Some Thoughts On the Reliability of Forecasts for Business Planning

We recently watched an interview with Mark Cuban taken at the Clinton Global Initiative America Meeting, held in Chicago in June, 2013. When asked about the value of loans for very early stage businesses, we heard Mr. Cuban reply as follows: ” . . . loans are a dumb move for entrepeneurs. Banks expect regular repayment on specific dates. When you’re starting a business you have very little indication, if any at all, where your first or next sale will come from.” (this is merely our summary of what Mr. Cuban actually said)

We think his position is absolutely true, and brings into question another point, not touched on during the interview, but, nevertheless, very important for entrepreneurs thinking about starting tech businesses to consider: Forget about forecasts, they will not be reliable. Revenue and sales activity for very early stage tech businesses are especially difficult to forecast. There is a hidden moving target at work. Markets themselves can change, radically.

If forecasts are inherently unreliable for very early stage tech businesses, then why does a business plan remain an essential document for financing discussions, and, in some cases, customer relationships? Business plans are especially popular with banks, and the U.S. SBA. But remember Mr. Cuban’s point. Better to forget about conventional financing if your start-up business notion is in a technology area.

Venture Capitalists (VCs) also like to read business plans. Perhaps it’s easier to broadly estimate revenue for the types of markets of interest to VCs. These markets may not even exist, so estimating zero revenue for the first one to three years, as markets are built, may be acceptable for a business plan for VC review.

Even mature businesses built around technology products are tough to forecast. You can’t lose sight of an important variable largely out of your control: market sentiment about specific products. In 2013 PCs are largely out of favor, but just five years ago they were a very popular and accessible method of computing. So even the best sales team will have a tough time hitting their numbers in 2013 if they are selling commercial software to a PC market.

The key point, for tech entrepreneurs is to approach the task of forecasting with a very strong sense of skepticism.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Assumptions About Enterprise IT Sales Funnels Need to be Revisited in 2012

Traditional notions of how enterprise IT sales staff build so-called deal “funnels” no longer apply in markets like 2012. Today, product promotion campaigns must reach a much larger audience of enterprise IT prospects, than was the case 20 years ago. This extended reach is required to ensure that these campaigns produce an adequate number of sales leads, which, in turn, must be in place to support revenue forecasts in roughly the same proportion of sales leads to closed sales as was the case in 1992.

The substantial changes in the visibility requirement for product promotion campaigns result from the reality that the primary information-gathering medium for the majority of enterprise IT buyers, today, has shifted completely to the Internet from print media. In fact, many pundits are presently making the case that the real arena for enterprise IT product promotion has shifted even further, to mobile devices, including smart phones and tablets.

Regardless of the method used to produce sales leads, the leads, as we mentioned above, must be in place so that sales teams can hit their sales quotas. Therefore, in 2012 it is critically important to the success of online promotional campaigns for enterprise IT software that they achieve two broad objectives. These campaigns must produce

  1. A satisfactory volume of incoming messages, whether in the form of inquiries, in the form of online messages, email messages, or telephone calls and
  2. A satisfactory proportion of incoming messages from a truly promising set of prospects

Of course, the $64 million dollar question is how to define satsifactory for 1) and 2)? Further, what is the definition of promising for 2)?

Successful enterprise IT ISVs in 2012 will allocate the required resources to produce specific and highly useful definitions for these critically important terms. Further, once these businesses have defined these terms and, thereby, established their enterprise IT lead generation volume and quality targets, they will build out online promotional campaigns that use any and all available means, including, but not limited to:

  • Search Engine Marketing
  • Social Media Marketing
  • Mobile Marketing

in conjunction with integrated direct marketing activities that utilize targeted electronic outbound product promotion campaigns along with teleprospecting to produce the levels of incoming engagement that they require and, thereby, to preserve the power of sales funnels as a predictive tool for revenue.

If your organization understands the need to re think funnel strategies you ought to consider IMB Enterprises, Inc. We welcome opportunities to collaborate with sales and marketing management to improve the success rate for both incoming and outbound prospect engagement. You can contact us online or telephone us at +1 631-673-2929. The first 15 mins of any consultation is always on us.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved