A marketers explanation of Net Present Value (NPV)

A marketers explanation of Net Present Value (NPV)

What the Hell is NPV?‘ the marketer cried

Accountants seem to love to baffle with jargon, but that is not, usually, what they set out to do.

Rather , they use terms as a shorthand to describe what to them makes absolute sense, but to the rest of us, mere marketing mortals, seems like gobbledygook.

One of the ones that commonly causes headaches is ‘Net Present Value’  or NPV.

Guaranteed to put most marketers to sleep.

However, you should not sleep, way better to understand the idea in simple  terms so you have an understanding of the conversation, and can contribute in a meaningful way.

NPV  is simply one of the common methods of calculating the relative value of a number of investment choices. It recognises that money you have today is worth more than money you may have tomorrow because it can be invested,   used now, while the ‘future money’ is subject to inflation and risk.

Often the term ‘time value of money’ will be used.

It is one of a suite of calculations that can be used when sorting out which projects to pursue from a range of possibilities. It provides an objective measure that enables you to make better choices, that management challenge in a world of subjectivity, conjecture and bullshit.

Marketers should understand the principal, if not necessarily the formula, which is readily available in just about every spreadsheet application since  Visicalc. Remember that? I do, it became a marketers best friend, years before excel emerged.

The formula is relatively simple, it just looks a bit complex.

The discount rate is the rate of inflation used, plus the amount you choose to add to allow for risk.

Most businesses use a consistent discount rate that reflects their return on investment hurdle rates. For example, if the current inflation rate is 1%, and the business requires an 8% ROI, the discount rate will be 9%

The great benefit of NPV to marketers is that it uses the cash flows derived from a proposal to sort out the priority, not just the quantum of the initial investment, so  it reflects the forecast cash success over time.

For example, you want to invest $3 million in gear to launch a new product, that is forecast to deliver a net profit of $1.3 million/year for 3 years, with a discount rate of 9%.

There are a number of sequential steps to take.

  • Calculate the present value of each years net profit by dividing the net profit by (1+discount rate). In year 1, that is 1,300,000/(1+.09) or 1,192,661. The ‘1’ in the formula being the current inflation rate
  • Repeat the exercise for each subsequent year, in year 2, it would be 1,192661/(1+.09) or 1,094,184.
  • In year 3 1094,184/(1+.09) 1,033,838
  • Add the present values calculated, 1,192,661 + 1,094,184 + 1,003,838 = 3,290,683 to give you the total forecast present value of your money in three years, then subtract the initial investment to give you the net present value of the investment.  $3290683 – 3,000,000 = $290,683.

The larger the positive number the better, a negative number would indicate that the project will drain cash from the business, a positive one adding cash.

To make the choice between investment options, repeat the exercise for  each, and pick the one with the highest positive value.

Clearly, the calculation is based on a series of assumptions and forecasts, so there is a lot of room for error, but when used in a consistent manner it is a good tool to assist making difficult choices, and offers the flexibility to do some informed scenario and ‘what if’ planning.





The easy way of course is just to go to excel, and look for NPV in the formulas tab, which will give you the numbers, but not the understanding of what they mean.

Photo Credit: Bentley Smith via Flikr

8 clichés every entrepreneur should consider

8 clichés every entrepreneur should consider

Clichés become clichés because they make sense, and are widely used, so they pass into the language. Unfortunately, common usage often makes them appear flippant, a throw-away line that means nothing.

That they take on that label does not make them any less valid, in fact, becoming a cliché is almost like getting an endorsement for wisdom.

Following are 8 that entrepreneurs embarking on an enterprise, whether it is the next Uber,  starting a cleaning business in your local area, taking on a franchise or a multi-level selling ‘opportunity’, that you should consider.


Cliché 1. Know where, and who, you are.

Irrespective of the starting point, starting a business is a journey. If you are going to start a business, recognise  that it will consume you if it is to be successful. It is not like being an employee, irrespective of results, at least for a while, you get paid to turn up.

Not so now.

Starting a business takes a heavy toll on not just your financial resources, but your resilience and personal relationships as well. Being prepared for the long hours, stress and uncertainty is a good start, you must know yourself well.

Cliché 2. Know where you want to go.

Many become tangled up in visions, missions, values, business purpose, their Why, and all the other ways that have become ‘popular’. All are valid, all have their place, but I ask my clients a simpler question; What does success look like? When you can answer that question, you have at least enough of an idea to start, but if the answer is purely financial, you need to do some more thinking.

Cliché 3. Have a plan.

There are lots of clichés about plans. Prominent amongst them are: ‘no plan ever survives first contact with the enemy‘, and  ‘failing to plan, is planning to fail‘ and both are right. Point is that unless you have a plan, you have no chance of understanding and managing your progress towards the goal, which tactics worked, and which ones did not. All crucial pieces of information. There are many planning models, each with their own emphasis, and I always recommend that you use several in the thinking part of the planning process as a way to ensure that things do not get missed.

Cliché 4. A journey of a thousand miles begins with a single step.

Planning is the easy part, the hard bit is to take action. Without action, nothing happens, nothing!

Taking the steps, getting outside your comfort zone is why you are going into business for yourself.  Curiosity, an idea, recognition of a need you can fill, a problem you can solve, all are great reasons to go into business. All it takes is the first step, and it is always the hardest.

To add another cliché to the list: ‘hope is not a strategy’

Cliché 5. To succeed, you must have something others want.

Success in business is dependent on being able to deliver superior value to customers, at a cost that delivers you a margin. If you cannot deliver value, almost always the solution to a problem, which can be anything from a more efficient power station, to a better tasting tub of yoghurt, to on time delivery, or something no-one else can do, at a price the customer is happy to pay, you will  not survive.

Tough but simple.

Cliché 6. People have to know you are there.

Even if you do have the next greatest thing, you cannot sell it without  others who may need or benefit from your gizmo knowing about it. Marketing is essential. The process of gaining understanding how you will deliver value to whom, while making a profit on the way is make or break for every business, particularly a new one as generally you cannot afford to make mistakes. Selling skills are as important. Not only do you need to sell to your potential customers, but to the banks, your suppliers, and often even your partner. If you cannot sell, and do not want to learn how, do not go into business for yourself.

Cliché 7. Watch the pennies and the pounds will take care of themselves.

There are two aspects to this cliché. Cash is the lifeblood of every business, and you need to watch your cash the way a mother bear looks after her litter.

The first is to do a regular, I strongly recommend weekly, cash flow forecast. Make it a part of the way things are done in your business. At first it may seem strange, but it pays off, as you will always know your cash position, which will be a huge stress reliever. As a side benefit, trading while insolvent is illegal, and the simplest measure of solvency is can you pay your bills as they fall due.

The second is the behaviours you are setting out to build. Results come from the way things are done, as well as ensuring the right things are done, and if you want your staff to be as frugal with your money as you are, you have to  build, that behaviour deliberately. A weekly cash flow forecast with the appropriate level of staff engagement and contribution is a very good way to start.

Cliché 8. Work on your business, not just in it.

The ability to see your business as others  see it, customers, potential customers, and competitors, is essential to success. To have that external perspective, you must be able to extricate yourself from the day to day pressures of getting stuff done. It leads on to what could have been an addition the list, ‘do what is important, but not necessarily urgent’. Knowing what is important to the long term health and prosperity of the business is more about how others see you than it is about responding to those unimportant but seemingly urgent  things that pop up every day.

So, remember, all that glitters is not gold, but good advice can be.



How do you measure the scalability of your business?

How do you measure the scalability of your business?

Almost every business I know  seeks to grow, as there is a recognition that growth brings benefits beyond simply the size of revenues and profits. It  brings credibility, attracts good employees, enables negotiation from a stronger position, and much more.

It seems to me that there are four macro measures that can be applied, each with a few key sub measures that can be used as appropriate.


This is a term I use to describe a combination of factors vital to the health of every business.

  • Customer retention rates. How much customer ‘churn’ do you get, how long is the average ‘ ‘lifetime’ of a customer, and what is the subsequent lifetime value of a customer. Associated with customer retention is the cost of customer acquisition. At some point, investment in further customer retention will start to deliver diminished returns. It is therefore sensible to have a parallel process in place that delivers a steady flow of new customers coming in to replace those that do move on, and build the spread of customers and the penetration of your preferred markets.
  • Share of Wallet. Regular readers will be aware of my attraction to this measure. In effect, how much of a customers purchases that you could service, do you actually attract. Calculation becomes an important strategic exercise as it forces you to consider which types of business you can and want to service, which markets you are able to compete in effectively, and the relative power of your value proposition in any market segment.



How likely are your customers to refer you to others? When an existing customer values the services you provide sufficiently to recommend you to their own networks, that is marketing gold. One of the formal measures that has gained a lot of traction is the Net Promoter Score. This is a very binary system, which has its merits, but I like to see some qualitative evidence as well, gained by customer stories, feedback, and various answers to the question ‘where did you hear about us’?

How likely are those in your value chain to recommend you, these referrals are as useful and relevant as those from your customers, as they have a commercial relationship with you, and are in a great position to judge.


The simple word ‘Margin’ can have different meanings to different people, particularly accountants, but in its simplest form, is the profitability divided by revenue. However, you do not bank percentages, just dollars, so you also need to consider the absolute amounts of money that can be made from a market. Generally the higher the margin, the better, but generally, higher margins attract competition, so over time margins become eroded. The key is  to make the margins sustainable, which requires appropriate strategic investments to be made.  Measurement  of margin can take many forms:

  • Customer margins can be measured both individually and by group, depending on the nature of the business.
  • Product margins similarly can be measured by product and product group.
  • Both the customer and product margins can then be further measured by geography, market segment, and any other sensible parameter. The absence of margin management is a sign of poor or at least lacking management, and the mixing of marginal costs, particularly in the case of a manufacturing business, with overheads is a significant drain on management ability to make informed price and cost management decisions.


Effective financial management captures all investments of cash irrespective of the nature of that investment. It makes no distinction between operational and regulatory investments necessary to keep a business functioning, and those that have some risk associated with shoring up future revenues and margins. Investment in marketing, innovation, staff capability, process optimisation and others do not routinely turn up in financial statements, but without them any business is doomed, so seek them out in any due diligence exercise.

Good businesses make the investments in line with their strategic priorities, and track the outcomes of those investments over time.

Need help thinking about these issues, give me a call.


18 ways to make the most of your large investment in trade shows.

18 ways to make the most of your large investment in trade shows.

Years ago as GM Marketing of the Dairy Farmers Co-Op, I had a significant chunk of my marketing budgets taken by the involvement Dairy Farmers had in the Sydney Royal Easter Show, and associated conference sessions.  This was an institutional investment, beyond the control of my marketing programs, as a Co-Op, the board was committed to it beyond any debate.  After a couple of years of whingeing, I took it on as a challenge to generate a return from the investment, that I would rather not have made.

In more recent years, I have attended many industry conferences, organised a few, and spoken at several, so have had plenty of opportunity to see what works and what does not.

Following are some of the lessons, the things you should have sorted out before you make the significant commitment to exhibit.


Have a clear objective.

Build brand awareness, find new distributors, generate leads, position yourself as the industry expert, whatever it is, without an objective you may as well save your money. Your objective will drive the manner in which the investment is made, the size, type and the way you manage it.

Be strategically consistent.

Ensure the show activities and presence at the show itself is aligned with the rest of your marketing activities and programs. Doing a one-off industry show because everyone else seems to be doing it is a basic error to make. It is almost always harder to say ‘no’ than to just go along with the crowd.

Market your presence in the show.

Use the investment in the show as a reason to contact all your networks, inviting them to the stand, to the functions you have organised, or to the sessions of the conference that you think may be of interest and value to them. Trade shows are really just very expensive and expansive networking opportunities, so the greater the awareness amongst current and potential customers that you will be there, available ready to talk, and even ‘do a deal’ the better.

Follow up, follow up, follow up.

Persistence pays off, although you do need to have a ‘tyre-kicker’ identifier in place, as you can spend a lot of time following up people with little real intent of a commercial relationship and transaction. Similarly, following up your competitors neighbour, or committed customer is just a waste of your resources. However, this is no different to the normal situation,  every business needs some sort of lead scoring system. It is just that at a trade show, the numbers can become overwhelming very quickly, and it is easy to lose focus and waste resources.

Automate the contact collection process.

Most conferences these days have entrance tags that enable direct input of a visitors details in your CRM/lead management systems. Use them, it makes little sense having people copying out business cards after the day has finished, or getting visitors to fill in a form. Simple automation improves productivity enormously, freeing you up to engage with visitors without interruption.  Trade shows are great opportunities to build your contact data base, and as the old saying goes,’the money is in the list’.

Relationships are crucial.

Trade shows are wonderful opportunities to strengthen existing relationships and forge new ones. It is a huge networking opportunity, all those interested people coming to you, rather than you having to trawl through LinkedIn one by one, spend advertising funds. The opportunity to forge relationships with a wider group than you would normally interact with, particularly with businesses with complementary services to yours can be gold.

Learn about the innovations in your and complementary areas.

Exhibitors typically show off their latest and greatest, so it is a great opportunity to see what is evolving in areas that may impact you, and that you might be able to pass on to your customers, building on your position as a trusted advisor, rather than just a supplier.

Learn about the problems current & potential customers have.

It is casual, ‘non-salesy’ conversations that often uncover the problems that are the sources of value you can add,  and opportunities to be followed up. Have as many of these conversations as possible, always seeking to understand the problems others have, rather than flogging the features of whatever it is you sell.

Ensure the elevator pitch is clear, and delivered by all in the same way.

Having a clear, well tested elevator pitch is crucial at all times, but never more important than at a trade show, when it  will need to be delivered many times, and by different people manning your stand. Not only do you want to grab the attention of those to whom you can add value, and the elevator pitch is a terrific filtering device, you want those who hear it to remember the salient points so they can relate it to others in their networks. Trade shows are meeting places, and nobody attends without meeting up with someone they have not seen for a while, ex colleagues, customers, old friends, and having them able to recite your pitch acts as a strong referral.

In addition, ensure that your elevator pitch is reflected in the exhibitor listings, so the scanner who may be your ideal customer can see clearly the value you deliver. Flick though any exhibitor listing, and you remain in the dark about what half of them actually do, and very few make the listing sufficiently compelling so  that you file it away as a ‘must visit’ stand.

Collateral material.

Ensure the collateral material, be it analogue or digital is in order, and created thoughtfully, and differentiates you from your competition, rather than putting some generic stuff together as a last minute rush.

Provide a next step for everyone who engages towards a relationship.

Successful B2B selling is a process, rarely a once-off interaction. It makes sense therefore to be very clear about the next step towards a transaction that may arise during the show, from more detailed information available on the stand, to follow up visits, availability of engineering resources, referrals to existing customers who will support your claims, and many others.

Make your stand compelling.

It does not have to be the biggest, or most lavish,  but it has to stand out, and particularly be attractive to  your ideal customers. Having a clear definition of your value proposition and ideal customer profile, then spending a few dollars on designing the stand to be particularly attractive to that group will pay big dividends.

Leverage your relationships

Sharing your relationships with other exhibitors, is a powerful strategy to position yourself as an expert. Take opportunities to speak at the conference sessions, which further positions you as an expert, and make sure you do a lot of preparation to make the presentation a good one

Keep metrics of follow up and conversion success.

Understanding the dynamics of your conversion funnel is vital at all times, but never more than when you are following up a large number of potential leads generated in a short time, where the opportunity to waste time on tyre-kickers is geometrically increased. A significant change in your numbers may be an indication that your lead scoring systems are in need of review.

Measure the ROI of the show,

Apply the measures over a long period to allow sales conversion and retention to be a part of the equation. Sales is a process, and depending on your product, can have long gestation periods, so ensure to accommodate the average gestation in your calculations.

Plan everything,

Leaving organisation of the detail to the last moment will not work. Spend time up front planning, not just your presence, but who else is going, decide who you want to connect with.  Too many times I have seen last minute printing errors, poor editing leaving spelling and contact detail errors, wasteful premiums, redundant material, and obvious absences from stands, just because nobody thought it important enough to do the detailed planning, and allocate responsibility to get the job done in plenty of time. Sensible planning also increases the productivity of your investment, as last minute rush jobs always cost more, and are never as good as when real consideration is applied. Be prudent, but be prepared to spend that bit extra to leverage the investment already made.

Be early for everything.

Often that is when the best casual conversations happen, when there is few pressures of time and other people.

Have a senior management presence.

Often I have seen stands at trade shows manned by bored sales people who would rather be elsewhere, or casual staff who know very little, and have no authority to do anything. Success comes from commitment, and the presence of senior management is a sign of commitment, to everyone. Besides, most bosses spend way too much time closeted in their offices and meetings, when they need to get ‘out of the building’ and talk to real people, those who do not see things as they do, and who have no institutional pressure to agree.

The costs of trade shows are significant, not just the stand, and material, but in the costs of planning, manning, travel and accommodation, and following up. The investment can be easily wasted, or alternatively, it can just as easily be turned into a marketing goldmine with a little thought and planning.

Photo credit: Joe Flood via Flikr

Understanding your break even point.

Understanding your break even point.


Understanding the break even point in a business is a crucial but often overlooked piece of the financial puzzle.

It is particularly important in a manufacturing business where there are both overheads  to just keep the doors open, and the marginal costs of production.

In order to make informed and sensible cost and pricing decisions, and effectively manage the business, you need to understand both.

Marginal cost

This is the cost of making and selling another widget. The materials consumed, packaging, and direct labour necessary. The difference between your sales price of a widget and the marginal cost of that widget is usually referred to as the ‘Gross margin’

For example, if a widget costs .80 cents to manufacture, (materials + packaging + direct labour) and you sell it for $2.00, the gross margin is $1.20/unit.

Fixed costs.

These are the costs necessary to keep the business going, and not tied to the cost of production. Rent, insurance, staff labour costs, marketing and sales expenses, travel, and many others. These costs keep on coming irrespective of sales.

Let’s assume your business has fixed costs of $600,000/year, it is a small business, so you as the owner pay yourself a modest wage, there is one sales person,  an office manager, rent and insurance, as well as the general costs of running a business. In the factory there are three people, a factory manager, and 2 people who work on the production line. The factory manager would normally be included in overheads, but if he works on the line part time, then a portion of his salary would reasonably be included in the costs of production.

There are always questions about where a cost should be allocated, marginal cost or fixed cost, For example, sales commissions would usually be considered a marginal cost, but sales salaries would be considered a fixed cost. Similarly with freight costs, the cost of keeping trucks on the road would be considered a fixed cost, but the cost of an outsourced courier service would be a marginal cost, as without a sale, it will not be incurred. The key is to be consistent in the treatment of costs.

Break even is the point at which all costs are covered, but there is no profit.

How to calculate the break even.

The formula is fixed costs divided by the unit gross margin.

In our case above,  the break even point would be $600,000/1.20 = 500,000 units.

In a situation where there are several different widgets, with different selling processes and differing costs of production, the calculation can be done either by taking averages, of both the sales revenue and costs of production based on average sales mix, or it can be done separately, for each of the products and added together.

In any event, understanding  the structure of your break even will assist enormously in making sensible pricing and cost management decisions. It will also make the choices that  impact future cash flows, such where to concentrate your limited sales and marketing resources, much clearer.

This will be the last StrategyAudit post of 2017. I am very grateful to those who have commented, shared and generally engaged with the sometimes random stuff that pops out of my brain, and I am enormously gratified that you see the value in the ideas. Have a safe and merry Christmas, and I will be back early in 2018, refreshed and eager to  go another mile.




7 Mental models for business planning

7 Mental models for business planning

Business planning, when you think about it is a  bit of an oxymoron.

The only thing you know for sure about your plan is that it will be wrong.

George Patton said ‘Without a plan, you are just a tourist’ and even that great social philosopher Mike Tyson weighed in with ‘everybody has a plan until they get hit in the face’.

However we persist in writing what is usually a document full of crap that is not looked at again, until next year.

Here I am going to offer you an alternative to the formatted, templated, disciplined plan, so beloved of accountants, banks, and education institutions. I am going to suggest you use ‘Mental Models’ to ask the right questions, gather information, generate insights, create strategies that are meaningful, implementable and measurable.

Albert Einstein used mental models to develop his theories of relativity and quantum physics.

If employing mental models is good enough for Albert to articulate a picture of uncertainty, ambiguity, and then hypothesise about its hidden drivers, it should  be good enough for us.

Mental Models are frameworks that can be used to simplify problems, to ensure that the right questions have been asked, and the explanations that evolve from those questions hold when subjected to detailed scrutiny and testing.

Mental models frame things.

As a kid I loved cricket. I would walk to school early, and play for a couple of hours before ‘the bell’. As I came up to the oval attached to the school, when someone was batting, I could see the stroke, then a second or two later, hear the bat hit the ball. Clearly there was something at work here I did not understand. Dad explained it by telling me that sound travelled at 740 mph, while light, which enabled me to see the stroke travelled at 186,000 miles per second. This meant the sight was instantaneous, the sound was not.

Hearing the bat hit the ball a second or so after seeing it hit the ball created a mental model that made the understanding of the effect of the differing speeds of light and sound absolutely clear. Had I been a mathematical kid, I could have measured the speed of sound by measuring how far I was from the batting crease, divided by the time it took for the sound to reach me. This is exactly what Albert did to come up with E=MC2, although a little more complicated.

Einstein used simple mental models to come up with his theories of relativity, then worked his way through the maths to test and ultimately validate the theories mathematically. It is only now that some of the stuff he hypothesised about is becoming confirmed, as the measurement of the effects he hypothesised are becoming available.

The origins of the business plan was to attract funds. If someone was going to lend you money it is reasonable that you told them where you would be spending it, what the risks were, and the means by which you were going to repay the debt.

Banks, which are usually the first port of call when seeking funding are not particularly interested in your success, they are interested in the asset backing you have, so that when you go broke, they can sell up and get their money back. They would prefer you did not go broke, just because that complicates their lives, but they ensure they are covered if you do.

Banks are not your friends, they sell a commodity: money, and like any sales organisation, will sell as much of it as they can within their risk parameters and any regulatory restrictions, by solving your cash shortage for you.

Therefore the standard P&L, and balance sheet projections, with a few discounted cash flow scenarios were enough. All accounting and management education was oriented towards this model, so it became widely used and abused, but if you are going into a serious business planning exercise for your business, in this homogenising and increasingly volatile world, it should not be enough for you.

Do  not think about business planning as a linear incremental process, with a known set of tasks to be done, which is what all  the templates assume. Rather, it should be the application of a series of mental models to the circumstances of the business, each looking at the business from a different perspective.

It is like looking at a display in a museum. Looking from the front only, you get one view, but go behind, under, above, and you can get a 3D view of the display. Often very different, and ensures that you capture the whole picture of the business.

To continue the museum exhibit metaphor, is the exhibit in a room of its own, is it in a quiet corner with other pieces of no distinct value, or is it in a room full of similar and complementary exhibits. Each will influence the way in which you see the exhibit.

Out of interest, I googled ‘Business plan template’ and got 9.4  million responses in .45 seconds.

Must be important????

Problem is when you look at  them, they are all pretty much the same. The words change, the graphics change, but they are essentially a fill in the form and bingo, a business plan.

Might be OK for a bank, but as a document that determines the allocation of your scarce resources to achieve an outcome, it is next to useless.

A template is the easy way.

The hard way is really hard, but is worth the effort,

However, you must have the right ingredients, or the cake will not work.

It is all about the questions you ask, and what you do with the resulting information, intelligence, and instinct.

So, take Alberts advice, which is also the advice of Charlie Munger,  Warren Buffets offsider who knows a thing or two about being successful, and who uses Mental Models extensively.

Following are some of the more common ‘Mental Models’ to apply.

Each has its strengths, but none is the silver bullet that those who write books about them claim them to be.

The trick is to be familiar with them so you can run through the models and pick the ones that apply to any given situation.


Most are familiar with SWOT.

We spend time dreaming up items, then filling in boxes, rarely with any useful numbers, rarely anything new, and everything is equally weighted.

Most times, there is as much debate about whether something is a strength or an opportunity, a weakness or a threat, as there is about the strategic impact of the item itself. Many do not recognise the distinction of strengths and weaknesses as being internal to the business and opportunities and threats as being external, and that they are all relative. For example, a strength is really only a strength when it has two distinguishing features: It is something that you do that your competitors cannot do, or chooses not to do, and that it is of value to customers.

SWOT has limitations in fast moving and technically evolving industries, and typically, there is insufficient time given to the consideration of the options that may emerge that offer some degree of differentiation.

In its generic form, a SWOT also fails to weight the factors it identifies, so I do that as well in a different table.

Because SWOT is well known, it often gets a run in the projects I do, almost always in parallel with another that better explains the problems, and offers another perspective. It is a good start to the process because it acts as a catalyst for the more difficult questions, and identification of the cause and effect chains, and eventually to the use of other models that drive a deeper analysis.


Many will be familiar with the 5 forces that shape industry competition first articulated by Michael Porter 30 years ago, and still is a great way to examine the nature of the industry in which you compete.

Bargaining power of suppliers

Bargaining power of buyers

Threat of new entrants

Threat of substitution

The sum of these forces adds up to the state of current competition in any market.

A thorough examination of the forces really surfaces most if not all of  the issues that have to be faced.

When you think hard about it, everything can be broken into one or a mix of the forces.

As with SWOT, it suffers a bit in a fast evolving environment, as the searching questions about the future are often missed, but it is extremely useful.

For example, if you are a supplier to supermarkets, this is a great tool to use, as it captures the drivers of the competitive environment, but if you have an idea for a new piece of software, the outcomes of the analysis will be a little less certain because of the more ambiguous competitive environment.


Roger Martin is an academic and widely experienced commercial consultant, who wrote a book a short time ago called ‘Playing to win’ with AG Lafley, who was the CEO of Procter and Gamble.

This sequential process he outlines is a very good framework indeed, forcing difficult choices to be made at each stage before moving on, while encouraging necessary adjustments via the feedback loops.

One of the factors I really like about this model is that it creates a flow, from the macro to the micro, and forces you to make choices all the way. One of the key factors I look for when doing a StrategyAudit for a client is the manner and degree of ‘flow’ that exists in the business.

It is the flow of information, flow of product through a production process, and flow of the planning execution and revision of activities that take place.


The Balanced Scorecard goes back to the mid 90’s, and offers an integrated set of ‘perspectives’ through which to observe, measure and plan the business.

You agree the vision and strategy, then determine the measures of that strategy against the 4 perspectives, and map the interrelationships.

Balanced scorecard analysis can become very complex, particularly as you set out to  cascade it through an organisation.

However, It makes absolute sense to look at, and measure the strategies agreed upon from the perspectives of those perspectives impacted by choices made.

The financial performance of the business.

The customers perspective of how the business meets their needs, now and into the future.

The necessary business processes required to deliver value over the long term as well as immediately.

How the business will learn and grow.

It is still widely used, mostly by large organisations with centralised strategic planning functions.


A business plan on one page.


This methodology evolved quite recently out of the ‘Lean Start-up’ movement, first articulated in a book called, surprisingly, ‘Business Model Canvas’. The thinking underpinning this tool is still evolving, and it is still oriented towards tech start-ups, but I really like it for any business as a way to quickly ensure the right questions are being asked, and is to my mind a must use model.

It is designed to be iterative, and its strength is that it is both iterative, and stackable, in that where there are two major customer groups, or product groups in a business you can do two, or even more canvases, and they will all be stackable.

It forces choices to be made, and is iterative in that as you progress, and learn more, you often need to go back and review and balance the choices made earlier.

Generally I do this in a rough order.

  • Problem to be solved
  • Customer segments
  • Value proposition
  • Revenue streams
  • Key activities
  • Cost structures
  • Channels
  • key resources


There are many others:

  • Ansoff matrix,
  • BCG matrix, dogs, stars, that most of us are aware of.
  • Options games
  • Blue ocean strategy
  • Scenario planning
  • Jobs to be done
  • A3

The real point is that there are many ways to plan, but there is no easy way, no silver bullet, and you must get amongst it or fail.

The old cliché: failing to plan is planning to fail is unfortunately correct.

There is no school for fortune telling, unless you join the circus. All these purport to be able to at least remove some of the uncertainty of dealing with the future, but they are all tools, and the value of a tool rests with the skill of whoever is wielding them.

To my mind, using a bunch of them, each with slightly different perspectives offers the best opportunity to remove more of the uncertainty.

However, if I go back to Albert, E=MC2 does predict that time travel is possible.

Much of what he projected is coming true, a bit like Arthur C Clarke, Jules Verne, and others. Perhaps this is Alberts time to become a strategy guru?


I think it is only right to finish where I started, with Albert.

His theories of relativity, that famous formula we all know, but have no idea what it means, explains the workings of the universe. Perhaps it can also give us an insight into the value we can add to an enterprise, which is after all, what we are setting out to do by planning.

In my view, the internet has changed everything about the business models that will be successful in the future. Therefore we have to find a way to recognise the power of digital access and the compounding that is possible by leveraging networks in our planning processes and mental models.

I like e=mc2 because it explicitly compounds the value of networks.

E is the enterprise value, not the stock market valuation, which is only a financial calculation, but the value that is created by the enterprise, which has many forms. Value can be time, services, transparency, design, everyone sees value as being different, and is subject to the context in  which it is seen. Apple is the most valuable company on the planet, which has absolutely nothing to do with the fact that they outsource the manufacture and assembly of what has become generic electronic gizmos. The value of Apple is elsewhere than the functionality of the devices.

M is the mass of the enterprise.  This is the sum of the physical assets and processes of the business, the stuff that enables the work to be done.

C is the Capital of the enterprise.  It includes financial capital, but the greater part is in the capital contributed  by  the people who populate the place, and this comes in many forms, Intellectual capital, what is between peoples ears, and the relational capital they bring, and the cultural capital, the way in which there is collaboration and alignment of activity towards the creation of value by the enterprise. This is squared, simply because of the geometric nature of relationships, and the network effect, the more you have, the greater the sum of the value that can be created