Scenarios for Planning

Scenarios for Planning

The new year is full of possibility —and uncertainty. So where should you spend your resources and energy now? How do you decide which bets to place for the future?

When the terrorist planes struck New York in 2001, the impact on business was instant. Shops closed, airplanes were hangered, owners of commercial real estate wondered if they were all sitting ducks, and the economy suffered tremendously. But some businesses weathered the storm and even thrived. They didn’t have inside knowledge of the future –none of them were clairvoyant. Despite the extraordinary uncertainty and giant changes that were afoot, they endured. The pandemic was similar but more prolonged.

2023 is different. Still uncertain, but more subtly so.

Typically, leaders rely on the past and their own data to inform their strategic decision-making. You do the classic S.W.O.T (strengths, weaknesses, opportunities, threats) analysis and use that to inform your planning. Of course, there is uncertainty. But you can have a reasonable level of confidence about sweeping macro-realities: The state of the marketplace, regulatory policies, competition –and roughly the behavior of people and other businesses are pretty consistent. While you should never view your perspective with 100% confidence, a high degree of confidence is possible.

I think we are pretty close to a typical year-end in most of those respects. But, the number of global events all going on at once is novel. So is the ever-shifting aftermath of pandemic economic events. That creates a kind of background hum of uncertainty. What new consequences will emerge from the war in Ukraine? Will the US government need austerity measures to pay off pandemic bonds? How high will interest rates go? Is Jamie Dixon right in predicting a major recession? Will VCs start investing again at 2019 levels? How soon?

These are just a few of the questions most of us are pondering. And so we are faced with the choice of being paralyzed by those unknowns and questions, or moving forward despite no absolute sureness. That’s exactly the moment to craft some scenarios!

Scenario Planning

We all already do this in a casual way. Likely you have had lots of conversations with people debating the answers to any or all of the questions I mentioned. But to craft a strategy worthy of your investment, you need a more rigorous approach. So, let’s dive into how to do this.

A scenario is a story — the story of your organization’s future. Start by choosing an endpoint for your planning horizon. I suggest eighteen months for the sake of next year planning.

[For more comprehensive strategic planning I recommend much longer horizons. For legacy companies, as long as 30 years, and for VC-funded start-ups, up to their expected exit]

Known and Unknown

There are things you know, things you suspect, data that is suggestive and history that is informative. You need to do research and calibrate the information you collect. It’s essentially a baby SWOT analysis –but you do it based on the best speculation you can discern about the evolving landscape.

Put that information and your conclusions about it in 2 categories:

  • Known (85%+ confidence)
  • Suspected (everything else)

Some things you know, or suspect include

  • Current impact of the war on supply chains and cost of goods
  • Current rate of inflation
  • Current interest rates

Calibrate Confidence

Rate your level of confidence in those beliefs. Some things may have 75% confidence (e.g., rising interest rates will likely cool off the housing market—that may matter to your business). Other beliefs may have far lower confidence (the VC community may resume investing at higher levels than this year). As you detail these beliefs, come up with alternative beliefs.

For example, maybe I have 75% confidence in my belief that VCs will resume more investing but at 20-30% lower valuations than before.

But I have 85% confidence that hiring will be easier for smaller tech companies in the wake of the MAANG lay-offs of 2021. That has a significant impact on the ways that my client companies can plan for their own scaling.

Best Cases and Worst Cases

To parse those beliefs, assign one belief set?Best Case?and the other?Worst Case. Or, you can have multiple assumption sets ranging from best to worst.

The goal is to collect your known and believed assumptions and use them to develop your scenario. So, do this separately for both sets of beliefs –you need at least two alternate sets of assumptions. Using the first set, imagine yourself and your company 18 months out. From that vantage point look backward in time and tell a story of the future for your business as it stands in 18 months. What will your focus be, how will you have weathered the storm, how many employees will you have, what pivots will you have made.

Alternate Beliefs, Alternate Scenarios

Do the same for the other set of assumptions.

This brainstorming exercise is best done with your team – embracing contrasting assumptions that will challenge your own. Each set of assumptions dictates a different narrative. You will tell one story if there is a resurgence in VC investing and your company can raise its next round in Q2 of 2023.

For the worst-case scenario in which, say, no VCs are investing—or the valuations are so low as to make it almost prohibitive—you tell a different story.

Each scenario demands you come up with a way to create value and sustain the business?given those conditions. None of us is clairvoyant, so everything is a guess. But you will have stronger faith in one or another guess depending on how well you explore the assumptions.?The key is to calibrate your level of confidence.

Action Plans

Scenarios Dictate actions.?That’s the important output: What to do now and tomorrow morning.

Let’s say you model two different scenarios. Which is more likely? How confident are you in each? It’s unlikely you can fully prepare for both.

Maybe only one scenario is strong enough to warrant embracing.

But if both scenarios are equally or near equally viable, you can hedge your bet. What actions, tactics and investments overlap in both scenarios? What’s in the Venn Diagram’s intersection? That’s your shortlist of what to do now?

Whether you have two scenarios or one, the exercise is an analytic tool to craft a plan in uncertainty. Don’t end up with regret by doing slapdash speculation. We are very poor intuitive judges of our own assumptions. So,?bring in naysayers?and contrasting views to select those assumptions. That skepticism may save your enterprise.

Scenario planning is useful for your business, but also consider using for your family or investment plans. When the future is so uncertain, we need rigorous tools to choose the best path. I hope this tool is useful for all spheres of your life. But for 2023 planning, it is invaluable! Don’t start the year without really crafting a vision and intention for it! Use these tools to make sure they aren’t fantasies, but instead, actionable scenarios.

Are you ready to craft your own organization’s plan for 2023? Schedule a call with me to chat about how Beyond Better Strategy and Coaching can work with you and your team to develop the most extraordinary strategy to accomplish your vision and goals!

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