If you bring it to me I will try to break it...

in

A disclaimer

The following does not refer to dishes, hearts, windows, fine china, or your grandmother's favourite gravy boat (although the picture is somewhat misleading... it's a classic bait and switch). 

 

What I am referring to is an idea... that is what I will try to break.

I was reminded of this the other day when a colleague said a little apologetically, "Please don't misunderstand me... just because I pick at the idea doesn't mean I don't like it. It is just my way."

If I had an inquisitive look on my face it was not because of what he said but rather that he felt he had to apologize. I knew where he was coming from and I simply said, "There is no need to apologize, I would expect you to try to break it".

But why would you want to be so destructive, you may ask... particularly if it's one of those "very cool ideas" from one of those "very cool Millennials".

The answer is simple, if your idea cannot withstand the pressures from a trusted few, how do you expect it to be successful in the wild, wild west of the real word where Darwinian dogma prevails.

Maybe the bigger question is how do you go about attempting to break an idea; what I mean to say is, "What does the attempt to break an idea actually look like (other than the image of smashing a vase with a sledge hammer)?" Apart from the truism that trying to break an idea is the right thing to do, I am not suggesting that my way is the best way, the only way, or even the most powerful way; all I can say is it has proven fairly effective in the past. With that said, this is my way:

Location

Ideas are best broken around the table in an informal setting. Sure a presentation, handouts and a computer can be used to guide the conversation, but the goal is to minimize the "marketing and enthusiasm" that more often than not come with an idea. A setting for candid curiosity, discussion and conversation is needed. 

Questions - W5 & H

Who, What, Where, When, Why & How: This "word framework" can be used to create a wide variety of questions that can drive discussion, conversation and understanding. A few that come to mind:

  • Who will be interested in your idea?
  • What exactly is your idea?
  • Where would your idea be applicable?
  • When would you be able to make your idea become a reality?
  • Why would anyone care about your idea?
  • How would you go about making your idea become a reality?
  • et cetera

I think I may have been remiss in mentioning that "attempting to break an idea" is not to determine if the idea is a good or bad one, but rather help make it a workable idea that you can make the most of.

Discussion, conversation and understanding

Is the idea a "solution looking for a problem"? In other words, is there need for the idea and does anyone really want it.

Is there a mandate, conviction and co-operation for the idea? There needs to be a goal, objectives, and a plan to make the idea workable, a driving conviction to make the idea happen no matter what, and an ability to rally people around the idea. Because in the end, you need the co-operation of people to make anything happen. 

Is the leadership present to make the idea workable? There are lots of great ideas out there, but not always the right leadership in place to make them happen; for that matter, it's not uncommon to have the right leadership with an unworkable idea. The consideration is to ensure both are in place.

Is the idea aligned with your objectives? The reality is if an idea is not aligned with your objectives, it doesn't really matter how workable the idea is or the dedication of the leadership. If your objective is to build a widget faster, you just aren't that interested in a fantastic idea to remove stains from your coat. The idea is not for you.

What is the risk? The questions are simple, "What are the risks that will prevent the idea from becoming workable?" and "What can be done to mitigate any risks?" Everyone's risk tolerance is different so this needs to be deeply explored as part of the discussion.

Feedback. Candid and honest consideration to the idea, and thoughts as to how it can be made workable, is the ultimate goal. The idea may not be right for you, but it probably is for someone else.

I'm the end I'm not really trying to break the idea but make it stronger, and in my experience the more people you have trying to break it, the stronger your idea will become. Then it's just a matter of working your ass off to make it happen.

iamgpe

The "black and white" art of forecasting...

in

It wasn't too long ago that I was working with someone who was interested in becoming a distributor, which in itself is a very workable idea, but the strategic reasons were reflective of someone who was losing their way and trying to solve a problem with the wrong solution.

There came a point in our conversations where it was time to get very "black and white" with all of it... we needed to literally put pen to paper (or the modern version we affectionately call excel) and build out "the numbers for this idea". We needed to forecast the revenue this idea would generate, how much it would cost to run, and understand what the operating income would look like*.

We needed a financial picture of what we would be getting into.

Forecasting, in this context, is defined as a planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends.
Forecasting starts with certain assumptions based on the management's experience, knowledge, and judgment. These estimates are projected into the coming months or years using one or more techniques such as Box-Jenkins models, Delphi method, exponential smoothing, moving averages, regression analysis, and trend projection. Since any error in the assumptions will result in a similar or magnified error in forecasting, the technique of sensitivity analysis is used which assigns a range of values to the uncertain factors (variables). Source: http://www.businessdictionary.com

After creating a simple spreadsheet that had twelve months across the top and rows assigned for Units Sold, Revenue, COGS (Cost Of Goods Sold), and the various expenses down the left hand column (with all the formulas in place to make addition and division easy), we began to fill in the blanks with numbers that would represent the first year of the new business.

When you are looking at this for the first time, the numbers that find there way onto the spreadsheet are based on experience, working knowledge, guts, glory and wishful thinking. Initially this is your best educated guess and something you have to challenge as you work through the process; as the numbers begin to take shape, the discussion that comes with the process will shed light on the considerations to make the idea (or in this case "distributorship") viable... it will also uncover the risk(s) associated with it, and for that matter, the tolerance for that risk.

Units sold:

  • Looking at units sold offers consideration regarding your product, what it looks like, how it is stored, the space needed, how it is shipped, handling considerations and the process flow from order to cash. (Distribution)

Revenue: 

  • Revenue is a big one because you can walk back from it and begin looking at the customer, where the opportunity will come from, the process used to engage the customer, manage the customer, and influence them to buy your product; as well as considerations to the price you set. (Customer Service, Sales and Marketing) 

COGS: 

  • COGS gives you insight into the cost of your product (or service) and more importantly allows you to give thought as to how to reduce it; it is here you can increase your Gross Margin by reducing costs.
  • With regards to being a distributor, COGS is something that is negotiated, which more often than not means it will be what the manufacturer says it is; unless that is, you happen to have established customers and unit sales to use as leverage. (Manufacturing)

Expenses: 

  • This highlights all the money you will need to spend to make the business viable. Some are obvious, but some are identified when you work through the considerations of Units sold, Revenue and COGS. Don't underestimate how important this is and over estimation is always prudent.

This is by no means a definitive process for identifying the financial viability of a business or encompasses the other complicated financial considerations that come with trying to get someone to buy your product. What it can do though is offer a "black and white forecast" for the direction of the business over the next twelve months, and more importantly, give you a financial reference point to work from as you identify areas of opportunity and concern.

In the end, the distributor idea was put aside because it simply was not going to generate enough money for the effort. All in, this process (including spreadsheet development) took about four hours, and in my opinion was time well spent because it ensured we were looking at the situation with eyes wide open, and without rose coloured glasses.

Over the years I've found getting it down on paper, in black and white, is a very good process for making better decisions... and that day we looked at the viability of a distributorship, was no exception.

iamgpe

* Let's not get into EBITA (and the like) for a number of reasons, which include the most obvious one, I'm not a finance guy. I do know a couple of good ones though.