Scenarios and Strategy

In the 20+ years that I’ve been doing scenario planning, I’ve had the happy opportunity to work with just about every kind of organization– public and private, for-profit and not-for-profit, on an extraordinary range of issues, in almost every sector, in every corner of the world… but there’s one kind of organization from which I’ve always refrained. I had a reminder of that exception recently, as I was doing a small favor for a friend…

Silicon Valley Bank is, as the reader probably knows, a terrific operation that’s built a powerful business serving (and that’s been the key to their success: they do actually serve– thoughtfully, proactively serve) clients primarily in the technology and wine industries, first in the Valley, now around the world. By virtue of a web of connections (my daughter’s godmother is an officer of SVB; one of my companies banks with them) I had the opportunity recently to give a talk to a number of those clients, as part of an on-going program of thought leadership to which SVB is committed.

My subject was scenario planning, the ways that it can help organizations more effectively face the ineluctable uncertainties they face, and how those organizations can make better decisions. By way of illustration, I put together a set of scenario that explored the different ways in which the future might unfold for the industry of which most attendees were a part.

While some of the companies represented were larger, some smaller, most had been around awhile. But there were a few start-ups, the founders of a couple of which stopped me after the session to ask if I might think with them about scenarios for their operations. As I heard more about them, I found myself with an unaccustomed feeling… I love what I do, and almost lean into any chance to do more of it; but I found myself suggesting that they not do scenario planning… at least not yet.

Because start-ups are my exception– the one kind of company for which I believe scenario planning is rarely useful.

Now, as earlier notes have suggested (and, for those joining on this blog, later ones surely will), experience has taught me that scenario planning can be a very powerful and a very flexible tool for understanding what challenges and opportunities the future holds, and for converting that understanding into a robust strategy, a strategy that plots a clear way forward, even as it recognizes (and honors) the real unknowns that lie ahead. The result of scenario planning isn’t “a strategy for the future”; we cannot know what “the future” will be. Rather, the result is “a strategy for succeeding in multiple futures,” futures, that, among them, contain the range of things that we might encounter– and among those the things with which we actually will wrestle. Scenario planning functions (among other things) as a kind of wind tunnel, allowing us to “future-test” our strategies. Any strategy is a bet; scenario planing allows an organization to design that bet to pay across a number of possible futures…

But start-ups are– importantly are– bets on a single future… and point bets at that. Once those bets are laid, it’s all about– and essentially only about– execution. Scenario planning can be (and has very successfully been) used by investors– venture capitalists, private equity firms– to inform their portfolio strategies. But once those portfolio investments are made, the assumptions about the future implicit in those bets are baked in. The last thing an investor wants to do is ask a venture CEO and his/her team to pause and ask “what of the future is different?” Rather, once the investment is made, the priority is to devote every single cycle to execution– because that’s what drives winning… which is hard enough for a start-up, even when its assumptions about the future are spot on. If the bet’s a winner, the pay-out is that much bigger. If not, well, lesson learned… and that’s why the investments are made in portfolios…

Now in practice, of course, it’s all a little more complicated: there are times (indeed, many times) when start-ups need to adapt on the fly, and do. But in my experience, those shifts, when they happen are responsive and opportune, in the moment; the general point holds: those changes in course are “last resort” slides of bets from one number to another. As they should be. Scenario planning could conceivably add something to the effectiveness of such changes; but the cost n distraction isn’t worth the usually all-too-limited return.

Further, there are parts of the scenario toolkit (e.g., understanding the driving forces unfolding in the company’s environment) that can certainly be useful to a start-up– but they’re useful only to the extent that they sharpen execution.

Scenario planning is importantly about discovering opportunity– identifying targets of innovation, avenues of growth– as well as protecting against risk. But I’ve found that in looking at its relevance to any one organization it all comes down to what kinds of bets a company (or an NGO or an association or a government) can make. More specifically, it comes down to how and what they can lose. Most specifically, it turns on what kind of game they’re playing. Organizations that are past the start-up phase are (usually) playing to grow; but at the same time– and critically-importantly– they are playing (managing their “pots,” as it were) to stay in the game. Start-ups on the other hand are playing to win; they have it all riding on a single number.

Once a start-up is started, les jeux sont fait.