9 Questions to Think like an Investor - Design Your Thinking

9 Questions to Think like an Investor

edward de bono question thinking

You can put together a business case in multiple ways. You can either design your business case, or use a question thinking model that we use in this article to think like an investor, or just use one of the many business case templates and try to fill out the sections. Trust me, the last approach is a sheer waste of your time.

Think like an Investor

Asking the right question is a very interesting thinking model when used after a creative process like the design process we use in designing a business case. Questions helps focus the mind to think from a unique perspective, every time a question is asked.

In this article we’ll look at a business case from the perspective of questions that your management would have in their minds. Don’t be surprised if they don’t ask you these questions – they probably won’t. Having answers to these questions will definitely help validate your business case wearing the hat of your management / board / investor. Curious? Let’s get started.

1. Can you give a quick summary of the business case?

The investor / the company board is looking for a quick one-paragraph summary of your business case. They are looking for you to give them, in short, the context and the investment you are asking them to make. If you have already designed your business case, you are well poised now to put down a solid case that clearly explains the story. In a paragraph, summarize a quick chronology of events that led up to the designing of the business case. Describe the whywhat, how and state the funding request clearly.

2. What is the business NEED and what are the business or market DRIVERS for investment?

Remember that the business case is also a document that your company management / board will look at to understand if they should commit investment or not. The business-need is the need expressed from your business’ standpoint. What is the need for your company or the investor to invest money into this opportunity? It could be because it would help expand the addressable market, increase top-line growth or will probably just improve operational efficiency or reduce operations costs. Also state how this will help your customers (identified by the personas and the customer segments, from the earlier exercise).

Use this opportunity to describe the business or market drivers that is addressed by this business case. It could be that your company / business’ primary addressable market is fast eroding or it could be that the business has started to see heavy operational costs that you could reduce with this business case.

3. Why should WE be making the above investment?

Apart from the market or business drivers, there is always a need to tie a business case back to the company’s strategy and vision. The company or management is always looking for ways and means of investing in areas that will help further the company’s vision and strategic initiatives. Take the opportunity to explain how this business case will complement other products in the portfolio and how it will complement the company’s business.

4. Is the market poised well to give a good return on investment? How?

While you described the why with the above answer, this question is more about why ‘now’. In other words, the board or the management is looking to understand if it’s the right time to make this investment. They are looking to understand if the market conditions are right and if the product can be launched right in time when the market is ready to take it. If the business case intends to introduce something innovative and new to the market, you should know if the market will be ready to take the innovation and run with it and give you the expected returns.

law of diffusion of innovations

Law of Diffusion of Innovations

The law of diffusion of innovation simply states this: When you introduce new innovation into the market, the rate of adoption is influenced by four major elements:

  1. the innovation itself
  2. communication channels
  3. time
  4. social system

The innovation must be widely adopted in order to self-sustain and make profits. The rate of adoption reaches a critical mass at some point, and it’s important for product people (including product managers) to understand this. According to Everett Rogers, the professor who popularized this concept, there are 5 categories of adopters:

  1. Innovators
  2. Early adopters
  3. Early majority
  4. Late majority
  5. Laggards

As per professor Rogers’ research, the first 2.5% are the innovators, the next 12.5% are the early adopters, the next 34% are the early majority, the next 34% are the late majority and the last 16% are the laggards.

While you can go very deep with this concept, the takeaway in the context of this article is the awareness that any product adoption doesn’t happen 100% on day one or year one.

5. What is the plan to make the investment materialize? What is the plan to launch the product when the market is ripe?

This question is very important as it will help bolster your answer to the previous question. Here is where the audience of your business case is looking to understand if you’ve thought through about how you would get the product ready and launch it when the window of opportunity is right. Think about what resources you need (people, equipments, etc.), deliverables needed (and cross-functional teams’ responsible), project plan, cross-functional dependencies, launch plan, marketing mix, etc.

A good addition to this information would be to get the forecasts and revenue projections in place. Remember that the management and the board is not looking to see the future through your forecasts, but know how you think so that they can trust you and your business case. Take into consideration the risks and assumptions that goes into making those projections. A 3-year projection will be good in most cases. If applicable, show both the as-is and to-be projections, where as-is projection is the projection without the investment being made.

You should look at having the following 5 financial analysis as a part of your business case:

  1. cash-flow projection (what is cash flow?)
  2. capital expenditures (also read about discounted cash flow)
  3. operational expenses
  4. profit & loss projection
  5. break-even analysis

6. What assumptions are we making when answering the above questions?

All through the design of your business case, there are assumptions that you would’ve made. It’s time you put them all under one section and made them explicit. Even your project plan and projections would’ve taken them into account. Along with the assumptions made, also give a clear rationale for those assumptions so that the reader gets a clear idea of your thought process. Some of these assumptions could possibly change in the due course of the business case design.

7. How much is the investment?

Clearly state the investment in numbers and words. Articulate the way the investment would be used (operational expense, capital expenditure, etc.). It’s important for you to be very clear with this.

warren buffet quote on risk

8. Are there any known unknowns with the product? How much of it is working?

During the design of the business case you’ve been validating many hypotheses. These validations have brought a great level of clarity in a lot of areas, but there you could still have unknowns that have not been validated. It’s important to state them here. If you have a prototype ready, state that. Also mention the amount of work remaining to develop the prototype into a fully developed product.

9. What are the risks involved with this business case? How big are the risks? What are your plans to mitigate them?

There are various kinds of risks that a business case can include, and a variety of factors can lend itself to the risk. Here are 6 categories of risk you need to be aware of:

  1. Requirements risk – due to incomplete and invalid requirements
  2. Complexity risk – this is a classic risk in software projects
  3. People risk – sometimes some people don’t work well with the rest of the team
  4. Program / Project risk – interdependencies are sometimes not managed that well; project managers are not capable
  5. Technology risk – sometimes new technology can appear far more easier to adopt than they really are
  6. Executive risk – changes in strategy or tactical decisions made by executives

The audience of your business case is interested in knowing the risks categorized along with the mitigation plan for each of them.

Hope you found this article helpful. This article works well when you already have designed your business case, and are looking to tie the loose ends. These questions are suggestive and are meant to get you started with this thinking. If you’ve used other questions, do add them to the comments.

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