Thinking between the Columns

Why spreadsheets and models need the Xtra factor. When you are in the midst of a complex merger transaction and you start doubting whether this deal will ever close, you sit over the spreadsheets and listen to your due diligence team, and input yet another variable –You are suffering from “Model Fever”.

The best thing to do now is to sit back and remember:


“A deal happens when there is a willing buyer and a willing seller.”


There are so many factors that influence the decision making process that most models are not equipped to give you the answer.


No model can legislate for last minute changes, such as an anti-embarrassment clause thrown in by the vendor, literally on the morning of signing the contract. It derails you, the deal is postponed, and frantic negotiations begin – again. The model doesn’t work anymore, because you wanted to exit within two years, but would now have to pay 20% of the proceeds back to the vendor. The model couldn’t “see” this, but could you … ?


The Problem


We make assumptions; some of them are implicit or implied, like implied Ebitda multiples. These assumptions, whilst known to us, even be it only one or two critical ones, drive the model, and hence the answers. As the model becomes more complex, these assumptions become more remote to us, or we consciously stop challenging these assumptions as we are “too far down the line”, or we lost control over the model altogether.


Most critically, something else is happening. Five years ago we worked with Wharton professor Dr Paul Schoemaker, a specialist in scenario planning who helped us with a large scenario planning exercise at National Grid. We learned about weak signals, trends and uncertainties and how our brain can lead us astray and distort our view on reality.  Schoemaker’s research suggests that we have lost our peripheral vision, we are anchored and biased. It’s like looking out of a window in a house believing that what you see is the full reality. (For further reading: Peripheral Vision; by Dr Paul Schoemaker).


The Solution


The key is to make non-obvious connections between the data sets, the structured data from spreadsheets and unstructured data from external signals, such as political, emotional, economic, behavioural signals.


The next step is to make these signals relevant by asking the right questions. We may not get the right answers, but that’s more valuable to the thought process and negotiations than having the right answers to the wrong questions.


As Peter Drucker once stated, “The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is to ask the wrong questions.”


What we, at Moregate do, and are very good at, is thinking between the columns, see and articulate the weak signals and base the decision making on the facts in front of us.


The art then is to combine the right data sets and see crucial patterns, but then act on it, and when the time is right, deliver the “hammer blow”.


At Moregate we do the difficult stuff – leading change is difficult, especially resulting from a merger. It’s difficult to restructure the organisation, but retain and hire the right people who are eager to make the difference.


What we don’t do: we do not crank out average stuff for average people.


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