Deciding to grow with the numbers in front of you

The problem it solves

Most growth decisions start as a feeling rather than a calculation. The operation is stretched, people are working longer than they should, the phone rings more than it did last year, and someone concludes that the company needs a machine, a hire or a second location. The conclusion may well be right. What rarely happens is the examination that should come first: how much cash the decision consumes, when that cash comes back, and what happens if the demand everyone can feel today does not hold for a year.

The symptoms show up later and they rhyme. The equipment bought in a good quarter that now runs two days a week. The second location that never reached the first one's volume and has been carried by it for two years. The person hired to take work off the owner's desk who ended up in a role nobody ever defined. In each case there was a projection, usually one nobody wrote down. When the result fails to arrive, nobody can say which assumption broke, because none was ever stated.

What settles in over the years costs more than any one of those decisions. The organization learns that big calls are made on instinct, and anyone proposing an investment learns that conviction is enough to carry it. The growth is funded out of operating cash, so the months before the investment pays back compete directly with payroll. And the next decision will be larger, made the same way.

What it covers

The day works on live decisions brought in by the companies in the room: a hire on hold, a machine someone wants to buy, a location that has been proposed three times. The first block is spent stating the decision precisely, which is harder than it sounds. Phrased as we need more capacity, it admits five different answers and none of them can be tested. Phrased as two people on the afternoon shift before June, it can be examined. Alongside it the group writes the competing alternatives, including the two that almost never make it onto the table: doing nothing, and waiting.

The second block pulls the projection apart from the assumptions holding it up. Working on a single sheet, each participant strips their own projection down to the four or five claims it rests on, what volume, at what price, at what cost, over what period, and gives each claim an owner who can defend it with evidence from the operation rather than with optimism. From there the group calculates the cash the decision consumes month by month and the point at which the company gets it back, which is a different figure from the profit the decision promises.

The afternoon turns to the adverse case and to the question that rarely gets asked in an approval meeting: if the revenue lands later or smaller than planned, which month shows it first, how much of the commitment can still be reversed, and what is locked in. A group exercise puts every decision through that test, and the discussion draws on cases where a company pressed ahead because nobody named an early signal out loud. The session also separates two decisions that usually travel together without being the same one: whether to grow, and whose money pays for it.

The closing block installs the follow-up, which is the part normally skipped. Each company sets the indicators that will say whether the decision worked, the date they get reviewed and the person who reads them, because a decision with no agreed review is one nobody will ever assess. Participants leave with a one-page format already applied to their own case and with a method they can run again on the next decision, which is the real point of the day.

What participants learn

• State the investment decision alongside its real alternatives, including doing nothing and waiting.
• Identify the assumptions holding up the projection and give each one an owner who can defend it with evidence.
• Calculate the cash the decision consumes and the point at which the company earns it back.
• Evaluate the decision against an adverse scenario before the company is committed.
• Separate the decision to grow from the decision about how to fund it.

Agenda

1. 01The decision, its alternatives, and the cost of doing nothing
2. 02Explicit assumptions and who answers for each one
3. 03Cash required and payback
4. 04Base, conservative and adverse scenarios
5. 05Idle capacity and what it costs every month
6. 06Growing sales without growing margin
7. 07Follow-up once the decision is made

What the organization leaves with

• A one-page format for appraising investment decisions, already applied to a decision the company has pending.
• The written list of assumptions behind that decision, each with the name of the person accountable for it.
• The adverse case for that decision, including the point at which the company would have to change course and what stays committed if it does not.
• Leadership will be able to recognize an investment proposal that arrives with no stated assumptions, and send it back before approving it.