Projections are Useless

At the end of the third quarter of the February, 2017 Super Bowl the announcers were saying viewers should go online and vote for the game’s MVP. With the Falcons ahead by a few touchdowns I’m guessing all the early votes were for Falcon players. I said to my wife, “What if Tom Brady completes a gazillion passes in a row and the Patriots win?” Guess what happened?

Projecting a game’s MVP two-thirds of the way into the game is meaningless. Most business projections are meaningless, especially if over one year. Customers come and go, employees turnover, etc. One of my clients had a couple customers tell him near the end of Q3 they had over-ordered early in the year and there would be no more orders until January. The customers’ projections were off and therefore my client’s projections were off.

Yet I see businesses for sale put out nice five year projections. And guess what, they all show steady sales growth and escalating profit growth. When is the last time you saw a business grow at the same rate every year for five years?

Just like picking an MVP in the third quarter of a football game business projections are usually nothing more than an (optimistic) guessing game, and are usually off base, especially when for longer than 12 months.

“Behind every failure there is an opportunity someone wishes they missed.” Lily Tomlin

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