If you are a business leader, owner or founder, this pandemic has likely left you reeling.
Prior to this change in the world, you likely had a plan. You were growing or pivoting, expanding or diversifying. That plan could feel irrelevant –and it may be.
The world took a left turn. But life must go on.
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. Our current uncertainty is more prolonged, but no less full of unknowns.
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.
But now, more is unknown than known.
We all already do this in a casual way. Likely you have had lots of conversations with people debating how long it will last, what comes next, how things will change. 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.
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
- Duration of social distancing
- Impact of wide unemployment
- Supply chain changes
- Your own financial runway (including cash, credit, inventory, etc.)
Rate your level of confidence in those beliefs. Some things may have 75% confidence (e.g., widespread unemployment will almost certainly reduce demand for leisure travel). Other beliefs may have far lower confidence (a vaccine will be available in 12 months). As you detail these beliefs, come up with alternative beliefs. For example, perhaps I believe that a vaccine will be available in 18 months, and I have a 50% confidence in that –but I have 85% confidence that good therapies will be available within 6 months. I might also believe strongly that virtual work will remain higher than before. Let’s say, 30% higher. If I were in commercial real estate, knowing that might be important to my business planning.
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 neither vaccine nor therapy for 18 months, but a different one if there are great therapies by August. Test the assumptions with your team and available data.
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.
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.