Projection Rejection

A Company of Friends member emailed other members of his group earlier this week with the following question:

Yesterday, I had a discussion with a client, an SVP of product management, who — along with all present — agreed that what I had proposed was a real, qualitative breakthrough. The SVP then asked for quantitative support, saying "We need some numbers, projections of how successful we will be using this breakthrough approach." How can "projections" of data describing current circumstances be faithful (i.e. not be totally made up) and provide any insight into results of a radical conceptual — and operational — change?

Any ideas or insights?

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3 Comments

  • Shannon Clark

    To generalize a bit from Chris' suggestions:

    - Start with a clear understanding of what the situation is today. This may not be simple to achieve - try to look at what the drivers of the business are, what you can track and measure

    - Then look to a discussion of what of those drivers of the business the innovation effects:

    Does it increase the number (or potential number) of customers?

    Does it expand services to existing customes? If so, will they pay for the additional services/features/functionality? (in many industries the answer may be no)

    Does it help retain existing customers - i.e. cut down on "churn" or other costly changes to your customers?

    Does it directly affect your relationship with customers? Note, not all innovations will, many may help you manage costs, retain employees, enhance productivity.

    If not directly related to existing customers, what is the impact of the new innovation?

    Building from that, how will you track and measure that impact over time? What is your starting point "pre-innovation"? (turnover of employees today, time it takes an employee to do a given task, productivity of a line of business, costs of current suppliers etc)

    With the above questions answered, you can then look at what projecting forward the innovation could achieve, how to measure and track it going forward, and from that parameters of success. (don't forget to include in your costs the costs/efforts involved in measuring/monitoring - which can in some cases be significent)

    You likely can then start to look at qualitative discussions - is the impact of the innovation worth the risks and costs of the innovation? What is the downside of going forward (risking $x, spending time/attention, etc)? What are the upsides? What is the risk if you wait or do not go forward (in many industries, take cell phones, the risk of stopping to innovate is dramatic downturns in your business)

    If it is so radical of an innovation that you are proposing that the current metrics of the industry no longer matter (switching from per-minute billing to flat rate in the long distance/telcom market - so metrics built up around # of minutes etc had a diminishing value) you will want to look carefully at what you are measuring (and projecting from) and look for the underlying reasons behind the old metrics when proposing your new ones.

    - i.e. the old metrics tracked the drivers of top-line revenue, so to use the telcom model in place of minutes the new metrics would likely have to track # of customers, revenue per customer, "cost per new customer" and churn rate. Metrics you may have tracked before, but which had a different impact previously.

    You'll then move metrics like "minutes used" into a different category, one that now looks at the "costs per customer" and might help you identify profitable customers (and unprofitable ones) - and then track the impact of changes on those meatures.

    hope this helps,

    Shannon

  • Chris Philippi

    In reference to your question about "projections" I can relate to your situation. I have presented many consulting proposals and sold many projects when "projections" were necessary.

    Here's the way I look at it: Use a best case / worst case scenario approach.

    Use the words "conservatively speaking" this new breakthrough/concept/method can ... (increase sales to existing customers by 10-15% / increase customer retention by 10-15%, etc.)

    You know, if this is even halfway accurate, and I believe it is, what would this represent to you in terms of additional revenue/profits/cash flow/gross margins, etc?

    Mr. Client, right now you have 2,000 customers spending $500 a week with you. Now this concept we just discussed should "easily" increase that dollar amount to $525, even $550 per transaction, wouldn't you agree?

    (Then wait for a positive response, a "nod" of the head, etc.) Then continue with ...

    So we are talking about an "additional" $50,000 a week, month, quarter, etc.

    Now of course, this is a "conservative estimate" because as you know I always prefer to underpromise and then delight you by exceeding expectations. I think we both agree that this new breakthrough could easily exceed this projection we just calculated, wouldn't you agree?

    But to be fair to you, I will base our proposal on our "conservative projection" so you will feel rest assured of a definite ROI.

    --------
    Side Note: You see, by verbally discussing the "projections" in an open, yet informal way like this you get a clue as to what your client is thinking. If your client affirmatively agrees with your "conservative estimate" then you know that you can definitely use those numbers for your proposal. And you have a very good chance of closing the deal because you already mentally "painted the picture" of what the highest level of possibilities are ... and THAT is what the client will be paying for ... a dream, vision, of greater things to come!

    I hope this helps. I am a "professional closer" and I sell on behalf of b2b companies on a commission-only basis. Feel free to contact me by email with any comments or further questions about your concerns with this or any other client.

    Chris Philippi
    "The Closer"

  • Craig Dye

    What you are proposing is not that far off from starting fresh in an entrepreneurial effort. Would you agree that an entrepreneur gains much insight from studying the impact of their innovation on the flow of capital in the marketplace and how much of that impacted capital will flow through their company?