Growthink Blog

Here's Why NOT to Trust Your Business Gut


According to statistics from BizBuySell, less than 1 out of 5 of businesses marketed for sale are able to find a buyer and to consummate a successful transaction.  

Even this depressing statistic vastly under-estimates how few companies are able to attain a successful exit, as the great majority of the over 6 million U.S. business owners are never able to even consider listing their companies for sale.

That’s a lot of blood, sweat, and tears expended on work and businesses that yield comparatively very little.

Even more viscerally, working hard and long on a business that doesn't get to an exit is, far more often than not, a profound form of losing.

And losing sucks.

Now, there are always reasons and excuses as to why better and faster progress is not made: Cheap, overseas competition, difficulty in attracting and retaining talent, taxes, regulations, and perhaps my favorite the lament that one's struggles are caused by customers that don't “get” how awesome our products and services really are.

These reasons and excuses are just that. For every one of them, there are infinitely more possibilities and opportunities that with just a little refocusing of effort and action can turn declining or flat-lining business vectors into solid and sustainable growth trajectories.

Here are three of them:

1.  Always Ask This One Question.  The great Charlie Munger, Warren Buffet's partner at Berkshire Hathaway for over 50 years and one of the most successful investors of all time, is famous for asking his managers this question when it comes to important operational decisions: "What is the Low Cost, High Quality choice?"

What I love about this question is that no matter the business process - marketing, sales, operational, financial - it forces us to not to make the classic (and lazy!) false choice between cost and quality: we can have and deliver both.

2.  Start at the End. Growthink Co-founder Dave Lavinsky’s Small Business and Entrepreneurship best-seller Start at the End should be required reading for any and all executives truly interested in building their companies to a successful exit.

In it, Dave goes into great detail as to the effective practice of business goal-setting far out in the future, and then how to work backward to today’s most important projects, tasks and to-do's.

3.  Trust Our Guts Less and the Numbers More. Pioneering work by Nobel Laureate Daniel Kahneman has demonstrated that in almost all business arenas - hiring, marketing initiatives, sales teams, customer satisfaction, financial performance – almost always it is the cold, hard numbers that are right and our warm and fuzzy guts that are wrong.

This has always been true, but now for the first time we can protect ourselves from our guts, utilizing Predictive Analytics (automatically making sense and order of our Big Data world) and Business Intelligence Dashboards (automatically giving us a "Quantified Self" snapshot of where we stand in real time against our goals and what to do about it).

It is simple: Be numbers-driven, define as precisely as possible our long-term objectives, and at every turn make the lower cost, higher-quality choice.
Build these muscles and you will avoid becoming unfortunate destiny of the vast majority of your business peers…

…A Statistic.

What Tom Brady can Teach Us about Competition and Winning


In a recent post, I talked about what businesspeople can learn from the world of sports as to leveraging data and metrics to improve decision-making and get a leg up on the competition.

The discussion that followed piqued that age-old question always asked by Sport-Crazy Businesspeople: How much from can we really learn and put to use in our businesses the various lessons and principles from sports and games?

Usually this question is answered at the “meta” level - with somewhat clichéd bromides like the importance of hard work, of practice making perfect, and of viewing all adversities as learning moments.

For sure, these are powerful and important lessons, but I think the question more interestingly can be tackled on a Sport-by-Sport basis, as in what are the best business lessons to be gleaned from the games of soccer, or from football, or golf or tennis?

And relatedly, how do these various sports teach us different lessons?

Let's start out with what I would bucket the "Win by any Means Necessary Sports."

Drawing from personal experience and great loves for these games I would put soccer, football, basketball, and baseball into this category.

In these sports, yes all of the inspirational principles of intensity, teamwork, dedication, and relentless practice certainly apply, but are also in them rarely is a second’s hesitation given to actions that in most other domains would be considered highly unethical.
Like pleading to the umpire that you are safe when you know that you are out. Or claiming to have caught a ball you have not. Or perhaps most disturbingly to the American sentiment, “Flopping” or faking a foul as is so commonly done in basketball and soccer.

Now so let's compare this mindset with that found in games like tennis and golf.

In tournament golf, the vast majority of players would never dream of bending the game’s rules to their advantage and in the rare circumstances where a player is found to have done so, their reputation is badly tarnished.

Similarly, in tennis, it is considered a matter of honor to give one’s opponent the benefit of the doubt on close line’s calls, and players that do not do so are branded unkindly.

The point is not to claim that golfers and tennis players are ethically “superior,” but rather to note that many things considered well within the spirit of the rules in some domains are viewed in others as dastardly to the extreme.

A great example of this is the Deflategate football controversy with the New England Patriots and their star quarterback Tom Brady.

For many non-Patriots fans, it is very easy to get up on one’s High Horse and virulently condemn the Patriots' admitted philosophy of pushing the competitive envelope as absolutely far as possible.

Yes, just as easily the Patriots’ win-by-any-means necessary can be defended within the general construct of the game of football, which is that anything and everything goes, unless and until the referee, umpire or official says otherwise.

And oh yes, many times in these sports it is considered excellent strategy to break the rules, like as in with holding a wide-open receiver or fouling a streaking striker because it is the highest Expected Value Choice to do so.

In contrast, for anyone who has played golf even somewhat competitively such a "practical” mindset to purposely break the rules would be anathema.

Again, this does not mean golfers are more fundamentally ethical, only that the nature and ethos of their respective game is just...different.

And this different nature and ethos reality ports very clearly to business decision-making and competition, as well.

Yes, depending the industry/market you compete in - Real Estate, Retail, Consumer Products, Professional Services, etc. - the ground rules and the boundaries of what is and is not considered acceptable, fair and my favorite, effective - is just different.

So the firm advice for those executives that wish to maximize their chance of victory is to yes remember of course that Fundamental Values no matter the field of endeavor always apply, but…

…to also take into firm account the competitive ethos of one's particular industry and market condition and structure, and to yes then strive to win by Any Means Necessary within it. 

And as you do this maybe someday your organization will win Four Super Bowls, or a Closetful of Green Jackets, but highly unlikely will you do both.

Don't Ask. Act! Action will Delineate and Define You.


Last week, I wrote about how to fight through the natural slowdown of the pre-Labor Day period (compounded by the Recent Market Gyrations) and Get Business Done.

With Labor Day behind us, we should now all be in full flight in getting our most important projects and initiatives Fast-Tracked and on course to be completed by the end of the year.

These could include:

•    Starting a New Business.
•    Pursuing a New Business Initiative within an existing business.
•    Developing a Work Plan and Budget for that business initiative and getting that budget funded (either internally or by an outside investor).
•   Re-invigorating an existing business' Organization Chart and Design via the development of new job descriptions, reporting structures, new employees and contractors.
•    Deciding upon, green lighting, and “Spinning Up” new technologies and SaaS platforms that make our businesses run leaner, faster, and through and on Better Data and Intelligence.
•    Buying a competitive or complementary business.
•    Selling and exiting from your business (and if this is something you want to get done in 2015, it is time to get going now).

So what do the most Effective Executives do to shake off the summer rust and make more and better things happen than the competition?

They Decide, They Act, and They Course Correct.

They Decide. Now more than ever, the ability to make rapid business decisions and then execute on the project action items and to-dos that flow from them is a fundamental success factor for any modern executive.

Why? Because never before has the information to make great business decisions been as quickly and completely available as it is right now. And if you don't have fast and good enough access to the information you need to make these decisions, then find and invest in one of the amazing array of Business Intelligence Software platforms that will do it for you.

They Act. In Ken Burns' great PBS series "The Roosevelts: An Intimate History," there is a segment on Teddy Roosevelt's (one of the great doers in American history) favorite expressions, "Get Action."

Roosevelt, who wrote more than 150,000 letters in his lifetime (do the math, that is more than 10 per day), was above all else a leader of great decisiveness and action, and it was this quality above all else that made him one of the greatest leaders in American history.

This Will to Act - to make that call, to put out that beta, to find the reasons to do the deal and fight through and fix the reasons not to - is a business muscle that all the greatest leaders and executives have and is one that can only be developed through consistent, vigorous and exhaustive application. Yes, in the great words of Thomas Jefferson if you want to know who you are “Don't ask. Act! Action will delineate and define you.”

They Course Correct. Because of technology never has it been easier to decide, to act, and then rapidly course correct as needed. In this respect, the most effective executives I know have the healthy egos to decide and act, but also the discipline, detachment, and humility to rigorously measure which of their decisions and actions are not working…

...and then rapidly adjust and/or abandon them as the data dictates.

Decide. Act. Course Correct. Rinse and Repeat.

Follow this simple but powerful formula and 2015 can still be the best year of all of our business lives.

The Power of Negative Thinking (Squared)


For many businesses, in these pre-Labor Day workdays and the unofficial “End of Summer” things slow painfully down.

Projects and deals take twice as long and sometimes feel twice as hard.

This year, compounding the challenge has been the rollicking Market Gyrations of these past few weeks, amplified by "The Sky is Falling" financial and political media blaring forebodings of doom and demise.

So how does our ambitious and goal-oriented executive block out the negative noise and focus on the Mission Critical Business Tasks and Projects at hand?

How does he or she be cognizant of / sensitive to current events, while remaining ever undistracted and undeterred by them?

Well, the most Effective Executives I know do this: They reframe everything as an opportunity, and everything as a positive.

Markets going up?  These are boom times so let’s get on the bus and go for the ride.

Markets going down? What a buying opportunity! If I liked it at 50, I love it at 30!

Summer doldrums: As a buyer, a great time to press sellers for discounts. As a seller, with my competition loafing on the beach, I make hay.

Now, this can’t just be Hot Air / Pollyanna Self-Talk.

No, it has to be real and serious and buttressed by what famed Indiana basketball coach Bobby Knight calls in his best-selling book The Power of Negative Thinking.

In it, Coach Knight makes the simple but powerful point that in any competitive pursuit, everyone wants to win, so just thinking positively about it rarely yields competitive advantage.

Far more relevant is the willingness to sacrifice to Prepare to Win: to learn how to stop making the mistakes that losers make in abundance and that winners have trained themselves through hard work to avoid.

For athletes, this means practice, practice, practice to stop Missing Free Throws, or Three Foot Putts, or Second Serves, or The Cutoff Man.

For business people, this means the daily discipline to prepare for meetings, to start critical projects far before their due date, and consistently doing the Quantitative and Data Analysis to determine what is actually working in our business versus going by gut and feel.

Combine these two philosophies, the Power of Positive Thinking and of everyone and everything no matter what being good and an opportunity...

...With the Power of Negative Thinking and the daily, weekly, monthly, yearly, on a career basis of making of the sacrifices and of taking the time to do things right.

Of such combined mindsets and disciplines are legends and fortunes made.

Politics, Business, Metrics, and Winning


Last week, I wrote about all of the amazing lessons of the world and science of Sports Metrics has to offer business.

Well, with the 2016 Presidential Campaign heating up, let's talk how just as in sports the use of metrics in politics has jumped a full generation ahead of business.

First, a little history and how perhaps the most famous use of metrics in politics is the one where the experts clearly got it wrong.

The 1948 Presidential Election was famous for many reasons - for being the last pre-television election, for being the last election contested between candidates born in the 19th century, for President Harry “give ‘em hell!” Truman's whistle-stop campaign against the “Do-Nothing” 80th Republican Congress, and…

…for the Chicago Tribune's famous headline proclaiming "Dewey Beats Truman" the morning after the election when in fact New York governor Thomas Dewey had handily lost the race.

The problem was that way back then poorer Americans – the heart of Truman’s constituency – didn’t have telephones, thus greatly skewing the polling data to predict an overwhelming Dewey win.
Obviously, since 1948, political polling has come a long way, highlighted by famed “Big Data Nerd” Nate Silver and his “FiveThirtyEight” mathematical model correctly calling 50 out of 50 states in the 2012 Presidential Election (after correctly predicting 49 out of 50 states in the 2008 election!).

Because of the power of predictive models like these, politicians across the ideological spectrum now more than ever rely on polling to shape messaging while campaigning, and once elected governing priorities and principles.

Now I know many of you at that last sentence are saying “Wait a Second!

Isn't this the whole problem with politics?

How pols rely on polling to measure what voters think, want, and fear, and then either work (or pretend to!) to give them, both convictions and what is good for The Nation be darned?

Golly, they say, did Thomas Jefferson and John Adams take polls before they signed the Declaration of Independence?

To which I say, give it a rest. Please.

I have found that those that are usually crying loudest about “principles and convictions" in politics are those that when they or their chosen candidate run for office, just get right on doing that most Un-American thing of all.

They lose.

Sure, they give nice and flowery concession speeches where they drone on about virtue and about how they lost with “dignity ”and “honor” and ya-di-ya-di-ya.

A loss is a loss.

Now, the really nice thing about business when compared to politics is that there is general agreement on overall goals and values. Nicely, there isn't a “Left versus Right” divide with the majority of business people – i.e. most of us are striving for the same thing: More, more, and more.

More sales, more profits, more company value.

In business, these are the “elections” we seek to win, the “policies” to pass.

And just like in politics, we can strive to do so via standing high on our horses and saying silly things like “If the customer doesn't appreciate what a better product I to offer than my competitor, well shame on them."

Or as good, "If that great employee left my company to work someplace else, I don't need or want them anyway."

Sure, statements and testaments like these sound good and noble, but really when you reflect on it (and not wanting to be too harsh) is just Loser Talk.

No, the winners in business, like those in politics, are truly “In the Arena.”

And, in this Internet of Things, SaaS, and Big Data World of Ours, being “In the Business Arena” means above all else being elbow deep in the numbers and in the conversion metrics in all of their intricacy, subtlety, detail and glory.

And just like politicians win by measuring what the people really want and giving it to them, so do business people win by measuring what the market is really saying and what customers really want.

And figuring it out above all else through our data and through our metrics.

Yes, as Harry Truman would say, The Buck Does Stops Here, with and in the numbers.

Sports, Business, Metrics, and Winning


The lessons and inspirations of sports and the sporting life have always had a deep hold on the business psyche.

Some of my favorites here include the joy of competition, the virtues of teamwork, and of reaching Peak Performance through overcoming adversity and then sharing our “Best Stuff” with the world.

And these days the “Hot Lesson” that sports has to offer business is the power of measurement and data - driven decision making.

Some of this is obviously not new. Sports like running, swimming, and lifting has always been fundamentally defined and accomplished via tracking data - by how fast we go, how much weight we lift - and then from these data points developing specific training and improvement plans.

What is new is how data has come to permeate and dominate the world of team sports - baseball, basketball, soccer, et al. - and how now the most successful teams are managed not by pep talks and gut but by and through data and metrics.

Some examples:

FIFA. Germany's 2014 National Soccer Team found that one of the highest correlated data points with wins and losses was how much the players on the field ran and moved per minute of game time.

So they placed chips in all of the player’s shoes to measure and maximize this number. The German Team averaged so much more movement than any of their World Cup competitors that it ended up being equivalent to one half an extra player on the field. And to the country’s fourth World Cup.

The NBA. In professional basketball, the explosion of readily available digital video has allowed for detailed tracking of how every player in the league fares against every other player, on a play-by-play "Plus/Minus" basis.

Teams like the San Antonio Spurs that most effectively harvest and use this data are able to both identify under-valued players (critical in a Salary Cap league) and empower their coaching staffs with key insights as to the best game lineups and player substitution patterns.

Building on this long-term attention to detail and metrics, last year the Spurs became the winningest team in NBA history (to go along with their five league championships in 16 years).

Major League Baseball. Baseball, with its extended season and its fundamental “One-on-One Matchups” game structure has long been the most advanced team sport when it comes to metrics driving player values, roster composition, and in-game tactics and strategies.

While its most famous proponent - Billy Beane - is rightly lauded for making his Oakland A's team a consistent contender in spite of having a player’s salary budget sometimes only one quarter that of big market competitors like the Yankees and the Dodgers, in recent years “Sabermetrics” has leaped to a whole new level of intricacy and sophistication.

Key competitive innovations run from metrics like Fielding Shifts on a pitch-by-pitch basis, lineup changes based on time of day (and even time zone!), and the statistical value of "good outs."

Now, this is where some folks say "enough is enough" and that they long for baseball as it was played and managed in the good old days, by the Tommy Lasordas and Casey Stengels of the world.

Yes – a harkening back to a simple and more “human” time.

This is a noble, but naïve, sentiment.

Because being able to work with great people and on great teams and at great places, well all of that wonderful and simpler time stuff in this year 2015 of ours can only be had via leading and managing by data…

Because doing so gets us that one magical thing that in both sports and business makes everything else possible:


The Power of Advisors


A great best practice for all companies of ambition is to establish and hold regular meetings of a well-qualified and experienced Board of Strategic Advisors.

Let’s set aside for now some of the mechanisms of setting up a quality board (of which more can be read about here) and instead focus on some of the “Tough Love” feedback a board can offer executives on what they are doing right…

…and far more importantly what they are doing wrong and how to fix it.

1. That Often It is Better to Receive than to Give:  While advisory board members, unlike a formal board, do not have liability nor fiduciary responsibility, their time and energy requirements to participate are significant.

And for most smaller companies, the financial incentives it can offer advisory board members are relatively little compared to the value of a board members’ time.  

A good if imperfect analogy is that for many senior executives their involvement with a smaller company advisory board is almost a philanthropic endeavor - where they give of themselves without expectation of direct reward - financial or otherwise.  

Correspondingly, the owners and managers of the small company must approach the sage advice and good energy offered by their advisory board fully in “receiving” mode.

For businesspeople of the mindset of always trading value for value and reciprocal obligation, this is hard. But only by clearing this space can the board’s counsel be best received.

And somewhat counter-intuitively, often only by management fully accepting the “gifts” of its advisors will the board member’s experience be richest.

2. Begin with the End in Mind: For companies beyond the startup phase, its operating executives are naturally pulled to the shorter-term challenges and realities - this quarter’s revenue and profits, this month’s sales, the challenges and angst of a difficult employee decision, etc.

In contrast, an advisory board discussion, by both its nature and by the kinds of folks attracted to serve on it, naturally pulls to the long view, to the big questions that all businesses should be regularly asking themselves but rarely do.

Or, as they say, the “Why” and the “Which.”  

The Why questions are hopefully embodied in the Company’s mission and its values, and need the regular attention of strategic planning sessions like advisory board meetings to keep them from just existing in “hot air.”

The “Which” questions are in many ways the harder ones that an advisory board dynamic can help address.  

You see, ambitious entrepreneurs and executives are naturally drawn to expanding their sense of their market opportunity, and correspondingly their list of product and service offerings.

This can lead to a diffusion of focus, of trying to be all things to all people.  

A thoughtful advisory board will challenge management to more clearly define where they are aiming to be 1 year, 3 years hence and beyond, and from this vision where resources and attention should be focused today.

3. Speak Little, Listen Much: Managers and owners of emerging companies are often also the lead salespeople, the lead “evangelists” for their companies.

As a result, their default mode is to always be selling, always be pied-pipering their incredibly bright futures.  

But there is often more insight to be gained from Negative Thinking, from grappling with all the things that can go wrong and are difficult / well-nigh impossible to overcome.

Even if, especially if, so doing is buzz-killing and / or depressing.

Why?  Because it is often only in this low energy state that a certain kind of reflective creativity can flourish and completely new approaches to solving vexing problems can be discovered.

4. Brevity is Next to Godliness: Strategic planning sessions in a modern business context should be tightly scheduled to last not more than 2 hours.  After this length of time, diminishing returns starts setting in fast.  

A tight frame also requires all participants to come to the meeting prepared.  And, in turn, that the meeting organizers select the right meeting homework and then plan and moderate the agenda with the proper balance of structure and free-flowing dialogue.

Doing all of the above requires work – a good guide is that for every hour of strategic meeting time there should be 5 hours of planning time by the meeting organizer and at least 2 hours of preparation time by each participant.

Conclusion: Given that the only way to increase the value of a business is to either a) increase its bottom line financials and/or b) to improve its strategic positioning and growth probability, creative planning sessions like advisory board meetings should be a FIRST priority of any responsible manager.

They are classic Eisenhowerian, “Non-Urgent and Extremely Important” activities.  

Ignore them at your peril, and benefit from them in ways well beyond predictable expectation.

Getting the Right Things Done


Dave Allen, author of the great productivity best seller "Getting Things Done," has developed an almost cult-like following for his ideas, structures, and best practices around to-do list management, prioritization, and metrics and schematics that define what an effective and productive day should be.

Without question, there are great benefits to his methods, and I especially like his best practice of always ending a meeting, conversation, or work on an open-ended project with the simple question of "What is the Next Action?"

This discipline alone can greatly improve daily and meeting productivity, and perhaps more importantly reduce that sometimes suffocating sense of anxiety common to knowledge and entrepreneurial work that there is always way more that must be done than there are hours in the day.

But a focus on simple to do list management is far from sufficient.

You see, the dirty little secret that all of the self-help masters, all of the highly paid management consultants fail to tell you is that in our incredibly fast-moving, changing, competition from everywhere modern economy it is virtually impossible to design a plan or strategy that is in any way close to being assured of success.

The reason why is simple. Plans and strategies, by their nature, are speculative and assumptive.

They require the planner to survey the current market and competitive landscape along with assessing the current strengths and assets of their enterprise.

And then, from those assessments, forecast how a course of specific decisions or investments will be received by the market, by current or perspective customers, and responded to by the competition.

When stated this way, it becomes obvious that there is a very high likelihood that a plan as designed will not work.

It really doesn't matter if that plan is to introduce a new product or service offering, a new marketing or advertising campaign, a website re-launch, or an internal re-organization.

So, does this mean that planning is worthless? Of course not! 

But it does point to a pair of strategic best practices:

1.    Before commencing any planning process, first reflect deeply and document extensively what is working now.

These could be the practices and habits of a top sales person, a pay-per-click advertising campaign with positive ROI, an invoice collections best practice, a particularly profitable partner or affiliate.

Now to do more of these things that work, productivity and accountability best practices as outlined by the Dave Allens of the world are incredibly valuable and should be incorporated aggressively into the daily work habits and disciplines of the modern professional.

2.    But for everything else that falls outside of this realm, the right mindset is one of testing and exploration, of brainstorming, of speculation and possibility. Of open-ended questions.

AND it should be noted extremely well that it is usually in this mode that the big outlier, “black swan” ideas and strategies and relationships are usually discovered.

As for the question as to how much of #1, or playing more of the existing game better, we should do, versus #2, playing a new game…

…well that is a decision that the best managers, the best consultants and the most renowned self-help masters are paid a lot of money to answer.

My answer is - no surprise here if you've ever met me at a party - is to have my cake and eat it too!

Schedule time for to-dos and accountabilities to accomplish more of the stuff that you know works and leave plenty of open space to step out of the safe harbor and into the big sea and dream!

And when you balance doing and dreaming like this - and sprinkle in a little luck, you will very soon find yourself every day getting more of the Right Things Done.

What Great Dealmakers Know and Do that You Should Too


How do the best dealmakers and investors make go / no decisions? How do they handicap the probability of a company or project’s return projections actually coming to pass?

And once they do, how do they determine fair terms and pricing upon which to do a deal?

It is upon these “Due Diligence” matters where the real - as opposed to the theoretical - money on deals is made.

Now, due diligence - as it is done by serious, professional dealmakers and investors - is an enormous undertaking.

It often requires hundreds and sometimes thousands of hours of accounting, legal and background reviews and checks, along with third party validation and research as to claims regarding market opportunity, competitive landscape and customer pipeline, traction, and satisfaction.

It can be as time and energy intense as any business process or project one could possibly imagine.

And because it is so, for those without very significant analytical resources and expertise, it is often also unrealistic to do it thoroughly and right.

Luckily, there are some shortcuts that can yield impressive similar insight and results.

I call them the “Who, Why, and When” 15 minute Modern Due Diligence Checklist.

Who. Easily the most important question to ask of any endeavor of importance: Who is involved? What are their personal and professional histories and backgrounds? Of leadership, business, investment and life success? Who are the professional partners (Law, Accounting, Banking, etc.)? Who is on the Board? (Is there a Board at all)? Who are the Customers? The Partners? The Employees?

When it comes to whether a deal is good or not, the answers to these “Who” questions is as often as not all you need to know.

Why. Why is a deal happening? Why are who are involved in fact…involved? Why is the deal being offered to youStart with Why.

When. The old adage that “Time kills all deals” is also a great harbinger into the likelihood of a successful investment outcome.

How long has the deal been shopped? How urgent/desperate are those involved to get the deal done?

Now, these question cuts both ways. I as much want to see principals that need to get a deal get done versus those that perhaps just want it to be so.

Need, in its best sense, drives urgency and action.

Want is often lighter, less substantial, and thus more prone to delays and “almosts” versus results and return.

Who. Why. When.

Mediocre answers to any of these and almost certainly the deal is not right.

But as they are all spot on, well then the next question to ask is often “What are you waiting for?”

The Real Secret to Great Financial Projections


As any venture capitalist worth his salt will tell you, there is a chasm of difference between the mostly grounded-in-reality financial forecasts offered by public companies, and the almost never to come true "rosy scenario" projections offered as a matter of course by startups and small businesses.

And while large public company CEOs and CFOs are judged as a matter of the highest honor on their ability to deliver on projections, exceedingly rare is the entrepreneurial executive that comes anywhere close to meeting forecasted results.

For a sense of the extent of how bad this problem is, a partner I know at a prominent venture capital firm estimates that of the 30+ companies that his firm has invested in, only two have consistently met or exceeded their financial projections.

And let me add that it isn’t like the inmates are running the asylum at my friend’s fund - as a prerequisite of having them as an investor, each of their portfolio company CEOs are required to undertake and report on a vigorous, quarterly budgeting and forecasting cycle.

And also let’s not assume that my friend is just a lousy investor. Lack of consistent financial performance is pretty much par for the course for startups and small businesses.

So what is going on?

Are the entrepreneurs just not ready for prime time? Are their managerial skill levels that many levels below their big company brethren?

I’ll say this - it is certainly not for lack of trying.

Most small technology company executives work longer hours than businesspeople have at any time in history.

If you doubt this, pick up Ron Chernow’s masterful biography of John Rockefeller.

In it, we read enviously of Mr. Rockefeller's daily 9:15am visits to his barber, his afternoon naps, and his unwavering commitment to always leave the office each day, no matter the season, so he could be home before dark.

And it is not for a lack of know how.

Modern entrepreneurs - with their always-on, “click of a button” best practice knowledge and connections base - are a better informed and more globally networked lot than at any time in history.

So if they aren’t the problem, is it modern business itself?

Has it just become - with all of its technological bells and whistles, all its globalization and pricing pressures, all of its customer unpredictability and fickleness - just too unwieldy a beast for any small company to ever consistently ride?

And concurrently, has accurate financial forecasting become equivalent to throwing dice?

Or more disturbingly - is it not even worth doing as even when they do turn out to be accurate it just falls into the category of the blind mouse getting some cheese every now and then?

For better or for worse, modern business demands that we take a more “Balanced Scorecard” approach in judging managerial effectiveness and entrepreneurial progress.

Factors like intellectual property development speed, organizational design, and client satisfaction as measured by a companies’ Net Promoter Score are proving to be just as important predictors of a business’ value creation as is its forecasted-to-plan accuracy.

Please let me clear: On their own these factors do NOT make a business valuable.  

Rather, the right matrix of them, properly prioritized, IS highly correlated with businesses that attain high profit exit and investment outcomes.

As an added bonus, these non-financial key performance indicators (KPIs) can be designed to be far more consistently predictable than traditional projections.

As such, they are usually far better measures of executive effectiveness than budgeting and forecasting “gap analysis.”

You just have to have the guts to forget about the numbers for a quarter or two.

Or, if you are really get good at defining, tracking, and accomplishing the right non-financial KPIs, to forget about them permanently as they will just take care of themselves.

To Your Success,


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