In 1942, the Austrian Economist Joseph Schumpeter proposed a theory of innovation which indicates that structural economic development arises out of the creative destruction or disruption of prior economic systems. In contrast to previous economists, Schumpeter advanced the idea that innovative entrepreneurs and startups constitute the disruptive force that drives and sustains economic growth. Nowadays, disruptive startups are regarded as the critical engine of economic growth and job creation in advanced free market economies. However, startups experience a high rate of failure. According to the Small Business Association of America, 50% of startups die within five years. Seventy percent of businesses die within ten years from birth.
The core cause of the high rate of failure of startups is attributed to Waterfall Business Planning which is traditionally used to plan and deliver the products of startups [1, 2]. Waterfall Planning typically follows a linear process such as in a single chain of activities: idea/concept generation, product development, product testing, and launch. The author in [1] regards the Waterfall Model as suitable for established companies that already have a validated and predictable business model: the product is known and used in a financially viable market with established channels and customers. In the case of a budding startup, the business model is uncalibrated since the final version of the product is largely unknown and the startup does not have an established channel and customer base. In the latter situation, the startup has to adopt an experimental and adaptive approach in order to discover, calibrate, and validate its customer segment as well as financial viability of its business model. To date, however, many startups with unvalidated products have focused on developing and executing business and financial plans in the manner of established businesses with validated and profitable business models. In short, many startups are using Waterfall Business Planning. Consequently, many startups run out of money, time, and other resources before discovering and validating a profitable business model especially in a volatile environment.
Traditional tools for Waterfall Business Planning such as a voluminous business plan and detailed financial analysis are increasingly considered unnecessary for a startup that has not yet discovered and validated its customer segment as well as profitability of its business model. In the world of startups, especially in the area of disruptive technology, there is a shift towards planning approaches that are agile and adaptive, have a strong focus on customer growth, and use a business model as the unit of analysis.