Important and Controllable Inputs
Master the Chaos: Harnessing the Power of Inputs for Business Clarity
Identifying and setting the important and controllable inputs of the business defines the strategy of the business. This process is critical because effective strategy optimizes your likelihood of success, whereas poor strategy nearly guarantees failure.
When you are not intentional in identifying and setting these inputs, you will often see:
Teams that spend many cycles moving unimportant inputs, which result in zero impact.
Teams that expend considerable effort trying to predict and unintentionally optimize for a single future scenario.
Teams that spend mindshare on unimportant, uncontrollable things like “competitive intelligence” because there is a lack of ideas on what to do.
Any single one of these behaviors can take down a company, especially a young one, and doing more than one of these will almost surely guarantee that you are spending your time on non-impactful things. The grid below shows some common cases of each category:
This is why it is vital to clearly articulate the business equation - to identify which inputs are important to the outcomes you care about and determine which of those inputs are controllable. Your impact as a manager is driven by your ability to put as much of your resources onto these important and controllable metrics as possible.
Identifying Inputs
In order to identify the important, controllable inputs, we need to start with the business equation. A generalized business equation takes this form:
where x, y and z are your important, controllable inputs, a, b and c are your important, uncontrollable inputs. Anything outside of the equation is unimportant. This equation immediately crystallizes three things for you:
It formalizes how you think the world works: f(*) is the way you believe the world works,
It explicitly calls out the few things that are actually meaningful and within your control,
It accounts for the uncontrollable things that have a material impact on you, and its interaction with your business through the business equation.
Once this structure is set, you unlock one of the most powerful tools to the business - scenario analysis. Scenario analysis allows you to model the business across many states of the world, allowing you to gain insight into the best way to set your important, controllable inputs.
Setting Inputs
Scenario analysis is powerful because by setting your controllable inputs, you effectively set the strategy of the business. You are explicitly deciding multiple things through scenario analysis:
What are feasible changes you could make to your important, controllable variables. In order to run realistic scenarios, you’ll need to decide how much you can actually move the variables you control first.
What states of the world you care about. Scenario analysis is also powerful in that it forces you to intentionally define what states of the world you care about. This will push you to think about both what can happen that’s outside of your control so you can proactively take action.
What you are ultimately betting on. You will need to decide if you are okay with settings that create higher expected outcome overall, but will result in death of the business in certain states of the world, versus ones that are more moderate but maximizes chances of survival.
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