Here is another valuable Management Tip of the Day from Harvard Business Review. To sign up for a free subscription to any/all HBR newsletters, please click here.
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You’ve probably seen them before — those project spreadsheets in which Year 2 revenue is Year 1 revenue plus 10%, and so on. These projections are rarely accurate, because they reduce the world to linear models — when in reality the growth process is nonlinear, sometimes even exponential.
o Instead of assuming that growth will happen right away, and at a steady pace, think about the likely times at which revenues will be realized.
o What’s the realistic lag time between initiating your growth project and reaping the rewards from it? Focus on three inputs: the revenue goal for the investment at steady state; the assumed first-year revenue; and the inflection point, which is the time required to reach 50% of the revenue goal.
o Unrealistic revenue projections can lead to career-ending misses. So take plenty of time to do some smart thinking beforehand.
Adapted from “How to Set More-Realistic Growth Targets,” by Rita Gunther McGrath and Alexander van Putten
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