Failed Forecasting And How Owners Actually Make Decisions

In years past, Chris has kicked off each January with a new set of “crystal ball” predictions for what the next year might hold. 

And to his credit, for the most part he’s been right on the money .

But you may have noticed the conspicuous absence of said predictions this year. 

That’s intentional.

Sure, in light of the Black Swan-like year we just experienced, making predictions seems trivial at best, obscene and tone-deaf at worst. And that may have broken our attachment to the tradition.

picture of a black swan

But another thing happened: 

We started to pay much closer attention to how decisions actually get made in the brewery at the ownership level.

And out of that inquiry we had to ask ourselves:

How useful is prediction really?

Short answer: not very.

The Business of the Unaccountable Prediction

Every January we see a feed full of headlines: 

Top 5 Trends this…
2021 Predictions that…

It’s click-worthy stuff because with the feeling of the clean slate of the new year, everyone is craving a narrative.

Whether we agree or disagree with what we come across, we aim to fill the void with opinions and stories so we can bask in the comfort of stepping forward onto something that seems solid, real or imagined.

an image of a person posing to create an illusion

We have been graced a slew of institutions within the craft industry who are in the business of constructing those narratives.

Sure, there’s utility in collecting, synthesizing, and publishing aggregate industry data. Although even that, especially at the individual operational level, we could question.

Ignoring the broader questions for now, there are two major problems with this general methodology:

Problem 1: Accountability

Nassim Taleb is obsessed with accountability, and rightly so. For him, recommendations must be made with skin in the game. As in, the thing most institutions don’t have. 

Skin in the game means exactly what it sounds like: that if your prediction is wrong, you pay the price. Sometimes with your reputation. Most of the time with your bank account. From Taleb:

Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

Ownership sits at the top of that accountability hierarchy. Everyone else attached to the financial success of the brewery sits one or two levels down (employees, service providers, etc.).

image of poker chips and cards

Still one or two levels further we could place the brewery’s customers and surrounding community. Locally interested in its continuation and success, although protected from most of the negative consequences of failure.

Pretty close to last on the totem pole are the professional researchers and forecasters who dole out the majority of this “expert advice.” Still attached to the industry at large (in a loose sense) but far enough removed from the individual success or failure or any particular brewery, the end result of said advice cannot reliably be connected back to its origination. 

Or by the time it is, we have to wade through the 57 additional articles published in the interim such that everyone has forgotten what the original predictions actually were.

Problem 2: Usefulness

Just as important, forecasted predictions need to have utility. We have to ask the question: How does this information actually impact our decision-making within the business?

In this case, we mostly know the answer.

As in: what business owner worth their stripes sits back in their office chair, pondering the latest aggregate distribution pricing trends, puts their finger to the wind and proclaims: “Aha! Self-distribution it is!”

In truth, the trend-making and predictions that sound good in theory and look sexy on paper, in practice are almost entirely useless.

So what is useful then?

The Real Business of Decision-Making

With every decision that’s made, brewery owners are indeed aggregating a massive amount of data, and pattern matching against their experience. Neither of which involve studying global trends.

Instead, we’re solving for the local problem at hand:

  • How much is in the bank account?
  • How much additional funding can we secure?
  • What opportunities are in front of us right now? As in, actionable choices of where we can send our next 50 BBLs.
  • What do our margins look like on those 50 BBLs through those channels we have to choose from?
  • How profitable are we under those scenarios?
  • What are we seeing and hearing from our customers?
  • Who on our team can help execute this?
  • If we do expand, what real estate is available and what lease terms can we secure?

Even eight bullet-points in, we haven’t come close to compiling the full spectrum of information required to make even one sound top-level decision. The point being: forecasting is important, but it’s far more dynamic, local, and context-dependent than any big-picture pundit is willing to admit.

long exposure image with streaking lights

Because admitting that would be admitting the only people who can really perform this level of forecasting are the individuals with boots on the ground and skin in the game: owners and operators.

So, where does this leave us?

While we’ve abandoned the big picture year-long, trend-making, our team is as bullish as ever in a few areas:

Timeless Principles

The things you’ve never stopped believing in. The things we’ve never stopped talking about. Things like: leading with the liquid, starting with the numbers and adopting financial discipline, a hyper-focus on the customer, consumer psychology and marketing fundamentals, delegation and organizational accountability, leveraging process and technology, etc.

No matter the market conditions, these are stable, timeless, and far more important than the movement of the market.

Pattern Matching 

The fundamentals are essential. Experience within the industry is certainly helpful when applied appropriately. But, it’s not enough. From David Epstein’s Range:

In a wicked world, relying upon experience from a single domain is not only limiting, it can be disastrous… the most successful strategy employed multiple situations that were not at all alike on the surface, but held deep structural similarities… our ability to think relationally is one of the reasons we’re running the planet. 

The more “successful brewery” narratives we can study, the more mistakes we can observe and understand, the more parallel skill sets we can acquire, the better we become at making sound decisions under new, complex, uncertain scenarios. Perhaps something that occurred last year is an apt example of why this is important…

This is the collective experience that actually matters. Because as business owners we can mentally aggregate these into mental models that find their way into our decision making.

This is one of the many reasons why we launched the podcast. Because we all need more of these untold narratives out there to learn from.

Dynamic Benchmarks

What are the targets, practices, and structural elements that make up a sound brewery positioned for success? These are more stable than one might think, but they do change over time and they need to be appropriately matched to the characteristics of each individual brewery in each phase of growth and development in order to be useful.

We’re continually updating these to reflect where the demand goes in the market. Not, “What will happen?” but instead, “What has happened and where are we right now?” That turns out to be a much more important ingredient for decision-making.

Real-Time Data

The filtered information you need, when you need it, how you need it. Instead of combing through a 200-line P&L, an unwieldy 13-tabbed cash flow model, a janky spreadsheet with lofty sales projections… 

What are the select few pieces of information owners and operators need in order to make key decisions on the next steps for the business? Protecting the bandwidth of the decision-makers and increasing decision velocity are paramount.

The Prediction-Proof Brewery

While consistency with timeless principles and an accumulation of patterns to match are just as important as ever, it’s the latter two of these areas of focus where our collective heads are at in 2021.

That’s where we’re doubling down. That’s where we believe our next big contribution comes from.

Because if the brewery has the ability to see, real-time, how to adapt and pivot and optimize for robust decisions on the fly, prediction becomes less and less necessary.

You don’t have to be “right” in order to progress. You’re not as dependent on things “playing out” in order to succeed.

And that puts more control back in your hands.

Then, it’s simply up to you to steer the ship.

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