Clear the Uncertainty when Looking for Funding

As an Entrepreneur it is only natural for you to be outrageously optimistic about your business and the future. When looking for funding you want to show your investors that you can grow their money and provide huge returns for their investment (ROI). However, you know that any projection you make is your best guess.

What you want to show is a hockey stick projection of sales because that is what it will take to make the triple digit returns in 5 years for your investors. But how often have you got your investors rolling their eyes when they see that hockey stick curve? You know your projections are achievable but how do you convince your audience? Remember that your investors are basically interested in the size of their returns and the likelihood of getting those returns.

One way to get them to believe in you is to qualitatively describe your marketing and operations plans and convince them that your stellar background makes you ideally suited to get you there. An alternative is to convince them with numbers and include the element of uncertainty. You can tell your audience that you know that forecasts are simply best guesses. If you could predict what happens in the future you wouldn’t be standing in front of them. Instead, you have taken the guesswork out of the equation by putting ranges on the future estimates. For example, you have estimated that you would sell between x and y during the first year and y and z in the next year. Likewise you have put ranges on all other major variables as well and used a computer model to tell you what to expect as your net income.

You would make a powerful statement if you showed them a chart that displayed a distribution of their returns from lowest to highest. That way you can tell your audience that at the worst case they would make the lower end of the range if they invested in your business and at the best case they would make much much more. This would prove that you are on top of your game in understanding the uncertainties that face the business. This is another way of saying that you know the risks facing the business and have integrated that into your business plan. Perhaps then they would not roll their eyes when they see your aggressive projections because you will also show them both the aggressive and realistic side of the future.

A tool like Crystal Ball makes the above task easy. Contact me to learn more about adding uncertainty to your forecasts and using tools like Crystal Ball.

The Choice by Goldratt

Here is a summary of my learnings from Goldratt's latest book, The Choice. A very good read for anyone in the retail industry looking to transform their operations and bottom line...

The Choice
Eliyahu Goldratt

Thinking Process

- Live a meaningful life rather than an easy life. To do that, you need to think clearly
- Practice, Practice, Practice new ideas and solutions
- If something fails, consider it a prototype and learn from the mistakes
- The more complicated the situations seems to be, the simpler the solution needs to be
- Meaningful opportunities come when you remove the barriers that’s blocking you from making modest breakthroughs
- Naturavalde simplex est et sibi consona – nature is exceedingly simple and harmonious with itself
- Complexity is based on the number of degrees of freedom in the system. If everything is interconnected, a change introduced to the system will impact the whole system so you can see the cause-effect relationship easily
- There is typically one underlying cause that results in the conflict – we can solve the conflict by eliminating the root cause. If we compromise, we’ll never think of the underlying assumptions and never come up with a breakthrough
- Inherent simplicity is that reality is governed by very few elements and any part existing conflicts can be eliminated
- Blaming others pours fuel to the fire (preserving harmony in relationships is extremely important for a person who wants to live a full life) – put yourself in the other party’s shoes.
- Eradicate the notion that a positive change for you must result in a negative one for the other party (compromise) – find a solution that is positive to both parties – extend the frontier of gain
- There is always room for improvement – breakthrough improvement. Thinking there isn’t room for improvement is an obstacle in itself that needs to be removed.
- When you come up with a new solution, you should check all ramifications, otherwise you might miss something important
- The key to thinking clearly is to avoid circular logic – e.g. sales of our products are declining because market taste is changing. The causality is not substantiated. You need to dive further to find the root cause – inherent simplicity states that the causes will converge.
- Be on guard when the cause contains an abstract entity – try to come up with a predicted effect with another effect that must be the result of the same cause. The more predicted effects verified, the higher the validity of the cause. Practice. It should only take a second or two. If something is because of this..I assume that this other thing should also follow because of the same cause.
- Resistance to change is because people like to be in their “comfort zone”. Comfort zone is defined as an area where people feel that they have control or at least a sufficient amount of influence. An additional piece of comfort zone is where a person feels that he/she has sufficient knowledge of the cause and effect – what is going to be the likely outcome of an action and what is going to the likely response to a suggestion. So if you clearly explain the cause-effect, people may be more likely to respond positively to change. Also perform a test to validate the cause-effect that has been suggested
- Thinking clearly results in deeper emotions, resulting in stronger intuition, resulting in higher chances to apply logic successfully, increasing the chances to achieve good results, resulting in more meaningful outcomes, resulting in deeper emotions…

The Apparel Case
- Shortages in the store and warehouses are worse on your bottom line than you think, especially if a product runs out soon after it is launched. It causes non-linear negative impacts to the bottom line.
- The old way – lifetime of the product (6 months) is shorter than time to supply (1.5 yrs)
- “A forecast is the only way to order the correct quantity” is a false underlying assumption that needs to be changed
- Need to order smaller quantities more frequently
- Start the season with just 1 month of inventory and use the first two weeks to get a real understanding of what is moving and what is not
- The best display should be kept for the best sellers (not the slow movers)
- As long as the end customer has not bought, no one in the supply chain has sold
- If you have a large set of SKUs, provide only a few SKUs per store per month and change out the SKUs every month
- Suppose you produced all garments from one dyed fabric; if the company buys the material in huge quantities, but produces actual garments in small quantities dictated by actual consumption. This will increase inventory turns significantly.
- Holding inventories in the plant warehouse rather than pushing them to the regional warehouse further improves availability
- The most powerful improvement is to extend replenishment to the retailers; the higher the frequency of replenishment, it practically eliminates shortages while reducing inventories
- Straightening operations in retail is simple relative to production, and there is no need to do any sales and marketing activities; in retail, the improved operation automatically translates into increased sales.