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If you’ve ever been in a planning meeting with me, you are familiar with this question: What does winning look like? This is how I like to frame decisions around initiatives we are considering. If we can define success in advance, we will know if we achieve it. If we have no idea what winning looks like before we commit resources to a project, how do we know if it was worth it once we deliver the work product?
We all know what winning looks like in sports. If one team has a higher score than its opponent, that team wins. Simple enough, but is it also winning if there were so many injuries in the latest game that half the team can’t play in the next game? What if the team’s coach coach delivers the win, but on a series of controversial decisions that damage team morale for the rest of the season? What if someone cheats? Some of winning is straightforward, but not all of it.
Let’s consider a working example in business.
Let’s say we have an idea for a new set of features we think we want to create for our e-commerce platform. One way to decide what winning looks like is a simple ROI (return on investment) calculation. Suppose the project cost is a million dollars. The first thing we want to do is get back that million dollars through incremental profits. Remember always that revenue is not profit. We have to take all our fixed and variable costs out of sales before we achieve a contribution to earnings. A million dollars of revenue does not pay back a million-dollar investment, but if our contribution margin on those sales is 20%, then we need an incremental $5m of revenue to produce $1m of incremental cash (presume that general and administrative costs are unchanged to simplify things).
Let’s say then we’ve articulated the minimum payback to break even we need on $1m of investment is $5m of incremental sales (that is, revenue we would not have received without the new initiative). Of course, no one wants to break even in business, we want a multiple of that investment back. Do we want 5x, 10x, or more? A lot of that depends on the scale of the business, but let’s say we want 5x our investment to call it a win. That’s $25m of sales generating $5m of cash for a 5x return.
The next question we might ask is how soon do we want that return. Some of that will depend on the numerous initiatives competing for investment. If two potential initiatives are evaluated to deliver the same 5x return, but one can do it in six months and one can do it in a year, I’d say we go with six months. So the cash we produce is important, but so is the time we have to wait to get it back.
Does winning end there? Is selecting an initiative solely based on return on investment and time? Seldom are those the only factors in play. We need to think about the strategic value of our initiative. Does it lift our customer count? Sometimes that is even more important than the incremental cash we are producing, particularly if we are focusing on the lifetime value of a customer. In this case we might set a goal that the new initiative increases our customer count by 5% in no less than a year. If we know what those customers are worth to us in the long run, we might go back and pick the initiative with the one year return on investment over the six month time frame if the additional customers we are acquiring are all the more valuable.
Another factor in winning might be market positioning in the competitive environment. Let’s say we’re convinced the feature we’re considering is something our customers have been requesting in customer service feedback, because no one else does it very well. Winning in this instance might be about acquiring market share above other metrics. When we launch the feature, if we see our online orders increase by 5% while a competitor’s volume stays the same or declines, we might call that winning, particularly if we can translate that gain in market share into higher customer count or improved lifetime value.
The point here is not to enumerate all the ways we might factor winning, but to force a robust dialogue ahead of committing to an initiative that builds a consensus around the work we will do together. If we collect data in advance, set goals for the improvement of key performance indicators (KPIs), ardently debate the relative merits of the various initiatives before us, and then make an informed choice, we can clearly measure the success or failure of the initiative. If we just reach to heaven for inspiration, how can we know if we won or lost?
Wise business leaders know that if we discuss upfront what winning looks like and then fail to achieve it, there is no blame to be assigned. We haven’t failed at all, we have learned in an experiment that mattered and held consequence. The argument is for better process management, to spend the time in advance discussing what winning looks like so we know it when we see it or don’t see it. Failure to invest that time ahead of committing resources to an initiative is indeed a form of failure, even if the initiative happens to succeed (how you know it succeeded when you didn’t address that in advance is another story entirely).
Don’t move forward without deciding what winning looks like. Crafting a thesis of the change you are trying to affect and the benefits you intend to bring establishes a benchmark for measurement. Insisting on this step early in product development will not only improve the odds of success, it will improve the teamwork and ability to share in the success a team creates together.
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