In my last two posts, I discussed two of the three things that people get wrong in strategic planning:  information and buy-in.  Today, I’ll be discussing the third thing:  sources and estimates.

Data Sources

As I mentioned in a previous post, people tend to want to find definitive sources of data for their strategic planning.  These sources rarely exist.  This is because the cost of aggregating the data exceeds the value available from selling the data.  I would take any published statistics on a very small market with a grain of salt, but they can be a good starting point.

This leaves you with

• your own data

• proxy data, or

• estimates.

Each ot these may challenge you, but used properly they will give you a way to make unknowable data useful for strategic planning.

1. Your own data

Your own data may be sufficient for assessing markets if your share is large enough.  If it isn’t, you may need to “triangulate” your data with other sources to confirm its accuracy.  Even if it’s not enough, it is a good data point to start with.

2. Proxy data

Proxy data is simply data that is  indirectly representative of the data you need.  For example, if you wanted to establish the size of the market for mental health services for teenagers in a state, you could use other services as a proxy.

Elective dental procedures might not seem like a good proxy, but they involve a choice to spend considerable money on a child’s health and well-being by parents – and this spending is not often covered by the most popular insurance plans.  This means that the known data – dental procedures – may help us understand how much money parents are willing to spend on their teenagers health.

There are definitely flaws with any proxy you choose, and this one is no exception.  Mental health treatment still carries some shame for parents, but is sometimes considered an urgent need.  Even with these limitations, the proxy gives us a general picture of spending on teenage health.

A more useful proxy may be available in some markets by looking at the market for some input, like steel for machinery or oil for certain chemicals.  Again, this isn’t perfect, but it will get you close to the real answer.

If you can look at multiple proxies, you start to get the real “triangulation”.  This is because understanding the relationship between those numbers and the number you see will illuminate your own answer.  It is also far less likely you will make a bad decision if you consider the data from multiple sources.

3. Estimates

Estimates may involve the first two items – your own data and proxy data, but include some reasoning and judgment about the final answer. Fortunately, you don’t have to be perfectly accurate in your estimates (though it helps).

In my experience, many are intimidated by the process of making good estimates from a skeleton of reliable data.  One of the key pitfalls here is spending too much time and money trying to get perfect data, when it is largely impossible and usually unnecessary.  The key to a usable estimate is simply to show your work, so that the reasoning can be considered in your strategic planning meetings.

For example, with the dental/mental health proxy, we can make a decent estimate.  If we know that parents in a state spend an average of $3,000 per child on dental care, we know that the mental health number is unlikely to be twice that number.  It’s also unlikely to be less than half that number.  Your challenge in estimating the number you use will require you to reason about why it is higher or lower.

Once you have an initial estimate, you can check it against other data sources.  One good check is to estimate the sales of everyone in the market, and compare it to your estimate.  Another is to get information from suppliers about how big they think the market it, and compare that.  It’s unusual that these two additional data points match an estimate exactly.  Regardless, if they are within 20% of your initial estimate, you are can probably use it in your strategic planning.  As I often tell clients, our goal the first year is to hit the broad side of a barn.  Naturally, in later years we should refine our understanding of the market.

Your experience – and an offer

What is your experience with the data you use in your strategic planning?  Have you practiced making good estimates in the past, or do you shy away from it?

If you are using Simplified Strategic Planning, you may want to schedule a homework assistance day with Robert Bradford.  Robert makes the entire day available to your team to schedule 1:1 or team Zoom calls to go over strategic planning homework and tune it up for use in your strategic planning.  There is a limited number of slots available, and there is a special price offered until March 6

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