July 25, 2009

Business Chess Analogy

Filed under: Marketing Philosophy — Robert John Ed @ 3:48 pm

I’ve referred to business as a chess game once or more times in the past.  If only there were more time to play chess.  Alas.

Business really does lend itself quite well to chess.  In chess, the players must be able to memorize moves both present and pending in order to outmaneuver, flank and flog the opposition.  What makes chess so difficult is consistently memorizing pending moves and the potential implications of them while simultaneously balancing what ACTUALLY happens.  Having an impeccable memory can only take you so fare in chess, there are a great deal of other things important.  Risk taking and time/move balance are also large aspects of the game.  Creating a viable position on the board and pressing advantages also play a role.  The smallest piece on the board can often make the difference between winning and losing.  The list goes on.

Yet the ability to see into the future and predict moves, predict your opponent, is what I’m focusing on here.  Regardless of your ability, the future cannot be predicted.  It can be estimated, stabbed at, ballparked, but it won’t come out how you thought.  It never seems to work out that way.

So I’m reminded of my finance class and my professor saying that any proposition that doesn’t have a great NPV or IRR shouldn’t be invested in.  My thought process on proposals is to get where the ROI can be made and hittem’ where they ain’t.  Sometimes (hopefully very few times) I believe that means investing in technologies or processes that the market may well be working toward.

Huge clarification here:  YOU CANNOT PREDICT THE MARKET.

I believe that “strategic reasons” are a good enough reason to invest in certain projects.  And by “certain” I mean “very, very few but especially at the time of a potential market rift.”  My finance professor thinks that a bunch of crap.  Maybe he’s right?  I don’t think so.  It’s unfortunate that not everything can be quantified and put into a model that represents an adequate picture of what the market will look like in a few months or years.  But it can’t.  Not everything can be quantified.  Those things that are quantified well happen to be based on particular assumptions of the analyst.  They are usually good forecasts, but what about those things that don’t have a track record?  The fact of the matter is that projects are meant to get an ROI in the long term, but in the short term they can’t be proven.  To say that a company should never do a project without adding to shareholder wealth is to assume that companies must have some idea of the market and acceptance.

There are A LOT of companies that don’t know if their projects will turn heavy ROI in the short term.  Look at Google.  They develop a copious amount of projects and how many have made money?  Extremely low, but they want to own the space.  They want to become a fixture of online search and advertising.  Look at venture capital.  If a portfolio of 10 has 2 winners that cover the spread of the others, isn’t that naturally an argument that certain projects warrant investment despite the risk?  I feel that a lot of companies seek to build the technology, service or product first and develop a business model after.  Building a business is contingent on a product that the market wants, so what happens if the market isn’t there yet?  If the product needs alteration or improvement before any relevant NPV could be analyzed?  It just seems that too many HUGE companies today started with nothing but a few bucks and a dream.  If everything had to have a certain NPV to invest in, most of those companies don’t make a dime, much less change the world.

Of course, this is merely my opinion.  Most corporations know their competencies; they should stick to them.  No arguments here.  But when a market is shifting and strategy is paramount to understand that shift.  You better have a wet finger in the air and be ready to invest in new ways of doing things, even if they are ambiguous in terms of forecasting NPV.  Businesses can only see so far into the future, they can only predict so many moves.  Even then, with an impeccable memory and intellect, things usually turn out far differently than expected.



1 Comment »

  1. […] post: Business Chess Analogy « Redmarketer Tags: both-present, chess, chess news, flog-the-opposition, opposition, starts-today, traditional, […]

    Pingback by Chess Lessons – Improve Your Chess » Blog Archive » Business Chess Analogy « Redmarketer — July 25, 2009 @ 9:07 pm

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