March 2024

Linked below is the third in my series of articles on tools helpful to leaders in making hard decisions. This week we are looking at Scenario Analysis.

Scenario Analysis is a planning approach that involves envisioning multiple future scenarios and understanding how each of those scenarios would impact your near term decisions and long term strategies. Even though it’s unlikely that any of the scenarios developed will develop exactly as envisioned, if the scenarios are selected well, the process will help you prepare for almost any outcome.

Scenario Analysis is most valuable in times of high uncertainty. 

In the normal course of business planning, we can be relatively safe assuming that the business environment will continue to develop within reasonable bounds. Competitors will introduce new products, customer’s desires will shift somewhat, and external factors like the economy and politics will go through regular cycles, but in general we can expect that our industry and our business will continue to be manageable using our traditional planning methods.

However, there are times when aspects of the future become highly uncertain. New technologies or concepts are emerging and it’s not at all clear how broadly they will be accepted. New competitors are emerging and we can’t predict how disruptive their innovations will become. Dramatic shifts are occurring in the political, global, health, or economic landscape and we don’t know how significant they will become or how long they will last. If ignoring these uncertainties and simply planning for business as usual could dramatically damage or even destroy our business, then we need to take a different approach.

That’s when it makes sense to consider Scenario Analysis.

Read the full article here, including how to develop scenarios, how to apply them to make specific decisions, how to use them in developing strategies, and links to other articles I’ve written on the topic, including video tutorials

Walking to Destiny by Christopher Snider is written for business owners and the advisors that help them. It teaches the Value Acceleration methodology at the core of the Exit Planning Institute’s CEPA certification program and provides a common approach and language for financial advisors, accountants, lawyers, and consultants to all work in concert in helping owners improve the performance of their business, build intangible capital, and prepare the business and themselves for their exit, whenever that might happen.

Although the book is about “exit planning”, having the best possible exit from your business (financially and personally) requires years of planning. The Value Acceleration methodology is designed to assess an owner’s present readiness to exit and then iteratively and systematically take actions that increase the near term performance of their business while increasing its value when they do exit, and as importantly, preparing the owner for life after the exit. Optimally, a business owner would read Walking to Destiny years before they plan to exit.

For the past couple of years I’ve been helping a client prepare to successfully exit his business. One of the client’s other advisors recommended that I pursue CEPA certification. Once I understood that “exit planning” was really what I would call “strategic planning with the end in mind”, it made perfect sense and I am now pursuing my CEPA.

Unlike large corporations or venture backed startups, most small businesses are privately owned by the people who run them. There are 32 million privately held businesses in the U.S. with a total of $37 trillion in annual sales. At some point in time, these owners plan to exit their businesses (and, with our aging population, 63% plan on exiting in the next 10 years). Most of them have been so busy running the business, they haven’t taken the time to plan for that exit and so, only 20-30% of them that try to sell their businesses succeed. Even those that decide to keep the business in the family are unprepared, with only 30% having success in the 2nd generation (and far fewer beyond). The owners also typically haven’t done much planning for their own lives beyond retirement, with three out of four profoundly regretting their decision 12 months after selling their business.

In addition to being busy, although business owners have multiple advisors (their CPA, their lawyer, their personal financial advisor), each of those advisors is focused on just one aspect of the puzzle, sometimes giving conflicting advice, and often overlooking critical gaps. I’m thankful that my client brought me in as a consultant to focus on the overall picture and help him identify and fill some of those gaps, but even so, working with the business owner’s other advisors hasn’t been tightly coordinated. The Exit Planning Institute provides the training and certification to get all of these people working together to prepare the business and the owner for that eventual future date when the owner leaves the business.

I love tools and methodologies, so at first I was frustrated that the author didn’t jump right in to teaching me this new approach. In hindsight, I understand the wisdom of his approach. Part One of the book makes the case for advanced planning for your eventual exit from your business. Part Two of the book covers the five fundamental principles that an owner needs to understand for the Value Acceleration methodology to make sense. Part Three finally gets to the details of the methodology itself. Part Four provides practical guidance for owners and advisors on how to most effectively implement the Value Acceleration methodology.

Bottom line, Walking to Destiny is a great introduction for business owners of the work they need to do to prepare their business and themselves to transition the business to new ownership. I strongly recommend this book for business owners and those that advise them, whether or not they plan on using the methodology.

Read my full review here.

Fusion Strategy is a new book (releasing today) by Vijay Govindarajan and Venkat Venkatraman. It lays out an ambitious strategic roadmap for leaders in asset-heavy industries to follow in positioning their businesses for long-term success in the connected intelligence future.

For the past decade I’ve been writing about the Connected Intelligence revolution. I define it as the collision of advanced data processing technologies with massive amounts of available data, resulting in new ways that we see the world, anticipate the future, make decisions, and take action. This revolution has fundamentally transformed many industries, and with the emergence of Generative AI, those disruptions have only accelerated.

So far, the most significant impacts have been felt in what the authors of Fusion Strategy call asset-light industries like entertainment and advertising. This book is for the asset-heavy industries that undoubtedly see disruption heading their way.

There’s so much that I like about this book. It is very well organized, introducing four “vectors of value” early that become the overall organizing framework for the rest of the book, and using a consistent structure to the four corresponding chapters that make up the core of the work. The authors provide specific considerations, decisions, and actions for readers to pursue in their businesses, and they use examples of what real companies are doing in representative asset-heavy industries.

While I agree with the direction provided by the authors, I question how many incumbent leaders in asset-heavy industries will actually be able to follow their guidance. I doubt that the cultures, investors, or unions of these companies will allow most of them to fundamentally transform themselves as outlined in the book. Thankfully companies like John Deere (currently) and IBM (in the past) have demonstrated that it’s not impossible.

Fusion Strategy is a relatively short book (about 180 pages), made up of 9 chapters broken into three parts. 

The first part, titled “When Steel Meets Silicon”, provides the conceptual foundation for the approach the authors lay out in the remainder of the book. Some of the concepts they introduce may be familiar to readers and some will be new, but this section brings it all together into the foundation on which they build. 

Part two, titled “Vectors of Value”, has one chapter on each of these four potential strategies. This is the core of the book. Each chapter follows the same format:

– An introductory section using a real world example to describe the potential impact of the strategy.

– A section on the “Paradigm Shifts” companies need to achieve in pursuing each strategy.

– A section titled “The Journey Ahead” which walks through four sequential steps companies must pursue in the given strategy. 

– A “Checklist” for each strategy — outlining the key questions companies will need to answer in pursuing the strategy.

The final section of the book is titled “Conquering the Fusion Frontier” and only has one chapter which summarizes the entire book into five principles with two recommended best practices for each. 

Click the link below for my full review with more details on each section.

While I’m skeptical that many industrial leaders will follow the path outlined by Govindarajan and Venkatraman, I believe they should. I strongly recommend this book to any leader in an asset-heavy industry.

Read the full review here.

Sound decisions require an accurate and up-to-date understanding of the environment in which those decisions are being made. In the business world we give this the fancy name of “a situation assessment”.

In the Bible Jesus used a couple of analogies to teach the importance of “counting the cost” of your decisions, saying “For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it — lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’? Or what king, going to make war against another king, does not sit down first and consider whether he is able with ten thousand to meet him who comes against him with twenty thousand? Or else, while the other is still a great way off, he sends a delegation and asks conditions of peace.”

An honest situation assessment similarly considers the internal (in Jesus’ example — the status of your resources) and the external (e.g. the relative strength of your competitors) to avoid making a foolish decision.

Developing a comprehensive situation assessment can be a lot of work. Big companies often have teams of people with situation assessment in their job description and these teams produce formalized situation assessment documents that are referenced across the organization. Small companies often don’t have the resources to formally assess the situation and produce a comprehensive document, but it’s still really important to at least informally think through all of the same factors before making important decisions. 

The product of your assessment can take one of many different forms. The simplest and probably most popular is the SWOT (Strengths, Weaknesses, Opportunities, and Threats) framework which can summarize the situation on a single page. In contrast, when serving as a strategy executive for large corporations, my teams would often take the first 3 months of the annual planning cycle to assess various dimensions of the external and internal environment resulting in a 100+ page PowerPoint deck informing the leadership team of key topics and trends that would shape our planning for the year.

In the article linked below I walk through:

– What is a Situation Assessment?

– When do you use it?

– How do you use it?

I also provide links to other relevant resources.

Hopefully this is helpful to you as you lead your teams and make wise decisions. Let me know if you ever need a hand.

Read the full article here.