How to use Scenario Planning for your Startup
Entrepreneurship has evolved over the past 20 years and there is now a scientifically proven method that can assist you in ensuring your startup is a success. Called the Lean Startup Method, it is focussed on going to customers early and often, putting your idea out into the world, and letting customers help you shape your business. It advocates launching early and iterating often.
The biggest ongoing feature of this method is that you are constantly creating hypotheses and assumptions about all aspects of your business. Every assumption is tested. If assumptions are proven correct, you proceed and if they are proven incorrect, you pivot and make new hypotheses and assumptions and do it all over again.
When I listened to a Zoomcast a few weeks ago about scenario planning, it struck me that scenario planning is another tool that allows you to test things out in a new or even long- established business.
The speaker in the Zoomcast used a quote that I thought was apt: “one thing a person cannot do, no matter how rigorous his analysis or heroic his imagination, is to draw up a list of things that would never occur to him.” Thomas Schelling
Scenario planning allows us to use a process to help us come up with things that would never otherwise occur to us; things that could force our businesses off balance and help us prepare better. This type of planning can help us assess the budget and operational changes in best/moderate and worst cast scenarios. It can guide decision making about key decisions. Scenario planning can also help us move out of ignorance, challenge mental models, encourage out of the box thinking, and orient away from short term thinking.
When people are starting a new business (or operating a more established one), they tend to continue on a path, unless something comes along to push them off, at which time they are forced off that path. But what if businesses, both new and old, undertook a scenario planning exercise every few years? It seems likely that scenario planning would open leadership’s eyes to new opportunities that may fall outside the path, as well as new threats that might one day push them off.
Scenario planning is most often used when there is uncertainty in the future. It has been used by many during this pandemic because it’s impossible to know what next week, or next year, will look like. It helps businesses be better prepared to face some of the “futures” that might emerge. For many organizations in the for profit, and not-for-profit world, scenario planning has been a life saver. They have already thought through how they would respond to situations so they can avoid the purely reactive, flying by the seat of your pants, responses that characterized the early weeks and months of 2020.
What I’m suggesting is different. I’m suggesting that businesses engage in this process when the future is relatively certain; when the business is on a path that looks assured. That’s when you have time to ask the questions …
- Is this the right path for the next several years?
- Is there anything else we should be looking at?
- Are there any opportunities we are missing?
- Is there something that might negatively influence our business?
When you put smart people in a room (or on a zoom) and take away the walls of the box they are in, you allow them to imagine what the world might look like in the future, with no constraints, and you open up possibilities that would not have been on your radar otherwise.
A good scenario plan starts with blue sky – everything is on the table – and once you’ve opened up the world, you then start to make “bets” about the 3-4 most likely “futures” and how they will impact your specific situation.
Include other stakeholders like suppliers, and customers. Make sure that your group includes people with tech knowledge and economics and other areas that affect your business. Include people who have a range of ages. Hire a professional, if you need to – there are lots around – but if you don’t have budget for an outsider, task someone with researching online – there are lots of good templates and examples that can assist you.
Scenario planning is a tool, like the testing, pivoting, testing again tool that the Lean Startup uses. In fact, if you find opportunities through scenario planning that might be of interest to your business, you can use the test, pivot, test again tool in conjunction with scenario planning to see which opportunities you should pursue. Both of these tools can and should be used throughout the life of the business.
So plan you scenarios, refer to them often, adjust them annually and your business will be better prepared for whatever happens.