Ignore is bliss, extrapolation can be, too

And things were going along so well. . .

The concept of extrapolation - it’s a wonderful philosophy that gives us comfort by looking backward to project forward.

In strategic planning and business models, extrapolation is a simple way to project trends forward using historical data points. First, we look back at see that we were at point “A”, then “B”, and now we’re at “C”. So, what’s next? Well, we just extrapolate out the chart, and “poof”, our next point will be “D”, then from there it’s easy - “E”, “F”, “G”, . . .

The problem: The world doesn’t always follow a path of predictable extrapolation, and occasionally (and usually unexpectedly) trends and business models get disrupted.

Take for example, the recording industry - In 1999, the recording industry hit an all-time high in revenue, continuing its decade-over-decade phenomenal growth as technologies brought its accessibility into mainstream life. With its long-term growth trend, it looked unstoppable. Then, with the introduction of digital formats, the world changed, and since that time the industry-wide revenue has plunged by 50% to today’s reduced levels.

We see other industries that have experienced those same wake-up calls in recent years: newspapers, travel agencies, and taxi services, to name a few. But it doesn’t just happen on an industry level, it can be anything that causes disruption (i.e., local environment, competition, or changing demographics).

There’s the story about Harlan “Colonel” Sander’s - His original motel and restaurant was going “gangbusters” serving his specially-made fried chicken to visiting patrons. That was, until a major highway thoroughfare bypassing his town was constructed, which wiped out traffic flow and his business. Item of note and happy ending: Fortunately for him, he did come up with a “Plan B” to start franchising his “Kentucky Fried Chicken”.

The lesson: There’s a whole lot of “gotcha’s” out there that can sabotage an entity. And frankly, sometimes our biggest enemies are complacency and arrogance, especially when times are good, and history has been kind. The challenge is to avoid the pitfalls and disruptions by continually staying vigilant, while monitoring (and when necessary, recalibrating) our strategic plans along the way. That way, if turmoil does strike and our model does get unexpectedly derailed, like “The Colonel”, we can proactively adjust and find our own “Plan B”,

Hopefully it won’t happen, but it’s nice to have it in our back pocket, just in case.