The OODA Loop - Application Via A Fathom Financial Forecast
The OODA loop is a decision making process pioneered by the US Airforce. We shall leave the explaining of it to the best in the business - Top Gun instructor David Burke of Echelon Front.
OODA stands for;
Observe
Orient
Decide
Act
These 4 pieces form a feedback loop that can help drive performance and achieve success.
We do not fly jets. Instead we deploy the concept of the OODA loop with our clients via their financials. Particularly with a 3-way (profit and loss, balance sheet, and cash flow statement combined) financial forecast powered by Fathom, the feedback loop can come alive.
We find it is easiest to understand the OODA loop in sequence, but that doesn’t mean that is how it must be deployed. You can start anywhere in the feedback loop, and because it’s a loop it never actually finishes.
Over time we see clients become faster and more potent in their decision making. This allows them to run circles around their competition, navigate toward opportunities and win!
So how do we do this via Fathom?
To explore this let’s work through the process in sequence.
Observe
Where are we at? Where have we been? Where are we heading? Past, present and future combine.
Let us explore this example - revenue has been tracking well for the first half of the financial year, but then something changed...
Interest rates rose across the economy. We noticed customers dialling down their confidence. Deals became harder and longer to close.
We start to see revenue track under target for the first time in over 2 years. The sales team were working hard. This seems out of their control. Morale takes a dent. Nerves start to rise.
Orient
Observing the changing conditions we jump into the forecast. We can see that last month's actual revenue was 5% under budget.
What is the implication of this?
Scenario - what if revenue drops 5% moving forward, holding everything else constant? In moments this ‘what if?’ is built. Quick metrics light up, but only slightly.
It’s not ideal, but actually a 5% decline does not cause a liquidity concern for 12 months. Perhaps this problem is minor and will fix itself next month. Perhaps… But experience says hope is not a strategy.
Lets run another Scenario - what if revenue drops by 5% for 3 months, then by 10% for 3 months, and then by 15% for 3 months.?
Boom! The business slams into a problem.
Cash levels would crunch in 6 months or less. Deals normally take 3 months to close, but recently they have been taking 6-8 months.
This revenue decline scenario is dangerous. But only if nothing is done.
Decide
A decision needs to be made. We are not going to let the market dictate our success.
A question is posed. The team is pulled together. Can we cut costs to buffer a 5% revenue decline in the short term? Someone chimes in with a suggestion. Perhaps advertising needs to be revisited. Is it being deployed efficiently and effectively? The feeling is no.
The outsourced marketing agency has proven difficult to deal with lately. Not responding in time led to two deals falling through last month alone.
Maybe it’s time to in-source marketing. We meet with the internal marketing team and they light up. They understand the challenge and have fresh ideas. Ideas they can fund with the savings from cutting the outsourced agency. Their plan seems solid and the sales team agrees.
For management the decision is clear and simple. For the outsourced agency it is game over. For the internal teams it is game on!
Act
The internal marketing team goes to work immediately. They begin investing in content that they distribute through alternative media channels.
The sales team picked up in their customer conversations that several customers listened to the same type of podcasts. No direct competitor is playing in this space.
The legal team negotiates a short term contract everyone is happy with. Risk is managed.
Creative yet clear ads for three podcast channels are devised. Two are deployed. The feeling in the team is one of excitement and humility. We think this will work, but how can we test it without betting the farm?
Returning to observe…
We see advertising expense rise month on month, but this spend is expected, and nearly right on target.
Revenue has not improved yet, but the sales team did notice something interesting. Inbound calls rose 10% against the long-term average. To them at least this indicates the ship just might be turning.
How quickly will these inquiries mature? Are they real inquiries at all? Are they the right kind of customers? How did the customers hear about us?
The loop begins to repeat… Morale improves. Nerves settle. Energy levels rise.