Magazine Fall 2009 Research Highlight

Do You Have A “Plan B”?

Many companies have trouble making the transition from a failing business model to one that works. Often, one culprit is an inability to experiment.

Alden M. Hayashi Reading Time: 5 min 

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As the scientific community has long known, experimentation is the key to knowledge. It enables people to check their assumptions and run various “what if” tests to expand the base of what they know. In the business world, executives generally recognize the importance of experimentation, but many don’t practice it nearly as much as they should. For such executives, the recently published Getting to Plan B: Breaking Through to a Better Business Model (Harvard Business Press, 2009) should be required reading.

Written by John Mullins, an associate professor at London Business School, and Randy Komisar, a partner with the venture capital firm Kleiner Perkins Caufield & Byers in Menlo Park, California, the book makes a strong case that organizations need to experiment regularly to overhaul a business model that’s broken or to fine-tune one that needs adjusting. Indeed, many successful companies originally had very different business models from the ones they eventually adopted. Getting to Plan B is filled with such case studies, from the famous (the online payment service PayPal Inc. was conceived to sell security software for handheld devices) to the less well-known (Mumbai-based Pantaloon Retail [India] Limited, now India’s largest retailer, was founded as a manufacturer of men’s pants). The common theme of the examples is that some smart executive realized that “Plan A” wasn’t working and, through insightful experimentation, was able to devise a better “Plan B.” (For some businesses, “Plan B” was also a dead end, leading them to “Plan C” and maybe “Plan D” and so on.)

Related Research and Articles
  • M. Sawhney, R.C. Wolcott and I. Arroniz, “The 12 Different Ways for Companies to Innovate,” MIT Sloan Management Review 47, no. 3 (spring 2006): 75-81.
  • A.M. Hayashi, “A Manager’s Guide to Human Irrationalities,” MIT Sloan Management Review 50, no. 2 (winter 2009): 53-59.
  • S.H. Thomke, “Experimentation Matters: Unlocking the Potential of New Technologies for Innovation” (Boston: Harvard Business School Press, 2003).

Perhaps Getting to Plan B’s greatest contribution is that Mullins and Komisar provide a powerful, high-level framework that helps managers uncover and investigate weaknesses in their business models. Specifically, the framework helps executives probe any “leaps of faith” in their assumptions with respect to their anticipated revenues, gross margins, operating model, working capital and investments.

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Comment (1)
Anonymous
I enjoyed the piece but feel that it may not have conveyed the right message. The "savvy entrepreneur or street-smart executive" is only able to identify their longer-range vision and thier starting business model, what you call Plan A; and what I call thier Pushcart Business Model. Once they operationalize Plan A they will take in information that will enable them to validate or invalidate Plan A's core assumptions. Learning what assumptions are right and which are wrong will allow them to then develop their second iteration, Plan B, if you will, and so on. 

I first described this iterative process of information - assumptions - practice - information ... in my 1998 book, The Rhythm of Business and elaborated upon it in 2001 in Collaborative Communities: Partnering for Profit in the Networked Economy.

Jeffrey Shuman, PhD
The Rhythm of Business, Inc.