Powerful Financial Modeling Tools to Validate Your Everyday Decisions

Welcome back to RealTimeCEO. In our series of blogs on J Curves, we’ve discussed J Curve Management, the Three Phases, and the 5 Management Rules.  But there are some other issues to be aware of with J curves that we will cover here.

First of all it’s important to remember that questioning a J curve today doesn’t necessarily mean you are questioning the original decision. If it’s to find a scapegoat you can shout at, it’s going to be a waste of time. Revisiting the original decision is far more productive if you do it as a learning exercise to improve your future performance. It’s quite possible that it was the right decision yesterday to make the J curve investment. But it’s also possible that it’s the right decision today to get out of it because the landscape has changed. So the key issue is to look at your landscape today to determine whether the investment is still going to deliver value and make decisions with that in mind.

Is it possible to slip backwards on a J curve? Yes, it is; these are called W curves. They progress from phase one to phase two but then fall back again. W curves need to be managed as you would manage any other J curve in phase one.

Can a J curve be macro and micro? Yes, executives at different levels through the business can manage J curves. The CEO is responsible for the company-wide macro register, containing investments that will have a profound impact on the business. But we also encourage the establishment of divisional J curves, overseen by divisional managers, for micro investments.

Costs of J Curves

There are two costs associated with J Curves. The first cost is pretty obvious. If they are managed badly you will lose cash flow, return and profit.

The second cost, executive headspace, is less obvious. If you ask your executives to juggle too many at one, some or all of those J curves will hit the ground. Your executives will create more value for your business if they do a fewer number of things well, rather than a number of things badly.

“A weak strategy well executed will inevitably outperform a strong strategy poorly executed”

Nick Setchell

The impact of J Curves

The impact of J curves can be broad. Obviously J curves can impact positively or negatively across your business. If you implement a J curve well, you will build cash reserves and all the benefits associated with that. It will have a positive impact on your business. On the other hand, if you implement or manage J curves poorly you’re likely to lose potential and never get the full reward for your entrepreneurial flair. Things will fall through the cracks. If you implement or manage J curves really badly, you are in real danger of bankruptcy. Review your J curve register regularly to make sure this doesn’t happen to your business.

The Cost and Impact of J Curves

The identification, prioritisation and management of J curves is the single most important determinant of entrepreneurial success. Would you like to manage your J curves better? Contact us; we’d love to hear from you.