Divergent forecasts, robust plans

May 8th, 2012

On May 24th we are presenting the fourth LAB on the subject divergent forecasts.

A few years ago a CEO of a major US company testified to Congress regarding his role in the mortgage/housing/construction/banking debacle.  Why did he place such risky bets?  Didn’t he see the crash coming?

He said:  When the music is playing you have to dance.

$150,000,000,000 (Fannie & Freddie) and thousands of lost jobs later, it rings pretty hollow. How did he fail?  Did he actually know?  Should he have known?  How could he not know?  He managed current profits successfully (for a while), should he have first managed the future?

What happened and how it matters to those of us who risk our capital on whom others rely is the subject of these Labs.

The title, Divergent Forecasts, has clinical sound to it.  It is directed toward blood and guts, toward exploring whether there is a difference between managing and leading and whether we can see the future clearly enough to walk around trouble and soar into opportunity.

Some have told me I keep looking the abyss.  I demur, as I see it the subject as finding how to soar on the wings of an eagle.  Besides even if I were a pessimist, there is no need to apologize studying what and where an abyss.  I don’t want to step into it.

I confess this subject has high personal interest for me.  Then so is pricing and business planning for the entrepreneur.  Pricing, properly valuing the entrepreneur, has its practical resolve in proper pricing.  The entrepreneur’s peculiar and inexplicable impact on value for the customer is uniformly under priced and often by a great deal.  And I like business planning, not for the potential of really complex numbers crunching, but for another potential, at the way we assist, to advance the entrepreneur’s idea and avoid its burial in common business matrix.

I argue that we can know the signs of coming major economic convulsions.  We can avoid the worst of the damage, that there is no need to survive a convulsion by bloodying our capital, cash or employees.  But the focus is how; more exactly how can we avoid being swept up into the thrill of what become a tragic convulsion.

In such times there is overwhelming press, community, political and neighborly support for exuberance.  We have all heard such expressions as; this time is different, we know better, we have better economic guidance, a paradigm shift, a new economy and so on.

How do we defend our emotions, our reasoning and our common sense?  What we will present is Divergent Forecasts as an answer.  The idea is that the flood of good new is one forecast, but buried inside is another forecast, which does not assume good news.  The divergence tests whether what is buried in the good news forecasts are other data which draw a radically (sometimes) different forecast.

I can’t now take the space to discuss how at the company level, how what is scarcely practically macro, can be applied practically at the micro level of our companies.  But only take space to state what I think, in the instance, is most valuable in divergent forecasts.  To keep out head about ourselves for the loud voices will be contrary and the quiet voice is your own preparation.

Divergent forecasts keep owners who are leaders first, and only mangers second, help still the brain and stomach in the inevitable turmoil, not only to avoid the abyss and ready to size the gains after.

See you on the 24th.  Please register — www.praexisbusinesslabs.com/lab