The meeting was going swimmingly. The team had spent the past two months formulating what it thought was a high-potential disruptive idea. Now it was asking the business unit’s top brass to invest a relatively modest sum to begin to commercialize the concept.
Team members had researched the market thoroughly. They had made a compelling case: The idea addressed an important need that customers cared about. It used a unique asset that gave the company a leg up over competitors. It employed a business model that would make it very difficult for the current market leader to respond. The classic fingerprint of disruptive success.
With five minutes left in the meeting, it was all smiles and nods. The unit’s big chief (let’s call her Carol) loved the concept, and in principle agreed with the recommendation to move forward. “I just need to see one more thing,” she said. “Can we talk about your financial forecasts? You’ve told me it’s a big market, but I’m not sure yet what we get out of this.”
The team members smiled, because they were prepared. They knew — and they knew Carol had been taught — that detailed forecasts for radically new ideas are notoriously unreliable. So they instead turned to their best guess of what the business could look like a few years after launch. They detailed assumptions about the number of customers they could serve, how much they could make per customer, and what it would cost to produce and deliver their idea. Even using what seemed to be conservative assumptions, the team’s long-term projections showed a big, profitable idea. Of course there were many uncertainties behind those projections, but the team had a smart plan to address critical ones rigorously and cost effectively.
Carol began to look impatient. “That all sounds good,” she said. “But can you double-click on the next 12 months? We can’t afford to lose money on this for more than nine months. When do you turn cash-flow positive?”
Read the rest at Harvard Business Review.
Scott Anthony is the managing partner of Innosight.