Tech mogul Elon Musk alongside Steve Wozniak, tech expert Stuart Russell and Yoshua Bengio have signed an open letter calling for a six-month pause…
Welcome to the Matrix: Mastering the art of Scenario Planning
For entrepreneurs, one of the most frequently cited challenges is the task of having to juggle multiple demands on your time at any given moment. In my view, however, there is a task that is perhaps more taxing – and yet absolutely critical – that entrepreneurs have to tackle every day. It is the task of identifying and planning for multiple possible business scenarios in the midst of an ever-changing market environment. Smart scenario planning, in effect, is something that undoubtedly needs to be built into the fabric of your daily communications with the board, management and your team on the ground.
I find it helpful to think of it as a matrix, taking the classic business challenge as the pillars: balancing the availability of funding/capital with the sales cycle and the necessity to scale operations up or down.
So, on the vertical axis we would have the spectrum of possible outcomes in terms of business development: the bottom rung would denote low sales figures (little to no market traction); the middle rung would signify middling growth in sales; and the top rung would denote outstanding sales growth (at which point the business is stretched to meet demand).
Similarly, the horizontal axis would represent what resources the business has available, basically funding/capital. The left column represents the worse case scenario of no funding or backing; the middle signifies some funding but no more than 6 months’ worth of burn; and the top right quadrant represents far more than a year’s worth of funding.
Somewhere in the Middle
Naturally, every entrepreneur wants to be sitting in the top right corner of this matrix – with outstanding sales demand and a healthy dose of capital injection waiting to be deployed. More realistically, however, most new businesses are likely sitting somewhere towards the middle. The smart and forward-thinking entrepreneurs plan carefully for almost every scenario – and set up the business and team in such a way as to be able to quickly respond to fast-changing market conditions.
For example, if there is a decent amount of capital available but sales are grinding to a halt, the savvy entrepreneur will take little time to divert resources into sales and marketing functions. If, however, demand is skyrocketing but the business is stretched to breaking point trying to meet this demand, the management team should have already implemented a strategy to increase capability – by recruiting new engineers, for example, or installing critical new technology to scale up.
Essentially, entrepreneurs need to be constantly creating ‘maps’ and strategies that take into account several possible business outcomes – and then be adept at communicating with management and teams around how to tackle each scenario. Ideally, the business should be able to adapt and pivot with minimal disruption – and minimal waste of limited resources. So, for example, in preparation for the launch of a new product, the Marketing team is briefed for the rollout in order to implement a successful marketing campaign. However, if after testing, the product is proving to be too expensive or unrelated to market needs, the Marketing team should be notified as soon as possible so they are able to scale back their efforts. The marketing campaign can then be revised to align with business objectives, once the revised or new product is ready to go to market.
The critical point – and usually the most difficult – is being able to recognise ahead of time which scenarios are mostly likely to unfold and being prepared for each. While there is always some degree of switching back and forth as per the market trajectory, a business can travel relatively smoothly through this if everyone is firmly on the same page (or box in a matrix).
First published in Entrepreneur SA
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