The Rip Van Winkle Question

Several years ago, I become responsible for a reasonably large business.  As you’d expect, the team regularly reviewed progress using a series of reports full of numbers.  Page after page of them, with thousands of numbers, analyzing performance by region, by pricing level, by licensing model, by customer type – you name it.

To an expert, these reports were filled with wonderful nuggets of insight.  Wow, what happened to sales in Germany last quarter – why did they tank even though the competitor’s results were strong?  Clearly, the Japanese sub is the only one leveraging the price increase – their average revenue per unit is spiking while everyone else is just plodding along.  And so on.

To somebody who was not expert (i.e. me), it was just a wall of numbers that didn’t convey much of anything.  To get a sense, check out a report like this one.  If you are an experienced investor, or used to reading accounting statements, you can glance over it and almost instantly you know a lot of interesting things about Google as a business.  If you aren’t, your eyes probably glazed over and you are hoping there won’t be a pop quiz at the bottom of this blog post.

In my case, I didn’t even know what half of the numbers on the business reports were about.  What the heck was the “PSP attainment vs. seasonality adjusted target”?  Did it matter that we seemed to be below what we had originally expected?  But I had to get smart quickly – these reports were the lifeblood of the business.  It’s like a medical chart to a doctor; they can spot patterns that reveal what is happening to their patients.  I had just become the doctor for this business, and I needed to know if the patient was suffering from any serious illnesses, so I could do something about them pronto.

So How to Start?

The best technique I’ve found is what I call the “Rip Van Winkle” question.  If you aren’t familiar with the short story, Rip was a man who fell asleep for twenty years, and found that the world had changed dramatically when he woke up.

What I did was to take every important angle on the business and find somebody who was really smart about it.  Then I sat down with them and asked the key question: “if you fell asleep for a year or two, when you woke up, what are the first things you would look at on this report to understand how the business is doing?”  Over and over again, I got amazing insights by asking this.  “Well, the first thing I’d do is look at new sales in the enterprise segment to make sure we are getting growth instead of just milking the installed base.  Then I’d divide that by the number of units for a quick check that our price was holding up and we’re not jacking up sales with deep discounting.  Then ….”

I did this walk-through with around 30 people, for a total of some sixty hours of discussions.  Finance people told me how they analyze the finance numbers.  Customer service showed me how they track and assess problems and customer satisfaction.  Sales managers talked about the pipeline and performance and hiring.  Often, different people would take me through the same report, and come at it from radically different directions.  I took copious notes, but I always asked for the top 2-4 things they would look at first.  I would highlight and number the places that held the answer.

Vital Signs

It turns out that for just about any report, even if it has hundreds or thousands of numbers on it, there are a handful that really tell the crucial story.  The rest of them might be useful to support the story or diagnose a problem, but you mustn’t get distracted.  In medicine they call them your vital signs – tell me your pulse and whether your eyes dilate and a couple of other things that can be measured by an EMT in seconds, and I will know if you are basically ok or deeply traumatized.  I may not know if you had a stroke or a concussion, but I’ll have a good basic sense of how you are doing.

This technique hinges, of course, on finding insightful people with an intuitive mastery of the numbers.  I could never predict who it would be from the org chart – they might be high up or buried deep.  But the people who worked in that area almost always knew whom I should talk to.  Ask around!  Once I found the right people, they were usually happy to share some wisdom with an interested and enthusiastic listener.  Buying them lunch never hurt, either.

By the end of those sixty hours, I was pretty darn good at diagnosing the business from the numbers, because I had learned from such a wide range of experts.  The process also turned out to be a useful diagnostic tool in its own right.  If I couldn’t find anyone in an area with great insights to share, chances were pretty good this was a side of the business that wasn’t being managed very well.

What I’ve learned by doing this exercise many times is that project reporting is almost always far too detailed – it’s like the old story about writing a shorter letter if you had more time.  It’s very hard to distill a lot of complexity into a tight report that shows only the key things – that means you have to figure out what those key things are (and have confidence that you didn’t miss anything vital!) – so most people cop out and throw in the kitchen sink.  As you are ramping up, think about how to cut way down on the amount of information being reported.  More is definitely not better, when it comes to metrics.  Einstein’s famous dictum applies perfectly here – “make things as simple as possible, but not simpler”.

The next time you have to get smart about a report full of numbers, give the Rip Van Winkle technique a try, and see if it works as well for you as it has for me.