Forget Made-Up Metrics and Fake Facts
Microsoft Excel is a curse. In its deceptive simplicity and ease of use, it has taught several generations of MBAs and entrepreneurs that creating the financial underpinnings for a serious business plan is basically just another form of word processing. It has insulated these aspiring business builders from the difficult and time-consuming - step-by-step - tasks of building a real case for a real business from the bottom up. Making a plan for the future without tying your analysis to the concrete experiences, results, and wisdom of the past is just a form of building castles in the sky.
As a result of the Excel explosion, we’ve seen the creation of thousands of mindless spreadsheets underlying hundreds of naïve business plans put forward by individuals who have relied on Excel to painlessly develop forecasts and predictions which haven’t the slightest connection to any reality, but which look “marvelous” as Billy Crystal used to say. And then these folks (and their promoters, investors and enablers as well) seize upon these plans as if they were the Gospel expressed in rows, columns, and pivot tables and use them for support and borrowed credibility - rather than for analysis, guidance and hoped-for illumination – exactly the same way that a late night drunk relies on a lamppost. Welcome to the fantasy world of made-up metrics.
When you use a tool like Excel (that’s fundamentally neutral) to generate hypothetical and hysterical numbers to make a theoretical case with no real foundation in fact or history and then you fall in love with the finished product, you’re deeply into made-up metrics. Credible plans need to proceed from a serious grounding in prior, documented experience and results – they can extend those results into the future – I would call these “projections” and, while they are never certain, at least they are logical and well thought out. We used to call this process “precision guesswork”, but at least we had a process and we knew where our numbers came from. “Predictions”, on the other hand, are the results of those cases where people simply insert aggressive new growth numbers (without any clear justification, obvious cause, or decent explanation) and then use Excel to replicate, grow and run the numbers forward until they reach the sky.
When you get carried away with this approach, you tend to forget that building a real business is about producing results, not predicting results. It’s actually easy to predict the future, it’s just impossible to know when it will arrive. You can plan all the plans you wish, but you can’t plan results – you have to do the hard work of making those happen – and that hard work starts with building a solid factual foundation for your numbers. Too many excellent Excel plans are just sterile exercises stuck somewhere between wishful thinking and delusion.
Another entire category of bogus business plans are crammed with so many fake facts and factoids and other accumulations of data that are only remotely relevant at best to the business being built. Grossed-up market size is always one of my favorites. “Our addressable market is everyone with two eyes in the world.” Right. Fake facts are all the rage these days, but they don’t help advance your cause. I think Seth Godin is a smart and thoughtful guy, but here’s what he had to say in a recent blog post: “[Aside: More than a billion people on Earth have never purchased anything on sale at a store.]” Do you really think there’s any factual basis for that statement? Why waste our time with this kind of stuff?
Even good facts are just facts – they’re not props for arguments or support for conclusions – it’s the conditions, trends, needs, and other market circumstances that you extract and extrapolate from the facts that help to explain, define and ultimately “sell” your business idea to investors, customers and partners. It’s these larger drivers which you need to discover, document and master – and not cute anecdotes and fake facts – that will provide the real framework for the continual decisions you’ll need to make as you move things forward.
Building a business in these tough times is about pushing your vision forward and adapting it where necessary through a sea of constantly changing facts and circumstances. But if you don’t start with a fundamental idea – grounded in some reality – it’s way too easy to get run around in circles or just lost in the shuffle. These are serious problems for young entrepreneurs because the triumph of the form of the materials over their real substance (slick spreadsheets) and misplaced reliance on irrelevant metrics (fake facts) can lead you to believe that you have your arms around your business when – in fact – you’re swinging a big hammer, but you’re trying to nail Jello to a tree.
PP: “You Get What You Work for, Not What You Wish for”
