Start moving forward with your business plan by acknowledging that your experience is limited

The more innovative and creative your business idea is, the more humble your implementation strategy should be.

Heikki Immonen, Karelia University of Applied Sciences

Dealing with uncertainty, i.e. missing or inaccurate knowledge, is the most important challenge in entrepreneurship. Yet, many novice entrepreneurs act as if there is no uncertainty. Even worse, emphasis on charismatic pitching is often pushing for a cocky over-confident entrepreneur-type. Don’t be this “know-it-all” person. Instead, be humble, because being humble prepares you to face the unknown.

If you could do only one thing, approach your starting up process as journey to the unknown. Let’s see how you can do this in practice.

Starting up is a process of making decisions that lead to successful outcome

Classic bad way for you to start a company, is to convert your idea in to a plan and then go and implement it. What you should do instead, is to see the planning and implementing as series of decisions that eventually lead to a successful business. This process is takes you from high uncertainty and low investments to low uncertainty and big investments.

Common steps are:

Getting feedback via small experiments and from people who have experience about the market and similar business. (if you are that experience person yourself, this step is pretty simple)
Testing the product with real potential customers
Launching a minimum viable product (and company registration) to learn from first paying customers who use a pilot version of the product or service
Bigger investment decisions based on lessons learned

The exact steps depend on the type of business you are hoping to build and how much uncertainty there is. The steps are different for a restaurant business and for an mobile app business.

Your business plan is only as good as your relevant experience.

This is fundamental. Imagine navigating a strange city using a map representing another city. If you design your route using that wrong map, you will automatically fail. In business it is often that those who know the least think they know the most. Thus, unless you have a lot of experience about your field of business, be very skeptical about the quality of your knowledge.

We have witnessed often that those who are most experienced also have the best grasp of the limits of their knowledge.

Perfect knowledge if it exists, is limited tiny pockets

If you have perfect understanding of reality, you can make all the decisions at once. And as nobody has perfect knowledge, nobody should make detailed business plan and investment decisions with the knowledge they currently possess.

There are, of course, areas in our lives where we have “perfect” understanding of the situation. For example, the layout of your apartment doesn’t change overnight with high certainty (unless of war, or natural disasters). A craftsman knows how to make wooden chair. If you have these pockets of high predictability and perfect knowledge, be grateful and use them to your advantage. Just don’t be fooled to think that smaller areas of predictability at the level of the parts mean that everything else is also fully predictable.

One of the reasons people with experience end up being more successful, is because they know what they know for sure, and what they don’t

When in doubt delay decision making until understanding improves

If your understanding is limited, you must delay making certain decisions until your understanding improves. There are so many examples of this. Don’t invest in expensive tools and technology unless you have confirmed product-market fit and projected desired profitability. Don’t rush in to paying to ad agencies before you actually know if your product-market fit is good. Give it a bit more time and try learn more so that you make the right investment decisions.

One former Joensuu-area entrepreneur found a great way to test her new restaurant concept by teaming up with an existing local catering service. This way she could test and adjust the menu and restaurant as an event catering offering without having to buy even a single spoon herself.

You need to plan the steps with awareness of what you don’t know.

Use business evaluation tools to know what you need to know

Start by asking yourself: “What you need to know to make good decisions?”. If you are a baker and are planning to invest in an oven, calculate first how many breads you need to bake to be profitable. This way you know what is the required capacity of the oven, and you don’t accidentally buy too small oven, or overpay for a too big one.

The three business model evaluation tools (product-market fit, feasibility, and profitability) are excellent for uncovering specific questions you need answered before making bigger decisions.

Get the knowledge first, which is most crucial for your future success

Rate your questions based on importance and level of uncertainty. If you are new to business, or the business endeavor you are taking on is very complex, it is smart to explicitly list different decisions you need to make and things you need to know.

If you are planning to start a book publishing business, find out what is the printing cost difference between black and white pages compared with color pages. Without this knowledge your designer might layout a book that is too expensive to print and will ruin your profitability.

Look at the things you need to know and focus first on those that are most important and, which you are least certain about.

Plan your steps to maximize your learning

Logical outcome from all this is that you should plan your first steps so that they will result in improved understanding without big investments. Before opening a restaurant, test your menu. Before launching a hotel, study the local market. Before filing for a patent, try to build a functional prototype.

Starting up, regardless of the type of business, always has room to do a bit more cheap, fast and smart learning. This way your plan isn’t any more just a process of implementing your vision, but a process of discovery and learning guided by the questions you need to get answered before making big decisions.

Uncertain knowledge requires cautious investments

Don’t rush with your investments

Matching investments with level of uncertainty is one of the key strategies of a successful entrepreneur. Level of uncertainty can be defined as how much your current business model and plan will likely change before it is actually implemented and operational. Thus, it would be foolish to base your investment decisions, whether time or money, on a vision that will need to change a lot.

In the realm of technology startup companies, the moment of when the startup finds out a profitable business model with little uncertainty, is the point when it can begin to scale up its operations. This is also a moment when big investors would like to get on board, as the risk of losing their money is greatly reduced. With investor money in, a lot of people are hired and machinery bought.

Startup runaway defines how long time a startup has until it goes bankrupt. It must reach profitability or the scaling point (to convince investors to invest more money) before the runaway ends.

Extending startup runaway with smart investment decisions

A clever strategy, which can greatly lengthen your company’s runaway is to invest to resources that can be re-purposed or adapted to new knowledge with ease.

Famed author and designer Stewart Brand has convincingly argued (Brand, 1995) that a new building should be designed with the understanding that the way the building is used is not known perfectly in advance. Thus, a building should be designed is such a way that it can be modified and adjusted to shifting and emerging purposes.

In software design, agile product development approach is based roughly on the same idea. In agile approach, new software evolves continuously with the feedback from the customer. Programmers avoid waste by coding only a minimum version of the software first, and only adding features after the value of earlier steps has been validated and future use cases come clearer to the customers themselves.

Affordable loss

Perhaps the most crucial advice to new entrepreneurs come from the most experienced entrepreneurs themselves. Surprisingly the most successful entrepreneurs invest only as much as they can afford to lose (Sarasvathy, 2009). This means that they can continue trying out new opportunities even if specific business ideas don’t pan out.

Affordable loss also means that you shouldn’t quit your day job. Instead, try to start your business on the side and only gradually move away from your current job. This way you are freer to modify and adjust your business idea, as you are still guaranteed income from your old job.

Research shows that those who didn’t quit their they job were more likely to succeed compared to those who quit they day job and enter full-time self-employment (Raffiee & Feng, 2014)

About this article

The writing of this article was supported by the INnoVations of REgional Sustainability: European UniversiTy Alliance project. https://www.invest-alliance.eu/ . This project is funded by the Erasmus+ Program.

The content of this article represents the views of the author only and is his sole responsibility. The European Commission and the Agency do not accept any responsibility for use that may be made of the information it contains.