Jenga block financials

I’ll happily throw my hand up and admit that my financial modeling is not what it aught to be. But I have been learning quite recently from a guy at work who used to be in the Venture Capital industry about just what makes a great, initial, financial model. Yes, I hear you say, World Vision has a Venture Capitalist on it’s books?! We’re innovating, baby! (Well, we’re on the way. We’re not there yet – more in future posts).

Anyways, David describes the ability to create a good financial model is not how well you structure your excel spreadsheet. It’s not even how well your P&L matches your Cash Flow which matches your Balance Sheet. In fact, he says, you don’t need any of that in the first instance.It’s how well you can play Jenga.

The type of analysis he talks about needs to be done on the back of a napkin, in ten minutes, and then show what the key factors are for success. There are going to be some things in the business which are not so important, and some that are crucial. The ability to show investors (and internal stakeholders that control budgets) a quick sensitivity analysis, which highlights the key factors of an opportunity, is amazingly powerful and useful.

Some things in your business are not going to be as important as others. Just like a game of Jenga, a good entrepreneur will highlight to investors which blocks not to pull out, and which ones can be moved. What’s the value of this? Immense. How many can do it? Apparently, not many at all. The question now is, how to practice such a skill?

4 thoughts on “Jenga block financials

  1. Steve, the Gus, JT and Jenga articles are great. The analogies are excellent which is what makes the articles what they are. Most people have an affinity to sport and your analogies and descriptions explain the points you are making. Most people will remember the analogy and hence the point you are making. Business/entrepreneurship theory will pass over most peoples heads. Even those with an interest in it. Keep up the good work.

    By the way, you might have have mispelt “vertical” in the Monsanto article, using “verticle”. “Verticle” is a hinge or joint. Did you mean to use this word or “vertical”-moving in a upright position etc?

    A minor quibble but your spelling is good. Just as important as putting the milk and butter away immediately after you use it!

  2. Hi Doug (Dad, for those that haven’t guessed!).

    Thanks for the positive feedback. I actually was going to warn in the Guus post about the traps of using sport-to-business analogies. Many times, they become obvious and also a touch irrelevant and stereotypical. I think there are huge synergies between business/entrepreneurship and sport…but I’ll always try to keep pointing out subtle correlations rather than obvious coincidences because I think they offer better examples of how we can apply that thinking in reality.

    Re: my spelling – yeah, it should have been the vertical. De Bono created the theory and term ‘vertical thinking’ to define a thinking method which follows a linear and ‘logical’ path. This thinking is critical to the evolution of the human race. It’s what allows us to get dressed in the morning.

    But, it also has some restrictions where we need to break the mould of centuries old techniques which are proving to be unscaleable in a world with 6 billion people. This is where we require some lateral thinking to identify new ways of operating outside of the existing paradigm.

    “You can’t solve a problem using the same thinking used to create it”

    Thanks for the comment.

  3. Nice idea, but I think you really need an example here since it seems amazingly abstract (ie. what is important to show is what is important to show) without really saying what is or isn’t.

    Would love to see a spreadsheet you think shows the good ability to do this (or a case study) versus not. Um, I used to run an investment bank’s incubator as well so kinda have an idea in mind… =]

    Love the analogy of the Jenga blocks though….

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