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Fact Scan #6 The Confirmation Trap in Revenue Planning (Part 2/2)

Last week we illustrated why and how to avoid the confirmation trap in market research. We explained that the confirmation trap can easily lead to an overestimation of the market size and that you can avoid it by testing two contrary hypothesis. This will enable you to take on a more neutral position, the key to good market research.

But the main reason why to avoid the confirmation trap is that an overestimation of the market size can lead to unrealistic revenue planning. Imagine you decide to expand into a new market with high potential but plan revenues based on false hypotheses and missing metrics?

Death by revenue plan

The worst that can happen is that you have to completely back out of the plan because you are running out of budget much faster than assumed. That would be the classic case of “doomed to fail before even getting started” and what we call “death by revenue plan”.

Good revenue planning is so important because it will decide whether your expansion project is successful or not. For this reason it helps to recall that success is only defined based on its underlying metrics. So if the metrics are not aligned with realistic expectations – for which market research is so important – failure is likely to happen.

In same terms, it is even possible that your project is actually very successful if only you had planned upon the right metrics.

Other people’s money and influence

Another factor you should be aware of are other people that have influence on your expansion project. Especially shareholders such as venture capitalists. If they are breathing in your neck and put pressure towards fast results and high revenues, be careful. It is the time when the confirmation bias is likely to influence your revenue planning.

Oftentimes you want to please your shareholders revenue expectations and rather not risk their disapproval. But keep in mind that they are probably neither experienced in internationalization nor do they have in-depth knowledge of the target market. Only you will be held accountable for failing or succeeding the project, so make sure you stay neutral although pressure is on.

You can avoid the bias when you firmly trust your research, for which you made sure you developed a robust outside view. Good communication and convincing argumentation then is the next step.

Plan conservatively

Last but not least, don’t get talked into that you have to aim high in order to achieve your goals. That might be true in general but not when starting out a high risk project. In the first year, it is better to plan conservatively because of the many unknowns. Should you then over-achieve the revenue plan after the first year and getting to know the market better, you can make the necessary adjustments.

If you need more tips and tricks on how to plan your internationalization strategy wisely and avoid the confirmation trap, don’t hesitate to get in touch. We love to help you out.