You know me — I mean, besides as your favorite Newtown Square, PA small business accountant and quickbooks advisor.
I love the inspirational quote, the “don’t you ever give up” stuff (at least in what I write, and choose to watch and read).
But sometimes, it’s a good idea for a Newtown Square, PA business to quit.
Or, at the least, develop a really firm pro forma.
We can help you with that, of course — whether it’s a new business idea, or a new branch of your existing business — it’s absolutely critical that you take a clear-eyed look at the pitfalls ahead. (and here’s the number to call, btw: 610-353-0686)
Too many Newtown Square, PA-area entrepreneurs are blind optimists. (And yes — too many Newtown Square, PA-area accountants are blind pessimists!) But aside from the financials of a new venture, there are obviously other factors that play into its outcome. And my gut is that the people on your team already know what they are.
My gut isn’t ALWAYS right, of course! But that’s why real world research can help. Here’s what I mean…
Stephen Venuti: The Antidote to Unfettered Optimism
Over 50% of businesses fail in the first four years. Many that linger past that point are alive in name only. Yet very few Newtown Square, PA-area entrepreneurs actually believe they have a less than 50% chance of success. They are convinced that those statistics only apply to the other person’s ideas.
The concept of a pre-mortem was designed to help overcome these natural human tendencies to ignore real threats to a business plan. A related concept, the postmortem, or autopsy, was coined by the medical community to determine the cause of death.
Sometimes we wish for hindsight’s clear vision beforehand. If failure is the most likely outcome, the earlier you can recognize it and change course, the better. The pre-mortem looks into the future and attempts to predict what a business venture autopsy will reveal.
In his book The Power of Intuition, Gary Klein offers a five-step exercise to help teams overcome the overconfidence bias. Research has found that people are more clearly able to understand and describe the risks of a venture when they conceive of the failure of their project as certain. If failure is only a contingency, the hopes and aspirations of all involved will neuter any attempts to assess the most dangerous risks.
Before you can begin, make sure that everyone on the team is fully familiar with the new venture that will be assessed for failure. This exercise may require an initial presentation and some additional reading so that all participants have a full understanding of the issues involved. Schedule about an hour in a conference room. Each person will need several sheets of paper.
When all arrive, begin by claiming to look into a crystal ball to see the outcome of this new venture. Oh no, the future is cloudy but disastrous. The project is a complete and total failure. Your partners and your clients are upset. No one on the team is talking to one another.
But your crystal ball will not reveal how this happened. The question of the hour is, “What could have caused this?” Ask each team member to suggest 10 reasons for the failure.
In the second step, each member of the team quietly takes three minutes to write down all the reasons they think failure occurred. This decentralized free association will produce many interesting ideas about how this venture may have failed.
All the participants must be given the freedom to share ideas that in other situations would be considered impolite. Too many teams get stuck in a psychological state of groupthink where opposing feelings of loyalty and fear both lead to conformity of ideas. The most pressing challenges are not likely to be shared in an environment that lacks the freedom to speak them.
The third step involves repeatedly going around the room as each person shares one item on their list and a facilitator records these ideas until all have consolidated their lists into one master list.
The fourth step is to prioritize the ideas that grew out of the collective brainstorm. Which two or three appear most threatening to the group? Have each person write these down independently before sharing as a group. Sometimes, the most polished and eager public speakers can be so convincing that others in the group neglect to do their own reasoning.
The final step is to reassess the new business venture. Are the opportunities worth the threats involved? Are there ways to strengthen the plan to forestall fiasco?
A pre-mortem has been proven to be effective because it involves a shift in perspective. It’s the difference between asking, “What could go wrong?” and, “What has gone wrong?” The first is a theoretical future perspective, and the second is a historical fact.
An additional, but equally important, benefit from this type of analysis is that it allows team members to be valued for their unique perspectives and observations. Building a shared vision and ownership is vital for developing the most effective teams. Allowing this team to effectively question their own assumptions helps to counter any preconceived ideas.
So, I ask you: Are you willing to send your best ideas to the grave?
Please do forward this article to a business associate or client you know who could benefit from our assistance–or simply send them our way. While these particular articles relate to business strategy, as you know, we specialize in tax planning and accounting for small business owners. And though we’re reaching our limit of new clients, we always make room for referrals from trusted sources like you.
Warmly (and until next week),
Stephen Venuti
610-353-0686
