Saturday, January 16, 2010

Getting to Plan B (2009)

The book Getting to Plan B: Breaking through to a better business model, written by John Mullins and Randy Komisar, contains several important lessons, primarily for start-up entrepreneurs, on developing successful business models. Though very repetitive around a few key ideas, the book is well worth reading especially for those who want to better understand how the business model is reflected in the different financial statements. with interesting examples from: Amazon, Apple, Celtel, Costco, Dow Jones & Company, eBay, GlobalGiving, GO airlines, Google, Oberoi Hotels, Pantaloon, Patagonia, Ryanair, Shanda, Silverglide, Skype, Southwest Airlines, Toyota, Walmart, Zara and ZoomSystems.

The book in three bullet points:
  • The business model concept is in the book defined as the pattern of economic activity comprising of five key elements that together determines the viability of any business. The five key elements being the revenue model, the gross margin model, the operating model, the working capital model and the investment model. Companies are successful when the five elements work together.
  • Getting to Plan B is about the process of discovering a business model that works, with the assumption that the initial plan is most often wrong. The discovering process can be made systematic by constantly formulating different hypothesis and measurements and continuously follow up and iterate the business model into a new Plan B.
  • The starting point for a new business model is to learn from successful examples worth mimicking in some way and examples to which you explicitly choose to do things differently, where the ultimate judge is the customers and the cash flow generated from your business model.
A brief summary of the different chapters:

1. Don't reinvent the wheel, make it better - the concepts of analogs (successful predecessors), antilogs (predecessors that you want to differ from), and Leaps of Faith (beliefs about answers with no evidence) is covered with the key take out to learn, mix and match to create your own business model, to experiment to test different hypothesis to prove or refute them.

2. Guiding your flight progress - the concept of dashboarding (a systematic way to guide experiments and track results) is presented with examples showing that measuring of specific parameters or results increases the focus of the company's activities, and that the dashboards, including parameters and goals, need to evolve over time based on the learnings they uncover.

3. Air, food and water - the chapter, focusing on revenue models, hits home two important points: the importance of resolving customer pain or providing customer delight, and the need for actual evidence of how customers are likely to respond. To develop a revenue model questions that need to be asked are: Who will buy? What will they buy? Why will they buy? How soon, how often, and how many will they buy? With what effort and cost on your part? At what price will they buy, and on what basis will they pay?

4. Avoiding rocks and hard places - the topic for the chapter is gross margin models; the spread between the price at which products and services are sold and the cost of selling those (COGS). The key messages with the chapter are that digital technology enables gross margin models in which COGS approaches zero, that a superior gross margin model creates leverage that can be applied differently depending on strategy, and finally the fact that pricing decisions should be value-based and not cost-based.

5. Trimming the fat - is a short chapter on operating costs; all the day-to-day costs that must be incurred in addition to COGS. Key ideas are that by doing things differently in relation to other actors in the industry, operating cost can be lowered or eliminated, and by starting the analysis at the most costly or scarcest resources in the industry areas for business model innovation might occur. Another key point is that adding costs might also enhance the customers' experiences and willingness to pay premium prices, so cost cutting is not always the answer to profitability.

6. Cash is king - is according to me one of the more important chapters in the book as the balance sheet, working capital and cash management is often forgotten in business model discussions. Different industries and business models requires different amount of working capital (the cash a company needs to keep the business running) and all elements in the business model have implications for the cash generated and the cash consumed. From page 139: "Failure to earn a profit won't put you out of business, as long as you still have cash. But if you run out of cash, even if you are profitable, you'll be gone in a heartbeat"

See my related blog posts:
7. It takes money to make money - focus on the investment needed to get the business started and through the period until it can generate enough cash itself, and the general goal (there are exceptions) is to find a way to get to breakeven with as little investment as possible. The authors mention some of the many trade-offs involved with external funding from different sources, but primarily focus on venture capital. The conclusions are: Less investment means giving away less of the business, less credibility lost when leaving a business model for another, and fewer sleepless nights if you've mortgaged your house.

8. Can you balance a one-legged stool? - tries to summarize, at least on a conceptual level, the different elements of the authors' definition of a business model, and their implications on one another. The conclusion is that the revenue model, gross margin model and operating model directly affect the working capital model, and these four models directly affect the investment model.

9. Getting started on discovering your Plan B - ends the book where it started with a focus on the talented and visionary entrepreneur. In the beginning of the book there were statements such as "Intuitively, as is almost always the case for committed, passionate, entrepreneurs, they felt that the answers to all five questions were yes" (p29) and in the end "dreaming your entrepreneurial dream" (p214)...

A quick comparison with some other popular books on business models:
All in all, the book is somewhat repetitive and rather long for the ideas it delivers, but with many interesting examples and important chapters on gross margins, operating costs and cash flow, it is well worth reading and a good complement to other books on business models not going into the financial details.

If you find this book review helpful, please go to the Amazon book review page and rate my identical review "Helpful". Thanks!


  1. Thanks for this new review, Anders. I'm particularly interested in this book because of its focus on helping start-up entrepreneurs develop successful business models (we have a big start-up community here in Boulder where I live). I see that the cases listed are still mostly of well-known cases of large companies. I hope there'll be some smaller, fresh ones as well. My copy of this book arrives Tuesday, so I'll see!

  2. Thank you for your comment Andrea!

    There are very few examples of start-ups in the book, but the target audience is very much the start-up community. Large and known companies are used to prove points that are highly relevant for start-ups. I look forward to your comments on the book, I gave it 4 of 5 at Amazon.

  3. Hi Anders, I have bought this boook and it is on my list to read. I have also just completed Mark Johnson's book, White Space. thanks for this review. I must confess I agree with you on Mark's book - it does become a bit boring (and repititive) when you have been used to Alex's work!



  4. Thanks for the review, and the recent video.

    I read the book after reading about it here, and i really liked most of the ideas. It has been very helpful in some work I am doing with young entrepreneurs.
    Even though I must admit that it could easily have been said in half the number of pages. But i guess that is just the way American business books are.

  5. @Johan
    Thanks for your comment, and comment on Amazon! It is highly appreciated. I have recieved several emails from people who agreed with my review but nobody seems to be willing to officially express negative reviews about Harvard guys. After Mark's comment on my review it quickly became "less helpful" for some strange reason so thanks for supporting the review!

    Thank you for your comment! I am happy you liked the book and the ideas it delivers and that my review was helpful. I agree with you that most business books are built from one or a few ideas and seldom provide more content than a 10 page article by the same author. Chris Anderson is probably one of the real experts in testing an idea in an article/blog post, and then write a book about the same thing.

  6. Discovery driven planing

    After having read this book I came across the concept of discovery driven planing. The underlying concept behind the methods in getting to plan B. Described in a Harvard Business Review article by Rita Gunther McGrath. As well as a version focused more on large corporation in discovery driven growth.

    After having read this underlying work, I have begun to think that "getting to plan B" is only scratching the surface of the use for discovery driven planing in business model innovation.
    Especially if is combined with the design thinking principles in books like "The business of design" & "Change by design", the business model canvas and visual sense making in the stile of The Grove.

    What do you think? I am about to write a blog post about it

  7. Thanks for the comment Peter! I fully agree with you regarding Getting to Plan B in combination with the books on design thinking. Looking forward to your blog post.

    This is very much in line with my reasoning using hypothesis-driven business development stating and challenging assumptions, learning and iterating new hypotheses. I am currently looking into how to identify and question one's assumptions and the characteristics of different types of assumptions.