Scenario planning toward your North Star
Businesses should be prepared for more than one plausible future when the environment is unpredictable. “Developing a scenario plan that looks at those different realities is a really important part of the process,” Dominique said.
However, many entrepreneurs overlook the importance of having a North Star to clarify the company’s overarching goals. Having a shared understanding — including with your investors and your board — helps you make difficult choices and adds confidence to the mix.
In chaotic times, business leaders may make less-deliberative decisions. Having a long-term plan grounded in your company’s North Star serves as a solid guardrail. Like an athlete, business leaders can build out their own playbook to get an idea of what each scenario would look like. Trester advised considering many different scenarios the same way you would prepare for a presentation to a client.
While modeling scenarios, also factor in your level of risk aversion. Consider not just your sensitivities but those of your investors and your board. Communicating these scenarios to address different outcomes without seeming indecisive can be a challenge. A prudent approach might be: the best, the worst and what Trester described as “something interesting.” The latter might be appropriate if you’re planning how to scale, innovate and disrupt the market. However, it’s always important to first think about your core business and how you’re going to balance your investments and your revenue.
Be prepared to clearly lay out all the basics that investors and board members are looking for, Trester said, for instance: “This is what scenario one means for revenue, pipeline, headcount.” Have a plan and a scaling option ready, and be prepared to answer questions.
Raj Malik, Founder and CEO of Bioworld Merchandising, Inc., added that even entrepreneurs with the most thorough scenario planning can be caught short: “It’s important to have a mix of talent and team that can really think on their feet and come up with on-the-fly plans.” Yes, it’s about good planning, he said, but you need the right teams, with the right people, to make it work.
Capital decisions to fit business priorities
Decisions of how and where to put capital to work become even more fraught in times of uncertainty. “As an entrepreneur, you’ll know at every stage what your biggest need is,” Malik said, calling it a continual balancing act. Mainly, his goal has been to invest back responsibly for the key initiatives that will drive growth the next year.
Everybody, regardless of the size of the company, has capital discussions and capital decisions to make, Dominique said. Priorities become different, he added, if you’re investing in long-term initiatives, which affects cash flow — and impacts value. He reiterated the importance of scenario planning. Knowing your strategy and scenario will help to guide you in capital decisions, he said.
Milestones can help entrepreneurs make capital decisions, Trester said. For example, reaching a certain milestone may enable a purchase; a dip in business may require pulling back on staffing.
Capital decisions can also benefit from incentive opportunities, Dominique said. He recalled that when he was deciding on a company headquarters location, five cities were vying for the business. “The real estate company we’re working with was able to identify for us some state-based incentive opportunities,” he said.
Incentives aren’t only for big companies, Trester said. “People think you have to be Microsoft or something to qualify for an incentive,” she added. “Not at all true. And there are different types of incentives also in some of these municipalities that would surprise you.”
