In the post about the theft of ideas I started a discussion thread about the earliest stages of an enterprise. Here I want to talk about another related aspect of launching a business. The post might get a little long or heavy but within it, there is a secret that I believe is key.
Imagine that we have come up with a potential business idea. What should you do first? The first thing I do, apart from evaluate my own idea like I was an impartial third-party, is get a helping hand from my old and dear Excel. The majority of people think that in business, Excel only helps with financial projects. But the reality is that, for me, it is much more than just that.
This is because I started using it when I got my first job as a financial analyst at P&G where I spent all day doing huge calculations. But the truth is that since then, I have been a passionate Excel user. I believe that the ability to use it well is very important in entrepreneurship (maybe the most important besides from English).
What I do with Excel is “model” the business. Meaning, I take apart the biggest variables, almost impossible to estimate, like the “monthly sales” and the smallest variables that influence them (quantity of clients in my, average consumption of the client, etc.). The smallest variables can, in many cases, break down into other even smaller numbers. The object is to break down the sales into as many small variables as possible. Some are decisions that I make (i.e how many vendors do I want to contract). Others are unknown but more estimable than the “large” variables (the average monthly consumption of a business).
Once I estimate how much I will sell (still with a lot of inexactness) I use this data to start modeling other aspects. “Knowing” how much I’m going to sell, I estimate how many requests I will have. Knowing that, I try to see how many people I will need working to fill these requests and how many trucks I’ll need to deliver them. The “large” variables also are the result of the smaller variable such as “how many requests can a truck deliver per hour”.
This thought process repeats itself in EVERY aspect of business.
When I finish this, I keep a long list of small variables, that are the “possibles” of our model. Some we know very well and are simply based on what we decide. Others are estimated in a very imprecise way. With this we enter the “possibles” on one page and make a “mega-plan” where the whole month-to-month company project for the first few years are modeled and inter-related (ex: if I change any variable that affects sales, all the other variables influenced by the sale will be recalculated). Then, with our , we color code the variables. The ones that we are feel most sure of we will color green, the variables that we are not sure of but we think aren’t that bad are yellow and the the ones we calculated without having a very good idea of how correct they may be are red.
Why is this so important in this process? For two reasons:
- The first being that it causes you to ask yourself what will guide you to a better understanding of how this business will “work”, creating more questions about the business model and ultimately, knowing more about it. Without knowing, you would be “inside” the the business model, breaking it’s functionality into little pieces.
-The other is, breaking our model down we are trying to figure out how we can color the majority of the possible variables in green. If I don’t have an idea of how much office products a client will need monthly, I ask the people I know at that company how much they spend usually. If I get 10 that respond to an approximate, I color it yellow. I keep investigating and average the statistics of developing countries (that always have data for everything). I adjust that to the reality of my country. If the number is corresponds to my previous result, I might color it green. If i get something we turn it back to red and keep looking for info, etc…
Take this idea for yourself, like I said in the post about the theft of ideas, it is nothing but a breakdown or analyzing a business plan and color-coding all the “possibles” green. When all of this is finished, we can scream our idea to everyone that wants to hear. Because through all of this we gain knowledge of our business, we do that so no one understands this idea as well as we do.
After this I wanted to illustrate it with an example but it got so long-winded that I am not going to include it in the post. Anyone that needs an better example in order to understand more what I am talking about, please check this post. I know it is long and arduous!