Navigating Windows of Opportunity

I recently completed my 11th ocean passage as Captain aboard our sailboat from St. Lucia to Connecticut via Bermuda.  On the second leg from Bermuda to Connecticut, we had a small and closing Weather Window.  Upon our departure from Bermuda, we would face stiff headwinds and seas on our nose from the North for about the first 12 hours.  Nearing the Northeast coastline of Connecticut it was forecast that we would have winds in the 25 to 30 knots range out of the East although the wind angle would be good for sailing.

The distance for this leg of our journey was around 650 miles and we anticipated it would take three and one-half days.  That meant the weather forecast for the day of our departure would be accurate but less so further out.  That left us with an element of uncertainty as the winds near Connecticut could be worse and for a longer period.  That was the worst-case scenario.  The next good Weather Window was one week out.

Based on the ability of the boat and crew to sail comfortably in the worst case of 25-30 knot winds for a full day, we made a “Go / No Go” decision, took a chance and decided to go for it.  We based that on the best information available to us at the time from several different weather sources.  We had a strategy to sail or motor as fast as we could to minimize the exposure to bad weather near Connecticut should the weather on that end of the trip prove to be in the worst-case range.  And, we would initially sail to the Northwest to avoid direct headwinds and seas, aiming for a good entry point in the Gulf Stream.

Like a Weather Window, when Windows of Opportunities are identified management must sometimes make “Go / No-Go” decisions based on forecasts going out in time and base the decision on a well-reasoned strategy.  Forecasts are never 100 percent reliable and the further forecasts extend out in time the less reliable they will be.  Yet managers must make informed investment decisions and sometimes take calculated risks or growth will be stagnated.  In such cases, we always do a sensitivity analysis of the best case, worst case, and most probable case.  The worst case is usually the focus of management’s greatest attention.  How long could a worst case last?  Can we support the results under a worst case?  What is the strategy to mitigate a worst-case scenario?

Let’s say management is facing a decision about entering a new market that could represent a Window of Opportunity.  Forecasting startup and ongoing costs and expenses are usually easier to estimate than forecasting sales, especially the further out the timeframe.  What is the sales forecast for, say, two years out?  What are the growth assumptions and are they reasonable?  Could the company fund an expansion into a new market if it only realizes its worst-case sales forecast and would it be worth the investment?  How long would that worst case continue before things turn better?  What is the upside potential if it realizes its best-case sales forecast?  Often management will budget for the most probable forecast scenario, which is not necessarily an average or a split between the worst and best-case scenarios.  There is always an element of uncertainty but a management team that takes no risk will stifle a Company’s growth.

What are some of the inputs on making such an informed Go / No-Go decision?  A strategic plan is certainly one important input and that should include a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats).  That should provide input in developing a pro forma P&L that forecasts Sales, Costs, and Expenses as well as initial startup costs.  That should go out at least two years presented in a monthly format.  The sales forecast assumptions should be listed so that an independent reviewer could determine reasonableness.  A Cash Requirements Forecast given the various sensitivity analyses should also be prepared to determine if the Company has the cash resources to fund the expansion under a worst-case scenario.

As we all know, nothing ever goes exactly as planned.  During our sailing trip, the winds moderated as we approached the Connecticut coastline, so we made a good Go / No-Go decision.  Let us know if we can help your company navigate its Windows of Opportunity towards a good Weather Window.