The typical entrepreneur is presented with a constant stream of potential opportunities, initiatives and investments in their business. We see the struggle almost daily with how to evaluate options. Too often it is based on guesses, gut and momentum. While this can lead to positive outcomes, there is a way to mitigate risk and make more confident decisions using an underutilized tool in the entrepreneurs’ arsenal - the business case. Here are some tips to make it work for you.
It's a mindset – Form matters less than the mindset and the process. Collect all the relevant information. What are the assumptions? Who are the stakeholders? What are the risks? Let’s use the example of the purchase of additional equipment to add more capacity to a manufacturing line. There are easy variables like the cost of the equipment, but what about the impact on labor? What is the ramp-up time? How much of a deposit if any is required. Does it require a re-configuration of space? Deep questions from all sides are needed to properly frame the evaluation process to determine “does this make sense”.
Take the emotion out of it – Once the best available information is collected, the critical question is to ask “what has to be true” for this to pencil? By evaluating the key elements using the power of logic, it allows the team to unemotionally and safely evaluate a business case on its merits. It is easy to get emotionally charged for or against an idea – that is human nature. The added benefit here is not stifling the champion(s) of the idea as logic is hard to argue with versus other people’s opinion. Using our prior example, If the business has to hire 5 more specialized technicians to operate the new equipment, but the company can barely maintain its current bench of technicians, logic would dictate that as a very material risk.
Memorialize it – Get the business case on paper (or more likely virtually). This has multiple benefits. It codifies the whole process and forces a level of clarity in presentation. It also allows decision makers to step back and evaluate again on all its merits with a fresh set of eyes. Most importantly, once a go forward decision is made, it is a powerful flag in the ground to go back and measure actual results against expectations. The learning value here is tremendous and many times wasted. It can also guide improvements in future business case uses.
Dial it up or down - The size of the impact and investment will dictate the level of rigor required. The ultimate form may be a simple Excel analysis, perhaps a one pager in the vein of an executive summary or something more like a deck. If the aforementioned equipment expansion represents a 5% increase in capacity or capital investment versus a 35% change, the rigor needed should change accordingly. Again, it is the mindset and process that are the most critical. Get enough down so that you could step back from the business for a month, review the business case and have enough information to define the opportunity, understand the assumptions and what has to be true in them to unemotionally evaluate it.
Small businesses have limited resources. The business case can create value, mitigate risk and provide a sleep at night factor. It can be a means to evaluate options on their own merit or in comparison with others when resources dictate that some but not all options can be pursued at the same time. Especially in the early days of the organization when the founder is touching everything daily, gut can work. But over time, a repeatable, trusted process is required. Use the business case, make it work for your business, and make more confident decisions.
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