You’re working on a new venture and you know you’ve got to create a plan to execute it. So you look at past projects, gather and analyze relevant market data, make predictions about how much revenue you’ll be able to generate, decide what resources you’ll need, and set milestones to reach your targets. Right? Not so fast. That process might work for conventional or ongoing business lines, but new ventures, which are less predictable, require a different set of planning and control tools. That’s where the discovery-driven planning (DDP) process comes in.
A Refresher on Discovery-Driven Planning
New ventures are less predictable than conventional or ongoing business lines and require a different set of planning and control tools. Business school professors Rita McGrath and Ian MacMillan came up with a disciplined process to systematically uncover, test, and (if necessary) revise the assumptions behind a venture’s plan. They called it “discovery-driven planning.” By tracking failed growth projects, McGrath identified patterns among the failures, like untested assumptions, too much funding up front, and few opportunities to redirect when new information was found. Discovery-driven planning helps managers avoid these issues and offers a lower-risk way to move a product forward in the face of the unknown. The process has five steps. First, decide what success will look like in concrete terms by creating a reverse income statement. You determine the profit margin required and then calculate the revenues needed to achieve it. Next, determine how realistic your income statement is by benchmarking it against the market and firms offering comparable products. The third step is defining operational requirements, all the activities required to produce, sell, or deliver the new product or service. Then you should document your team’s assumptions and make plans to test them. Finally, set up a series of checkpoints at which you’ll determine if your assumptions are holding true and whether to invest more time and money. Discovery-driven planning is an ongoing process that requires a willingness to be proven wrong and to adjust accordingly.