Critical Section

no equals = wrong

Thursday,  10/28/04  02:30 AM

"If it doesn't start with an equal sign, it's wrong"

This is a first for me; spreadsheet nerdliness.  But there's a larger point, too.  Read on.

Today I was talking with a good friend who is doing some consulting for a small company.  In reviewing their revenue projections, he immediately noticed they were in big trouble.  Why?  Because in their Excel spreadsheet projecting revenue, many of the values did not start with an equal sign.

If you've used Excel you know there are two ways for each spreadsheet cell to have a value.  The simplest way is that the cell has an explicit value, you type it in, and whoop, there it is.  The other way is that the value is implicit, it is computed from a formula specifying other cells, functions, operators, etc..  Formulas are indicated by a leading equal sign.

As soon as my friend saw the cells without equal signs, he knew there were problems.  Revenue projections derived from typed-in numbers cannot be accurate, they are affectionately known as "swags" (semi-wild-ass guesses).  Entrepreneurs love swags because they don't have to think, and they can be as optimistic as they want.  Accurate revenue projections must be carefully calculated from a whole series of estimates; market size, likely penetration, customers, unit volume, price, etc.  These estimates are often swagged themselves, but as much as possible they should be based on hard data.  Coming up with hard data is hard, because it requires thought, and work.

Okay, so that's the joke; if you see a spreadsheet with cells that don't start with equal signs, the values are guesses, and they are probably wrong.  In fact even if they're right, they're wrong, because guessing is not the way to derive projections.

Here's the larger point - be honest.  I don't mean honest as in "don't steal", I mean honest as in "don't kid yourself".  If you are operating a business, you have to know what is really happening, and you have to deal with the actual facts.  (People who start to believe their own hype are "drinking their own bathwater", which is a perfect simile.)  Sure you can invent revenue numbers by typing them in, but doing so won't make it so.

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