While easier and quicker to put together, a lean business plan does need to be fresh and frequently updated
While easier and quicker to put together, a lean business plan does need to be fresh and frequently updated

There are two kinds of business plans. The first variety is the multi-page document that follows a tried-and-true format. It has at least eight sections, and it looks far into the future to argue for the viability of your business. This is the "traditional" business plan.

The second type is shorter and leaner -- which is why it's called, well, the "lean business plan" or the "lean startup plan." An extension of the "lean manufacturing" movement, popularized by Eric Ries' 2011 book The Lean Startup, the lean business plan recognizes a few things about the nature of business in the 21st century that its traditional counterpart doesn't. As a profile of a company, it's intended more for internal than external eyes; as a corporate proposal, it's more of a hypothesis than a thesis -- a mandate, but with built-in flexibility, meant to evolve with the enterprise.

Elements of a Traditional Business Plan

With its simple structure, the lean business plan is a sense a return to the past. For centuries, businesses existed without business plans. Their owners and entrepreneurs essentially embarked on their commercial journeys without having read (let alone drawn) a map first. If they did ever have to formally write down what their venture was all about, they would address specific subjects, like company structure (who is in what position?), the sales and marketing plan (how do we attract customers?), and the business' assets and financials.

According to Tim Berry, a software entrepreneur who owns a website dedicated to helping fellow entrepreneurs, traditional business plans really took off in the U.S. when tech companies started using them to woo venture capitalists in the late 1970s. Obviously, the idea caught on for companies in all sorts of sectors. Half a century later, the raison d'etre remains essentially the same. While a traditional business plan certainly helps a company and its stakeholders clarify overall strategy and goals, its most important aspect is its value to people outside the company.

Traditional business plans have highly standardized formats. The common features of the traditional business plan (often in this order) are:

  • The Executive Summary: A brief overview of the entire document.
  • Company Description: The section containing the company's basic information.
  • Objective Statement: What's the object of your business; what are you aiming for?
  • Business and Management Structure: The executive roster.
  • Products and Services: What you sell/offer now, and what you will provide in future.
  • Marketing and Sales Plan: How will you acquire new customers?
  • Business Financial Analysis: Just the facts in the form of numbers and ratios.
  • Financial Projections: Future/projected cash flows (important info for investors).

As befits something for external consumption, the information in the business plan is polished and carefully presented. Of course, companies can and do use their business plans as guides to short-term goals. Too often, though, companies don't take introspection seriously. If they have a traditional business plan, it sits in a drawer unable to assist in driving the company forward.

Elements of the Lean Business Plan

The lean business plan, on the other hand, is meant to be a living document; the point is to keep it updated and periodically "test" the hypothesis of your business to make sure you stay on the right track. Businesses create a lean business plan as a document they check periodically -- once a quarter, or even once a month -- to make sure that their founding assumptions are correct and that their strategy and tactics work. Two popular acronyms for understanding the principles of the lean business plan are Plan, Do, Check, Adjust (PDCA) and Plan, Run, Review, Revise (PRRR).

While the exact steps you take to run a lean business plan can vary, they tend to include these categories:

  • Strategy. Planning means assessing where your business is in its market and relative to its competitors and then strategizing how you can grow the business. How can you capitalize on current strengths and turn current weaknesses in your favor?
  • Execution. Running the plan requires tactics. What are the quantifiable steps you can take in the short term to grow the business? This may be marketing moves like buying ads, creating a content marketing plan, or direct sales. Tactics also include strategic hires and creating a calendar for product updates.
  • Measurement. Setting measurable benchmarks is how you confirm your strategy and execution, steps one and two, are working. Some people frame these as Key Performance Indicators (KPIs) or as Objectives and Key Results (OKRs). Either way, reviewing what has met expectations and what hasn't helps to refine your expectations.
  • Analysis. What worked and what didn't what needs to change? Is it time to pivot? The end of this process often involves a new take on strategy.

These elements are intended to drive management thinking around the company's goals and its path to success.

A Lean Business Plan Template

The lean business plan also literally looks different than a traditional business plan. The latter is often printed out on white, 8.5x11 paper with headings and an attractive font, illustrated with carefully designed charts, tables and graphics, and smartly packaged.

The former can be a slideshow or a spreadsheet with links to strategy documents. As long as it covers the essential categories listed above, it doesn't have to have a set, prescribed form. In fact, a lean business plan is supposed to be bare-bones and include only the most vital, necessary information.

Templates that help you create a lean business plan are widely available, including a free template from the Small Business Association (SBA).

The SBA's sample plan is a table with headings like "identity," "target market" and "expenses." Other categories the SBA recommends for a lean business plan include:

  • Key partnerships
  • Key activities
  • Key resources
  • Value proposition statement
  • Customer relationships
  • Customer segments
  • Channels
  • Cost structure
  • Revenue streams

All are explained by a few brief sentences and/or a handful of bullet points.

Which Business Plan Is Better?

In practice, neither sort of business plan is better than the other because they serve different purposes. The lean business plan is for the company insiders (mostly) and the traditional business plan is for investment-minded outsiders (at least, some of them).

Practically speaking, the lean business plan should be the business's first go-to plan. It's a roadmap to keep everyone traveling at the same pace and in the right direction.

However, when you are looking specifically for financing -- a business loan, angel investors, or venture capital -- you may well need to submit a traditional business plan. Tim Berry calls this situation a "business plan event." He counsels using the lean business plan you created to keep track of your business as a first draft and the adding elements like the executive summary and nice tables of financial data. And, of course, your pitch for funding: how much you want and how you'll use.

In many ways, the lean business plan is just an evolved version of the traditional plan that reflects not only how business itself has changed in the last 10 years, but also how the expectations of lenders and investors have changed. While easier and quicker to put together, it does need to be fresh and frequently updated to retain its value. Best of all, it's great practice if you ever need to write up a long, formal, oh-so traditional business plan after all.