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Sales forecasts: Who wants the truth?

Updated: Oct 18, 2023

In a classic scene from the military courtroom drama "A Few Good Men", Colonel Nathan Jessup (Jack Nicholson) responds to a question from Navy lawyer Lt. Daniel Kaffee (Tom Cruise).

Jessup: "You want answers?!"

Kaffee: "I think I'm entitled to-"




We will come back to that shortly but first a diversion to Google, Viacom, eBay, and end-of-days cultists.

The Correspondent recently reported that in 2003, Mel Karmazin, the then president of Viacom and very successful ad man, met with Google executives Eric Schmidt, Larry Page, and Serge Brin. The Google execs bragged that they made advertising measurable.

Schmidt said that with Google you could know “if you spend X dollars on ads, that you will get Y dollars in revenue.”

Horrified, Karmazin responded:

"I’m selling $25bn of advertising a year. Why would I want anyone to know what works and what doesn’t? You’re f***ing with the magic."

So sometimes the not knowing the truth is good for business. The authors go on to point out that knowing the truth didn't actually matter—it was still good for Google's business. Even though eBay could have saved $20M per year.

We think Karmazin has a point. After all, if the current system supports your pocketbook, why change it? The authors go on to cite the work of economist Justin Rao who, after studying the preferences of end-of-days-cultists (strangely, they didn't want cash rewards after their projected end-of-days), prophetically proclaims:

“Beliefs formed on insufficient evidence seem tough to move.”

Well that's one worth reflecting on. Maybe that applies to our politics as well? Religions? Traditions? Me? Nah. I know I am always objective (just kidding). OK, let's reduce that to a kinder interpretation. People are creatures of habit, they get stuck in their ways, they follow tradition; which can sometimes be beneficial, sometimes not.

Now back to our opening question and the last point explored in The Correspondent article (which we highly recommend reading): who wants to know the truth?

When we started Funnelcast we commissioned a cartoon depicting the sales forecasting process as it works in some (most?) companies.

The sales opps team builds detailed empirical models and presents to the VP of sales a range: 35 – 50 new customer they say. The VP takes this to the CEO who says “50! That’s only 30% growth. We have to do 70.” The CEO presents 70 to the board, whereupon the chairperson (a venture capitalist in our mind) responds “That won’t support our valuation. Push it to 100. In that last frame, our head of sales is stuck figuring out what to do. (You can submit your caption suggestion or vote for previous entries here.)

Now I know you are not supposed to have to explain your cartoons. But, just in case you are wondering; that first panel is Funnelcast. The second and third panels are what we think is silly about the business planning process. But admittedly is also what we used to do. (Elsewhere, and no longer of course, I assure you.) Notice how business planning and forecasting is a constructive give-and-take. And notice how the facts are irrelevant. We don't need no stinkin' facts.

Also, see how the CEO cleverly dropped the range and boosted the number? He knows that picking the higher number actually increases the likelihood that they will close 70 new customers. That's CEO Magic. The chairperson’s push to 100? Brilliant! More magic. Although it has limits, otherwise the Chairman would have pushed it further.

Our forecasting parable could go either way. Senior executives could override a forecast downward. (It happens.) But in this case 35 – 50 got turned into 100. What is our head of sales to do with that figure?

Is it just a forecast? The basis for the business plan? The basis for hiring and staffing? Quota? Compensation plans? I mean it's not like anything important is riding on this. Only the success of the company, running out of cash, the compensation of managers, and ability to attract and retain talent.

I was struck by this real caption contest by Cartoon Collections (ours seemed less real), that arrived in my inbox this week.

A bit juvenile but that caption underscores the same issue in our cartoon. There were many clever submissions, but this one (alas not ours) seemed even more apropos to us:

“Magical thinking made this company, and magical thinking will save it.”

So let's recap lessons and (source).

  • Sometimes in business knowing the truth is bad. (Karmazin)

  • Sometimes knowing the truth doesn't matter. (Google, eBay)

  • People are creatures of habit which is sometimes helpful, sometimes not. (Rao)

  • Business planning is a negotiation and doesn't need any facts. (Funnelcast)

  • CEOs and Charipersons have magical powers to make big good things happen. (Funnelcast, Cartoon Collections)

Funnelcast is about very geeky data-driven empirical analysis. Our tag line is "Sell More. Spend less." After contemplating all these lessons we are considering a new tag line:

FUNNELCAST Accurate data-driven forecasts... not that it matters, you have magical powers.

I know; six word limit. We will have to work on that.

Now for something serious.

There is of course a place for aspirational goals, and for opinions of the heart. But we believe in our hearts, that B2B forecasts and planning should be based on data-driven empirical predictive analysis. We submit, if your business planning and forecasting process is a negotiation, then unless you are nailing your forecasts, it is broken.

What do you expect from your forecasting process? Set expectations? OK. But does your forecast help you sell more with what you have or spend less while maintaining growth?

We think it should.

A forecast should go beyond just a number and range. A forecast should inform resource allocation—tell you where you are spending too much and too little. A forecast should help you answer basic questions like:

  • How much of our plan is covered by opportunities currently in our funnel?

  • How many new opportunities will we need to support that plan?

  • Are we right-staffed to meet that plan?

  • How could we reallocate resources to increase sales?

Does your forecasting process do this for you? Or does it reflect the magic in our forecasting cartoon, or (better yet) that Mr. Karmazin channeled in his 2003 meeting with Google? If the magic works for you then keep at it. If not, then maybe you should consider another approach.


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