I was recently in a meeting where the client was planning on launching a new product using us as a supplier. Unfortunately, the price he expected to get from us did not match up with what we had to offer; but an older price. The new price was too high and he could not make his margin (he would actually be losing money); so he requested we do the old price.
I asked for the numbers so I could make a business case. The client was frustrated asking why do we have to waste time on a business case it should be simply a matter of a) we do it and make X dollars or b) we do not do it and make zero dollars.
Fairly simple? You would think so until you realize you have to convince one or two people who are not familiar with the situation. They may think the client can make money with the new price is and is just trying to negotiate, or they may worry that the old price makes us lose money.
The problem with the “business case” is that everyone thinks it needs to be highly complex, multiple pages, and very formalized. Instead, make it simple:
1. Identify a list of options. Example: A, B, or C
2. For each option identify the costs.
3. For each option identify the revenue and benefits.
4. For each option identify the risks of doing it.
5. For the dollar amounts subtract costs from revenue and look at a few items: net income (or EBIT), and margin.
Write it all on one sheet of paper. If the numbers run into many lines, then add an appendix. At the top of the paper, write a 5-10 line summary at most with your recommendation. Below that, put the word Details, and then write the details. Most people will only read the summary.
Your audience will appreciate brevity. More importantly, they will appreciate you taking the time to really look at the problem and giving them a solid answer they can trust.
It is not just obvious. It is also about effective communication and convincing people to your opinion. Taking the extra step of creating a business case goes a long way.
Why is this important? Entrepreneurs often see things as obvious while investors do not. Furthermore, the entrepreneurs not only need to convince investors that this decision is sound but that the entrepreneur can make sound and timely decisions. Winging it only works so far, and in the long run, taking the time to look at the numbers, and present a winning idea shows that thought is behind running the business. All this builds the investor’s confidence in the entrepreneur and gets the entrepreneur closer to getting the next round of funding.
For the example I mentioned it took me 15 minutes and I was done. One of my strengths is doing the analysis. However, I avoid the two classic pitfalls: over analysis, and over-communication. This post talks about avoiding that over-communication.
Keep it simple. Keep it in sound bites. If they have to scroll their email to just get the recommendation then it is probably too long a message (does not apply to Blackberry screens).
————-
On a fun note, this is the 100th post of my blog that I am posting on 09/09/09 at 09:09 am. Enjoy the uniqueness of this number 9 day.
