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You Can Never Size a Market in Excel

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Re: You Can Never Size a Market in Excel

#11

Post by thanatropism »

MrTonyD wrote: post #7

I remember once sitting with the company CEO and going over my spreadsheet estimates of project timelines, sales projections, and department growth. At the end of it all I said to him that I didn't know if any of this was really worth looking at, since it was all just guesses. His response was that in the early days of the company they had tried doing things without plans, and that bad plans were much better than no…

No, nene, no.

"No plans" means exactly "by chance". Bad plans can do considerably worse than chance.

What organizations need to learn how to do (and unfortunately to this day Excel isn't particularly enabling) is sensitivity analysis.

One of my corporate parlor tricks is to render valuation spreadsheets (which are typically cashflows dependent on scenario parameters) into Matlab and giving each unknown parameter a distribution from three-point estimates (min/most likely/max). The difference between good plans and bad plans is the probability that your best valuation exceeds your WACC or the turnkey price to be paid or some such method.

People are often impressed that the difference between good and bad plans even exists.

Re: You Can Never Size a Market in Excel

#12

Post by 1812Overture »

MrTonyD wrote: post #7

I remember once sitting with the company CEO and going over my spreadsheet estimates of project timelines, sales projections, and department growth. At the end of it all I said to him that I didn't know if any of this was really worth looking at, since it was all just guesses. His response was that in the early days of the company they had tried doing things without plans, and that bad plans were much better than no…

Dwight Eisenhower said "Plans are worthless. Planning is everything." I like that a lot.

Re: You Can Never Size a Market in Excel

#13

Post by clairity »

thanatropism wrote: post #11
MrTonyD wrote: post #7

I remember once sitting with the company CEO and going over my spreadsheet estimates of project timelines, sales projections, and department growth. At the end of it all I said to him that I didn't know if any of this was really worth looking at, since it was all just guesses. His response was that in the early days of the company they had tried doing things without plans, and that bad plans were much better than no…

No, nene, no. "No plans" means exactly "by chance". Bad plans can do considerably worse than chance. What organizations need to learn how to do (and unfortunately to this day Excel isn't particularly enabling) is sensitivity analysis. One of my corporate parlor tricks is to render valuation spreadsheets (which are typically cashflows dependent on scenario parameters) into Matlab and giving each unknown parameter a di…

crystal ball for excel can do monte carlo simulations for what you describe but with a real probability distribution for each input. it's expensive though (as is matlab, which is what i did my master's thesis in =)

Re: You Can Never Size a Market in Excel

#15

Post by xivzgrev »

MrTonyD wrote: post #7

I remember once sitting with the company CEO and going over my spreadsheet estimates of project timelines, sales projections, and department growth. At the end of it all I said to him that I didn't know if any of this was really worth looking at, since it was all just guesses. His response was that in the early days of the company they had tried doing things without plans, and that bad plans were much better than no…

I worked in strategic planning for a startup, and the process forces people to think through issues and come up with hypotheses.

then, what actually happens happens, and you can adjust hypotheses. and you learn from that, and adjust your own guessing for future.

Re: You Can Never Size a Market in Excel

#16

Post by ars »

vonnik wrote: post #9

> Woz: Don had come to the garage and I ran the Apple II through its paces and he said, “What is the market?” I said, “A million units.” He asked me why that was and I sad, “There’s a million ham radio operators and computers are bigger than ham radio.” http://www.realdanlyons.com/blog/2011/10/11/a-conversation-w...

He's not saying you can't figure out a market size.

He said if the market size is not immediately obvious then you can't figure out market size.

It's not the same thing.

Re: You Can Never Size a Market in Excel

#17

Post by danieltillett »

1812Overture wrote: post #12
MrTonyD wrote: post #7

I remember once sitting with the company CEO and going over my spreadsheet estimates of project timelines, sales projections, and department growth. At the end of it all I said to him that I didn't know if any of this was really worth looking at, since it was all just guesses. His response was that in the early days of the company they had tried doing things without plans, and that bad plans were much better than no…

Dwight Eisenhower said "Plans are worthless. Planning is everything." I like that a lot.

I have always loved this quote too - the thing about planning is not that you can actually workout what to do, but you cut down on the novelty you have to deal with when faced with a new situation. Your brain can only handle so much new information at once and planning lets you handle new problems better as you just have less new to handle at once.

Re: You Can Never Size a Market in Excel

#18

Post by danieltillett »

clairity wrote: post #13
thanatropism wrote: post #11

Earlier quoted context omitted.

No, nene, no. "No plans" means exactly "by chance". Bad plans can do considerably worse than chance. What organizations need to learn how to do (and unfortunately to this day Excel isn't particularly enabling) is sensitivity analysis. One of my corporate parlor tricks is to render valuation spreadsheets (which are typically cashflows dependent on scenario parameters) into Matlab and giving each unknown parameter a di…

crystal ball for excel can do monte carlo simulations for what you describe but with a real probability distribution for each input. it's expensive though (as is matlab, which is what i did my master's thesis in =)

I wish this was not sold by Oracle.

Re: You Can Never Size a Market in Excel

#19

Post by danieltillett »

jonnathanson wrote: post #2

Agree and disagree. Agree: Early-stage investing is rarely about accurately sizing a market. And nothing can be boiled satisfactorily down to an Excel model. Disagree: But you still have to do it. For yourselves , if not for VCs. Presumably, VCs want to see that you've thought long and hard about the market opportunity, about the competition, and about your marketing plan and business model. And you should have. Your…

Yep it is basically a way of saying no without having to say why. Since no one can really defend their market analysis, anyone can shoot you down by querying it without having to think.

Re: You Can Never Size a Market in Excel

#20

Post by Frqy3 »

jonnathanson wrote: post #2

Agree and disagree. Agree: Early-stage investing is rarely about accurately sizing a market. And nothing can be boiled satisfactorily down to an Excel model. Disagree: But you still have to do it. For yourselves , if not for VCs. Presumably, VCs want to see that you've thought long and hard about the market opportunity, about the competition, and about your marketing plan and business model. And you should have. Your…

The result of a model is no better than a gut estimate.

But the process of developing the model, working out what the factors are that will impact market size (and your share of it), working out what things you need to monitor more closely or focus on for biggest impact is where the value is.

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