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The real honest business case
Editorial

The real honest business case

In this article, mantro CEO Manfred Tropper shares his opinion on the image of business cases out there and why and how it's always better to fight for an honest business case.

If you’d asked me a few years ago, I would have said that every business case is a lie. I’d heard over and over “Don’t read business cases”, “No one can make an honest business case”, “Business cases aren’t worth your time”. Even Venture Capital magazines and many innovation conferences held this position. My own experiences quickly confirmed the things I had heard as I saw exaggerated numbers and always an overgeneralized marketplace when reviewing cases.

But now, years later my opinion has changed. In all the many business cases we’ve seen at mantro, we recognize that most are lies and almost all are wrong. But still, we fight for the honest business case. Here’s why, and here’s how.

The Real Reason We Need Business Cases

Why did my opinion on business cases change? Because I learned what they are really for.

The real reason we need business cases is not as an ego-building prophecy or even to describe a reality. They are for describing the mechanics behind a business model. And they are a guide during business model development, because business cases help mark the path for innovative ideas to really find a place as a product or service that customers will buy.  And when we try to undermine every hypothesis in the business case with a test and then a real number, we will ultimately end up at a true business case.

Additionally, at mantro, we’ve experienced that a clearly structured business case is a great communication tool. Traditional business cases of the past were written, stuck in a desk drawer somewhere and never looked at or spoken about again. However, we know that when everyone understands where a business is headed we can make more informed decisions together. And it’s through a well-formed business model that we can establish a common language and vision to facilitate communication with the team, stakeholders or investors, and even early customers.

How Business Cases Should Be Approached

So how do you write a business case? What differentiates a shitty business case from a useful one? Here’s what we do at mantro.

Turn Your Business Case Into a Guide With a Good Structure

You can create a very good structure for a business case. This structure represents the most important relationships between the hypotheses of your business.

Design a structure that visualizes the cost structure and most important: the value creation structure of your business. You will not only find out what dependencies are between your customers, users, marketing costs, baseline costs, etc., but also what kind of values your KPIs have during the validation process. These values define whether your business can be successful or not.

For example, by designing a mature unit economics structure, you will identify a minimum price for your product or service that later can be the focus of a pricing test you will run during validation. If you don‘t hit the price point - when people are not willing to pay the price for the service you need - this is a first indicator that your business will not be sustainable in the market as it is not realistic to be profitable. Your conclusion will then be to look at all your other variables and evaluate in what way those need to be optimized and changed in order to make the validated price point sufficient (e.g. reduction of customer acquisition costs).

Therefore, the business case structure can be seen as a guide through the validation process and as the baseline KPI set and decision template.

Only Proceed With a Clear Value Generation and Profit Structure

Let me put this into plain English for you: If we cannot calculate a profitable business there is no business.

This is not to say “every business must be profitable within 3 years” or other common myths.

In the journey of a venture, you will most likely come to a point when you make a decision that calls for changes in your model or a big investment (like internationalization) that will postpone your break-even. But, for what it’s worth, we think these changes and postponements need to be done out of a well-defined strategic situation in which general profitability is proven and your business case parameters are validated to be true.

Only Proceed With Independently Sustainable Business Cases

Fun-fact: especially when working with corporates and established companies as our investors, we exclude all potential synergies from this collaboration from the case.

Why should you exclude synergies when considering a business case?

It’s simply not an honest indicator to look at a unit economic perspective including those “unfair advantages”. You wouldn’t evaluate a completely external business you might want to acquire including an advantage it just doesn't yet have. Using synergies in regards to scaling does make sense, but not when you want to decide whether a business model is sustainable and valuable in the first place.

This is true for an external case like our company building projects. Corporate internal business models can surely include those synergies, but in my experience, they are used too much to make even shitty cases look overly promising.

So, we design every case for our ventures independent of any corporate investor as we only proceed with businesses that are strong enough to sustain independently from the corporate and us.

We Look at Business Cases Objectively

When my 3-year old comes up to me with a picture she drew, even if it’s a terrible drawing, it’s hard not to love it or want to hang it on the fridge. But I tell her it’s terrible, because that is my job as a parent. OK, OK, you caught me- I tell her it’s great.

But, this little situation, while harmless in terms of my home and my fridge space, can be disastrous in the context of company building. Because for every good idea, there are generally about 99 really bad ideas. Hanging every potential business idea “on the fridge” or heading full speed into it simply because it’s coming from our own people is, again, plain stupid.

Instead, we do our best to think about every business case as if it was created by random people without our skills, experience or infrastructure. Only then we can decide whether a case is good or great, whether it is mantro-material or not.  

Use a New Excel File For Every Business Case

While there are certain aspects that need to stand behind every business case, there is no perfect excel template for creating a new case. From my experience, using a new excel file for every single idea or venture to is the best way to go. When you copy another file for your new case, you often lose the step of rethinking your business model from a structural perspective.

It might not be the easier route, but the next time you start to approach a new business case, roll up your sleeves and start from scratch. If you collaborate with us, you can be sure that is the way we are doing it.

Conclusion

So, while I used to be as ready as the next person to toss a business case (hypothetical or literal) in the trashcan, I now see the value they provide - when done correctly. And approaching a business case correctly means: Creating a case that can be used to validate your business, only proceeding with a clear value generation and profit structure, addressing whether a business that can be economically independent in the long run, looking at business cases objectively, and creating a new case file every time.

And that, is what we call an honest business case.

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