Assumptions – The Ticking Time-Bomb

I recently enjoyed lunch with a hardened businessman. A man who has made mistakes. A man who no longer makes assumptions…

You see, assumptions are dangerous. Says John: “Things were going pretty well. We had just come through our third straight year of double-digit growth. So then, one of our biggest customers comes to us and tells us they like what we are doing, and they want us to ramp up production for a major push into the Southern states.”

So, what’s the problem? “Off the back of that conversation and the forward estimates they gave us, we made certain decisions. Decisions to extend the factory so that we could reconfigure the workflow to be more efficient. So that we could store more inventory and get more trucks on and off the site. We also ordered a new high-capacity line from Italy.”

Still no sign of a problem. “Yeah, but then when the dollar shot up, they decided it was cheaper to import than to produce locally. So, there we were, with this new layout, two million bucks of machines half-way to Australia, and all the debt we took on to pay for it all. But then nothing to show for it. Not a single order. We assumed that because they had asked us to gear up, because we were only doing it to help them, they would be good to their word. That was pretty bloody stupid. I’ll never do that again.”

And so I started to think – what assumptions am I making about the future? What assumptions are our clients making? Assumptions that, if false, have the potential to ruin a good business.

Now, don’t get me wrong. We all operate on assumptions and we have to. But are you conscious of the assumptions you are making? Are they reasonable and have you considered the ‘what if?’ Or are you sitting on a ticking time-bomb and you don’t even know it?

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Neil Parker

MANAGING DIRECTOR

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