Make the worst-case foe your friend

Waking up to the fact that things can go wrong is not necessarily an exercise in pessimism. Often, this can lead to a very positive plan of protection. By TOM McKASKILL

By Tom McKaskill

Waking up to the fact that things can go wrong is not necessarily an exercise in pessimism. Often, this can lead to a very positive plan of protection.

I often wonder whether Murphy’s Law is the thing that keeps entrepreneurs awake at night.

The number of times that I have turned up at the office to discover that my nice comfortable world has been turned upside down is too many to count. Whether it is a resignation sitting on my desk, a notice to say my best customer has filed for bankruptcy, or the elusive cheque in the mail that didn’t make it, you simply cannot guarantee that you won’t get a surprise everyday.

If you are really unlucky, you will get a day with several of these shocks all coming together – that is the day you wished you were a dentist or lawyer, or maybe even an employee letting someone else deal with the problems.

However, sooner or later we wake up to the fact that things will go wrong, often unexpectedly, and that we need to plan for such outcomes. Thus, the planning process which, ideally, produces an elegant solution to our growth plans has to be reworked to ensure that we can survive and recover from things that go wrong.

We need to build into the analysis of our operations an understanding of the impact of delays, overruns, failures, lost deals, resignations, missed deliveries and so on. It is not that we need to dwell on the negative, but that we should be sensitive to things going wrong – and the implications on the rest of the business if that happens.

A business with some resilience and resource slack can withstand normal bumps in the road. You expect that some things will go wrong just in the normal course of events. The planning process, however, should go beyond this to consider those disruptions, which could fundamentally throw the business off track, or at least uncover those outcomes that would substantially undermine normal progress.

In my last business, we prepared a worst case cashflow and sales analysis every month. This became the most important management report we would use.

It enabled us to decide very quickly what decisions we had to make and what could be deferred. We would not invest in capital equipment, market expansion or recruitment unless we understood the risks involved. The worst cases scenarios provided the means whereby we uncovered most of our future risks.

No one wants to be the doom and gloom person in an executive team, and it is very hard to motivate people if you focus on what can go wrong. Instead, you might set this up as a rotating role within the team.

Each month ask a different person to act as devil’s advocate, to test out the underlying assumptions in the plan and to ask some hard questions.

Since this is a designated task, no one should feel bad about taking their turn. The lessons learned from being proactive at looking for problems will also improve their own planning capability.

In planning, you need to see Murphy as your friend, not your foe!

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.