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How Business Cases Can Improve Your Decision-Making
How decisions will turn out in the future is sometimes hard to predict. But not always, if you develop a business case before making an important decision.
Entrepreneurs generally are full of creativity. They love to come up with new ideas to solve problems. While this positivity drives them forward and allows them to overcome many obstacles, it is also a magnet that attracts a broad field of seemingly exciting opportunities.
But not every opportunity is a good fit for their current business.
Unfortunately, many entrepreneurs only realize this mismatch after spending months, even years, and a lot of money trying to make it work.
However, some entrepreneurs seem to know in advance which opportunities to pursue and focus their efforts on those with the highest benefits to their organizations.
But what do they do differently?
These entrepreneurs often think in business cases. This might sound abstract, overly formalistic, and something accountants love to calculate in their spreadsheets. As you will see, it's far from it.
Also, it doesn't matter whether you formally write down a business case, even though I recommend it, or whether you implicitly follow the steps in your head.
Once you have addressed these eight business case topics, you'll know what it will take to make a specific opportunity a success before spending much time and money on it.
A BUSINESS CASE EXPLAINS THE REASONING FOR PURSUING AN OPPORTUNITY
A business case explains the reasoning for pursuing an opportunity.
Don't underestimate the impact of needing to justify the investment of time and money to yourself, your management team, or investors.
Estimating how much brand awareness will improve, the business will grow, and profitability will increase can be challenging and requires thorough thinking. However, in my experience, that's also the most valuable part of working on a business case. It's not the final "yes" or "no" decision.
Instead, it is the discussion that led to this decision and the resulting clarity about what will and will not advance your business.
As an entrepreneur, you constantly make decisions. Business cases are a widely used tool to improve the quality of these decisions. They also help you focus on the things that matter.
BUSINESS CASES SHOULD ADDRESS 8 TOPICS
Usually, a business case captures the scope, the assumptions, the cash requirements, the potential benefits, and the risks. It should also discuss alternative options, including the do-nothing option.
Often forgotten in business cases is whether the opportunity aligns with your purpose, vision, mission, values, and goals as outlined in your brand compass.
TOPIC 1: SCOPE
Clearly state what the business case covers and what it excludes. Avoid ambiguous wording. It could lead to costly misunderstandings.
TOPIC 2: ASSUMPTIONS
Under which assumptions will the business case be a success?
Do you have to hire additional staff, rent more space, or buy special equipment? Do you have to enter into long-term commitments?
If you or your team are unsure about how a specific business model functions, I recommend asking people in the industry.
If you work with a business coach, get their perspective. Gather as much information as possible to avoid any blind spots and surprises.
TOPIC 3: BRAND ALIGNMENT
Some opportunities are so far outside what a business currently does that they don't align with its brand, potentially damaging it. Others may not be so extreme. Still, they might not be a good fit because they could confuse your customers.
In my experience, only pursue opportunities that fit your brand well and avoid the others.
If your customers no longer know what your brand stands for, you will eventually lose them and a part of your business.
TOPIC 4: CASH REQUIREMENTS
How much cash would you need and in what installments to implement the business case?
Do you need to build an inventory of products? What purchase commitments do you have to give your suppliers?
How much do you need to spend on marketing?
Do you have to take out a loan, and if so, under what conditions?
TOPIC 5: BENEFITS
What constitutes success? Will profitability improve? Will sales grow, and how quickly? How does the cash flow change? How long will it take to pay off your investments?
If you include financial projections under this topic, forecast your sales, expenses, and cash flow monthly. That will help detect issues earlier in the future, giving you more time to correct them.
TOPIC 6: RISKS
What could go wrong? If something went wrong, what could be the impact, also financially? What could you do to prevent the risk from materializing?
TOPIC 7: STRESS-TESTING YOUR ASSUMPTIONS
After developing a consistent business case, you have to stress-test your assumptions.
How does your business case change when the implementation of critical assumptions is delayed or it turns out that they are not feasible?
For example, what would happen to the business case if an investor or your bank doesn't provide the money they initially promised?
Stress-testing your assumptions is also called conducting a sensitivity or what-if analysis in finance.
TOPIC 8: ALTERNATIVE OPTIONS
When you are excited about your new business idea, thinking about alternative options can sometimes be the last thing on your mind.
However, it is rare that no other approach is conceivable.
A business coach could be a valuable resource to help you look at your business case from a different perspective. That includes exploring the option of not pursuing the opportunity at all and its impact on your business (do-nothing option).
Once you worked through these 8 topics, you conclude your business case with a recommendation about what to do next. This may include not pursuing the opportunity.
BUSINESS CASES ARE NOT INTENDED TO JUSTIFY DECISIONS ALREADY TAKEN
Some entrepreneurs and management teams are quick decision-makers. Others postpone decisions seemingly forever. None are healthy behaviors to run a company.
Since the "quick deciders" typically don't wait for a business case, they often leave the outcome of their decisions to chance. Statistically, some will turn out great, while others will be disastrous. Unfortunately, you don't know beforehand which will become which.
To make matters worse, banks and investors usually want to see a conclusive business case before providing money. But, because it was an ad hoc decision not based on a business case, the business case has to be created after the fact to justify the initial decision. Crazy? Yes, but it happens all the time.
A much better approach is to develop your business case first while keeping an open mind about the outcome and then base your decision on what you have learned. That way, your decision-making will improve, and so will your success rate.
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