There’s a story about a couple out for a Sunday drive in the country.
They were looking for a particular landmark, but got turned around along the way.
They passed an old farmer at work in his field. The man backed the car up along the quiet road, parked by the gate to the field, climbed out of the car and over the gate, and walked over to the farmer, who stopped atop his tractor.
The man’s wife watched from the car, and could see her husband telling the story of their journey, pointing first to the east and then to the west.
The farmer took it all in somberly and said, “You can’t get there from here.”
The man stood quietly on the fresh furrow, his arms now resting at his side.
What the farmer knew is that his guest wanted to know the straightest line from where he stood now to where he desired to go.
The puckish farmer toyed again, “You can’t get there from here.”
For those who lead growing companies, you know these moments of the man in the field realizing ‘you can’t get there from here.’
Why the dreaded feeling?
Because we are conditioned to believe the shortest way from where we are to where we are going is in a straight line forward, one foot in front of the other. We move from point A to B to C to D to E. And if we do that enough times over we will inevitably reach our Xanadu.
This linear way of thinking affects how growth strategies are built at the most fundamental level.
A critical element for developing any growth strategy is the spreadsheet, for example. I’ve built simple ones and massively complex ones, but they basically begin at the same fundamental starting point: entering the state of current affairs in terms of revenues and expenses, developing a set of assumptions on rates of growth, and then populating the forecast over time.
Cell-by-cell. Left to right. Moving from point A to B to C to D to E, to arrive at some forecasted point in the future.
This method is logical and defensible. It is comfortable.
But it starts the inquiry from the wrong beginning point.
The place to start plotting the strategy is at the growing company’s ‘Xanadu’ – that extraordinary event in the gauzy light on the distant horizon – the successful exit, making a key acquisition, closing the next capital round that will fund the next growth stage, or launching the next product or service brilliantly.
It is at this future point in time that the company should be defined quantitatively – by its projected future enterprise value.
Then, walk backwards.
From this point in the future, and then walking backwards, you can better determine if you can get there from here.
This simple reorientation in the logical framework for creating growth strategies will profoundly shift the understanding of where the company is today, and how to get it to where it needs to be in the future.
Structural impediments in the market will become more transparent. The conditionality between various elements of the growth strategy will become more attenuated. Organizational design and capabilities will better reveal themselves.
What does not happen by walking backwards is a simple inversion of the linear progression so that A – B – C – D – E becomes E – D – C – B – A.
Instead, what will emerge with the ‘walking backwards’ approach is that the tactical plan will become something new like E – j – c – d – K – A.
By shifting the perspective, things otherwise hidden reveal themselves.
First, the sequencing of typical elements in the growth strategy will realign to better serve the ultimate objective.
Second, the weight of importance (and capital resource requirements) of the respective elements will become better calibrated to serve the desired Xanadu.
Third, critical elements of the tactical execution plan previously obscured will openly surface – i.e., likely structural impediments, organizational capabilities to deliver, and so forth.
Here are several examples of ways in which walking backwards helps define the growth strategy:
+ There is a risk that the growing company will toil over the next several years only to realize too late that it has not exposed itself to enough potential buyers to enable its preferred shareholders and founders (and other common shareholders, like employees holding options) to successfully exit at a full and fair value.
In other words, that gauzy Xanadu they were working towards never materializes because the natural, linear, logical progression of A – B – C – D – E never got them there. They set a trajectory early and then couldn’t sufficiently redirect to achieve the Xanadu as the growth strategy played out.
Walking backwards helps to better identify this future challenge early, and underscores for example the necessity of deploying a strategic communications program which increases the company’s visibility, credibility and engagement with a broader pool of future suitors long before an exit is sought.
+ There is a risk that a growing company will concentrate its energies on growing core revenues over the period, but have insufficiently worked to diversify revenue sources, or transitioned to revenue models with more predictable or longer term value, or identified ways to monetize underperforming or non-performing assets.
Walking backwards helps to attenuate the revenue model so that it better drives revenue growth while also purposefully ensuring that long-term revenue quality and value is built, and that a multiple paid appropriately recognizes the long-term value of that revenue source, its durability as a revenue source, and its quality as a contributor to margin production.
+ There is a risk that the true operational cost to create financial value is poorly understood or understated with the typical, linear approach to building growth strategies. In the linear approach, cost projections are often-times based upon simplistic growth assumption.
Walking backwards has the effect of forcing the strategist to better anticipate the inter-relationship of critical elements for creating new revenue streams, spurring better production from existing revenue streams, securing the visibility and market positioning necessary to change a market, and ultimately, creating a high-value enterprise for its owners and investors.
Walking backwards better ensures that ‘you can get there from here.’
Ironheart Corporate Advisory provides a full suite of services purpose-built to enable growing companies to not only plan its path forward, but the practical capabilities and support to get the job done.