Risk-Based Planning
Why your startup should avoid Intuitive Planning
The intuitive way to plan a startup sets it up for failure from the beginning. This post introduces two approaches to planning and argues that founders should adopt Risk-Based Planning over Intuitive Planning.
To illustrate the two planning approaches, let's imagine you're a fitness-tech startup. You’re building an innovative product to be used in gyms: Coachatron. Coachatron is a cutting-edge robot that answers all your fitness questions, helps with your form, and creates a personalised workout program. You’d like to see a Coachatron in every gym one day, so everyone can feel confident in their fitness. A grand vision!
You come up with a straightforward, 3-step plan to make this vision a reality:
Step 1: Build Coachatron.
Duration: 6 months.
Dependencies: None.
Step 2: Show Coachatron to gym members to see if they like it.
Duration: 2 months.
Dependencies: Coachatron prototype.
Step 3: Sell Coachatron to gyms.
Duration: Indefinite.
Dependencies: Coachatron prototype, positive feedback from gym members.
It’s easy to see how your grand vision can become a reality by following the plan. It might work, but it’s more risky than it needs to be. In this post, we’re going to argue that it would be better to execute this plan starting with step 3, which is the highest risk, and work backwards to step 1, which is the lowest risk. If you’re new to this way of thinking, this may seem crazy or even impossible. We hope to have changed your mind by the end.
The Bad Approach: Intuitive Planning
Let’s imagine you begin to execute the 3-step plan above. We call this approach “Intuitive Planning” because it’s the approach almost everyone takes at first.
Step 1: Build Coachatron
The first version of Coachatron takes you six months to build. You take Coachatron to the nearest gym, ready to move on to Step 2 of your plan. The gym manager tells you that a lot of their revenue comes from personal training and that Coachatron would lose them money. They don’t want it. Instead, they keep ranting about a weird smell in the changing rooms. Too caught up in the vision, you hadn’t even considered what the gym manager might think. You get stuck before you can reach Step 2. However, you’re determined to keep going and come up with Plan B.
Step 1b: Build Doctatron
After the setback at the gym, you wonder if Coachatron could be used elsewhere. You spent six months building an impressive robot - surely there’s another use for it that doesn’t suffer from the same conflict of interest? You get an idea that Coachatron could be used in hospitals to help doctors respond to patients more effectively. Returning to your workshop for a few months, you get Coachatron ready for the hospital. You add a white coat and a stethoscope. You keep the dumbbell too - it might come in handy for the physiotherapy clinic. Doctatron is born!
You take Doctatron to a hospital and show it to the doctors. They hate it. They tell you that helping patients is why they took the job in the first place, and they don’t want something getting in the way of that. The polite-but-firm doctor lets you know it’s time to leave.
Step 1c: Build Clownatron
You’re a persistent founder and get another idea. Perhaps Doctatron can entertain at kids' parties? You return to your workshop for another few months and give your robot a makeover. You keep the stethoscope, in case the kids need medical attention, and the dumbbell, which will be a helpful prop for one of the games. Clownatron is born!
You book Clownatron for its first party. The kids are terrified by its haunting smile and burst into tears at the sight of Clownatron’s claws, originally designed for picking up weights in the gym. One of the parents threatens to “take matters into my own hands if you don't keep that monstrosity away from my son”. Word gets out and parents stop booking Clownatron. Exhausted from the whole experience and out of money, you throw Clownatron in the bin and shut down the company.
With Intuitive Planning, sometimes everything works out and you get the result you wanted. Most of the time, you’re left with Frankenstein’s Robot, convinced that the world just wasn’t quite ready for it. Instead of following our intuition, what if we planned based on potential risks?
A Better Approach: Risk-Based Planning
Let’s return to our plan and see how we can improve it using Risk-Based Planning. First, we’ll rate the three steps we outlined before in terms of risk.
Build Coachatron.
Risk: Low.
We’ve got a good idea of how to build it.
Show the Coachatron prototype to gym members to see if they like it.
Risk: Medium.
We have a grand vision in our head. However, there’s nothing else like it, so we’re not sure how gym members will respond. On top of this, we’re not sure if managers will even let us test our prototype in their gym.
Sell Coachatron to gyms.
Risk: High.
Even if we get gyms to let us test the prototype with their members, that doesn’t mean they’ll pay for it. They’ve never paid for anything like this in the past.
The problem with our Intuitive Planning approach is that the 2 highest-risk steps come at the end of our plan. Last time, we spent 6 months on a low-risk activity, then ended up with an unwanted Clown-Doctor Coachatron. Let’s reverse the plan.
Step 1: Sell Coachatron to gyms. Risk: High
Step 2: Show Coachatron to gym members to see if they like it. Risk: Medium
Step 3: Build Coachatron. Risk: Low
Now we’ve put the two high-risk steps first, and the low-risk step last. With this new order, we’re going to sell Coachatron first, before we’ve even built it.
Step 1: Sell Coachatrons to gyms
We can’t show Coachatron to gym managers, because we don’t have one yet. How can we sell something that doesn't exist? We spend a week putting together mock-ups and a list of all the features it’ll have. We show these to a gym manager and ask them to commit to buying one.
They turn us down, citing the concerns about loss of personal training revenue. The same thing that took months to learn with the old plan only took one week. Seeing as we spent so little time on the mock-ups, we’re less tempted to find another buyer for our rejected robot. We instead remain open-minded and listen more carefully this time to their rant about the unusual smell in the changing rooms. We learn about how much work it is to keep the gym clean, the high cost of professional cleaning, and that members keep citing hygiene problems when they cancel their memberships. We return to the workshop to design some new mock-ups - Cleanatron is born!
We go back to the gym manager with our Cleanatron mock-up. Their eyes light up. We sign a contract in which they agree to purchase Cleanatron. The gym manager is desperate for a solution to their cleanliness problem and is willing to take a gamble on our robot. We visit more gyms with our mock-ups and learn that the problem is common, confirming there’s widespread demand for Cleanatron.
Step 2: Show Coachatron Cleanatron to gym members and see if they like it
We now know that gym managers will pay for Cleanatron, but what will the gym members think? Our robotic cleaner is only useful if it stops gym-goers from cancelling their memberships. They claim that gym cleanliness is the reason they’re cancelling, but is this an excuse used by the exercise-avoidant?
We devise a test to know for sure. Rather than building the entire Cleanatron, we spend two weeks building just the outer plating. We can then climb inside the plating and clean the gym ourselves in our Cleanatron disguise.
Our Cleanatron disguise was quick to build, but it won’t scale. The gym manager already has the option to hire professional cleaners, they’re just too expensive. Our goal isn’t to start a traditional cleaning company, it’s to test two assumptions about our plan:
Gym-goers don’t mind a robot roaming around the gym.
Gym-goers cancel their memberships less frequently when the gym is clean.
We head to the gym disguised as Cleanatron. No one seems to mind the presence of the “robot”, and everyone loves the clean gym. Fewer gymgoers cancel their memberships, and the gym manager is delighted. We’ve confirmed that Cleanatron solves a real problem for both gym members and the gym manager.
Step 3: Build Coachatron Cleanatron
We’ve now validated that gym managers will pay for Cleanatron, and that it solves a real problem. We can now build Cleanatron knowing that we’ll have happy customers, provided we can build a robot that will replicate our human-in-the-loop version. We spend six months in the workshop building Cleanatron, guided by our personal experience cleaning the gym floor ourselves in the Cleanatron disguise.
Our prior experience selling to gym managers with Cleanatron mock-ups and testing out an improvised version on the gym floor gives us clarity on what to build. By adopting Risk-Based Planning, the product at the end of our 6-month build period is much more likely to be a success.
Takeaways
There are three key ideas introduced in this post:
Your first idea will almost always get rejected. When you spend too long building your initial idea, you can get attached and experience the sunk-cost fallacy. You build a “solution in search of a problem”. Risk-Based Planning can help you avoid this.
You can sell a product before you build it. Mock-ups can be made in days and used to secure paid contracts. If you can’t get anyone to commit to paying at this stage, then you probably won’t get anyone to pay for a completed product either. If you’re reluctant to even try to sell from a mock-up, then it likely means one of three things:
You don’t believe your product will help your customer. In this case, keep talking to customers and designing your product until you believe it will.
You don’t want to sell in the first place. Even if you had a finished product, you simply don’t like sales. If this is the case, you have three options: i) Learn to like selling. ii) Find a cofounder that wants to sell. iii) Do something else.
You don’t believe in your company mission. If you believe your product will help your customer and you enjoy selling but you’re still reluctant to sell using mock-ups, this is the likely cause. You need to care about your customers and be working towards something more than profits. We write more about the importance of a company mission here [Link to company mission post].
Prioritise tasks based on risk, tackling the highest risk first. This does not mean that you should always sell first, build second. As a counterexample, imagine you are working on a teleportation device. It makes more sense to build it before you sell it, as there is more risk that you can build a teleportation device than you can sell one. Most startups are not building teleportation-level technology and therefore the risk they can sell is greater than the risk they can build.
Further reading
If you enjoyed this post, you may also like:
This post is heavily based on our personal experience running a fitness-tech startup. You can read our story here.
If you’re wondering how to change your project plan after learning something new, you may like our post about pivoting: The Four Dials Framework For Pivoting a Startup [link to Four Dials post].
Risk-Based Planning is inspired by the hypothesis testing framework introduced in the book The Lean Startup.