Discovery Driven Planning and Bootstrapping

This weeks readings intrigued me. The Kellogg article titled, ‘Technical Note: Discovery-Driven Planning’ opened up new avenues in thought. From my previous experience in the industry, I have often taken part in planning when the outcomes are known and the means to achieve the outcome are known from previous experiences. So this article was an eye-opener. What were the main take home messages for me?

• Framing: This was something novel to me. In my initial financial plans, I had made the exact mistake that the authors (and the web article on bootstrapping) said most people would make. I assumed that I would target a population of 1% and worked my way down, basing my entire sales strategy and financials on that assumptions. And there was no way I could validate this assumptions without paying the price. The article (and the web article too) indicated that one must set a target profit level and then back-calculate the number of units that I must sell in order to meet these goals. Excellent! Eureka moment!
• Checking Market Reality: This was pretty much on things I already knew and had incorporated. However important questions were raised by the authors in this article.
• Which group do you want to target?
• Compare your product/Service against your competitors using useful rations (key ratios).
• In the case of Kao, they had a competitive edge over the competitors in the experience with chemicals. This enabled them to offer their product at a much lower price. Underlines the need to develop an expertise area which competitors cannot copy.
• Specifying Deliverables: ‘As you create your deliverables specifications, document your assumptions’. I thought this sentence to be prudent. The example of the multi- million dollar company was also very indicative of the errors we can do in finding numbers that match our analysis. This must be avoided. Remember that you are trying all ways to find faults in your analysis (this is much better than learning on the job).
• Document Assumptions: It is easy to get lost and forget what the assumptions were in the first place. So the authors suggest that one re-visits the assumptions and check if they still hold good –> Which sort of build into the next point of Planning to learn at key milestones.

The other article titled, ‘The Art of Bootstrapping’ was equally insightful.

I found the following points in the article go ‘click’ in my head.

• Focus on Cash flow and not profitability. Short billing cycles keeps the cash flowing. I have seen family members choke and have to close their businesses for lack of free flowing funds and I recognize the importance of this.  So how can I ensure that my products have short billing cycles? What about providing financing options for my customers? Will that affect my cash flow? These are things I have started to thing about.
• Forecast from Bottom Up: Sort of overlaps with the previous article. But this point cannot be overstated. A mistake I made! And glad to see that I have corrected it now.
• Ship and then Test: I do not agree with this at all. I don’t think sacrificing the company’s image can be worth anything. It destroys the long term objectives. Especially for my company, which deals with rural households where pennies matter and trust is the altar of God. So I ignore this judiciously.
• Go Direct: Yes. Makes sense. But what if there is no infrastructure to do so? This would imply the dire need of tying up with local partners who understand the local business topology.
• Take the red pill – Love the parallel! Do we have a choice?

So in short, make assumptions on the reliable data. Do not find data to fit your assumptions. Wok bottom up, Bootstrap and always take the red pill!