Perspective changes everything

It wasn’t really a surprise, but I loved the look on their faces. They’d taken a big risk, invested heavily in both the functionality of the product and the advertising and they’d got more demand than they could shake a stick at.

We explored their thinking together and that of the other teams. They were rightfully pleased.

“Great job Team B”

I knew what was coming as I popped up the next slide.

This time, everyone else was smiling.

Although demand was great, profitability certainly wasn’t. The aggressive pricing that helped demand was squeezing margins and they were carrying big expenses. They had a cost structure that didn’t work. They could see and so could everyone else.

...but the worst was yet to come.

While profit was disappointing, cash was scary.

Their R&D was partially amortised – they'd paid for it all in cash terms, but not yet in profit terms. The business had over-reached and the team was funding operations by not paying their suppliers. I would put my supplier hat on for them at the start of the next round and there would be a difficult conversation for them to have.

As someone once explained it to me, if Profit is like food, then Cash is like air. You can survive without food for days and days and you won't die. But you only have to run out of air once, quite briefly, and you're dead.

At the start of the review, Team B looked like they were winning. One slide later the losses made them look a little wobbly. Another slide later they were gasping for breath. Nothing about the business had changed. Only the perspective.

Their original objective had been perfectly reasonable. They wanted to build market share and had invested heavily in product development and advertising to achieve it. Judged purely on sales, they'd succeeded. The difficulty was that sales were only part of the story. Higher demand had been achieved at the expense of margins. Investment had increased costs. Cash had left the business long before much of that investment appeared in the profit and loss account. Looking at the business through different lenses revealed different pictures.

Perhaps that's one of the reasons commercial judgement is so difficult. Businesses rarely tell a single story. Sales tell one story. Profit tells another. Cash, customers, employees and competitors each offer a different perspective.

Commercial judgement isn't usually about finding a single right answer. More often, it's about recognising that you're looking at only part of the picture - and having the curiosity to ask what else you might be missing.