By SCOTT BELLOWS
In Summary
While optimism stands as a positive hallmark for
entrepreneurs, it often crosses into hubris and stops the entrepreneur
from realistic expectations.
The year 2014 brought new insecurities throughout the
globe. The meteoric rise of terrorists in Syria and Iraq, Russia’s
aggression in Eastern Ukraine, Ebola outbreaks in West Africa and police
bias followed by racial protests in the US all shook our core
expectations for world order.
Here in Kenya, we faced increasing insecurity, sometimes
debilitating squabbles between central and devolved government functions
and rising bureaucracy to businesses.
But mitigating some of the negative trends is the
stunning drop in world oil prices that makes almost all goods and
services cheaper; phenomenal new technology startups reaching global
scale from Nairobi’s premier incubation hubs – NaiLab, mLab,
GrowthAfrica and 88mph; and less uncertainty on the global stage with
regards to the Kenyan cases at the International Criminal Court.
All these boost our business prospects. However, what should business owners expect going into 2015? How should we plan?
First, every business owner should look back on
2014 and come up with a list of “what we expected” and “what we did not
expect”.
Take every major sale, serious purchase or material
interaction and view it in light of expectations. Business owners
frequently do not reflect on meeting their expectations from prior
years. This creates problems with reliable forecasting going forward.
How did the expected and unexpected factors impact
your business? If you operated a tourism-linked venture, what proportion
of your sales decline came from cancellations or lack of new business
due to security concerns or unfounded Ebola fears?
When an unexpected event impacts business,
executives often blame it for every other negative aspect in the firm.
But searching for excuses helps no one. Find specific links to
antecedents that caused negative events in your business.
Some negative consequences for a tourism firm might
be the culminated results of poorly furnished rooms and bad marketing
even as the uncontrollable factors affected business. Shareholders
should not give executives a 100 per cent pass based on excuses when
they could actually control 40 per cent of their decline.
Next, make a realistic plan for 2015. Business
planning often yields laughable results. A firm with a historic growth
of five per cent per annum will often present investors and bankers with
projections showing 40 per cent growth in each of the next five years.
While optimism stands as a positive hallmark for
entrepreneurs, it often crosses into hubris and harms the entrepreneur
from making realistic expectations.
Given the global and national business climate,
experts now recommend that businesses employ a four-pronged business
forecasting approach.
1. Come up with what you expect to sell and buy
under ideal conditions. Perhaps you will go to industry conferences and
everyone will love your product. Alternatively your website will pick up
and you double your online sales. Maybe the Business Daily
will feature you and you triple your consulting clients. Whatever the
possibilities, dream of what you can achieve in ideal conditions and
call it your “best case scenario”.
2. Take your best case scenario and reduce your
sales and expenses by 25 per cent. In the real world, most ideal
scenarios do not line up perfectly. Think through what you can
realistically achieve and create your likely case scenario. Do not
expect massive growth in the future when you realistically never
achieved it in the past.
3. Take your likely case scenario and reduce your
sales by another 25 per cent but only reduce your costs by 10 per cent.
In reality, you cannot reduce your expenses as fast as you lose your
sales. Many expenses, even some variable ones, are fixed in the
short-term or have already been incurred – such as a ramp up in
inventory prior to an expected busy season. You might plan that your
worst case scenario might take hold with a 30 per cent probability.
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