

For example, a retail store might track sales per square foot or the amount of foot traffic entering the store. A performance metric for a sales staff might be the number of calls made per day.