Don’t frighten the horses! Let your digital-twin model “tell the story” (27)

Kim Warren Author

Explain the logic of the model's system structure in small, incremental steps, showing what the numbers are doing at each stage.

My students, whether young or ‘mature’, have usually had to write up for me what their digital-twin models do and outline their resulting recommendations.

And I always tell them …

Explain the logic of the system structure in small, incremental steps,
showing what the numbers are doing at each stage.

But it doesn’t seem to matter how often I say this, how often I show them, or how fierce I am in grading their work – they still don’t do it! Instead, they say something like

“I built the model – here’s a picture of it – so my recommendations are …“

My worry is that they and others may well do the same when they explain their practical work to the executives, leaders and others who need to understand it – and if they do that, they will surely ‘frighten the horses‘ !! Why?

Others don’t see what we see!

Remember – unless our audience has come across dynamic business models before, they will have no idea what our diagrams mean! So all they see is a spaghetti of word-phrases and arrows, made even more impenetrable with time-charts dotted around the page.

But our models are easy enough to follow, and the meaning of their elements is clear, if we explain it in simple steps.

REVEAL the model – and the story – step-by-step.

It’s really not hard to fix this. Simply repeat the step-by-step logic of the system’s structure, in the same stages that you built the model. … and explain what the diagram elements mean as you go.

Here’s an example – but three warnings first:

• this is intentionally a trivial example, so the principles are as clear as possible
• this story is NOT a general recommendation on how pricing will affect sales and revenue !!
• “growing revenue” as this example aims to do, is not great if a price reduction cuts the profit margin too much – but that’s not true here.

Here we go …

“You wanted to understand why revenue has been falling, and how to turn that around” Show a time-chart showing the history and future of revenue: $/week.

“For revenue to fall, either the unit price has fallen, or sales volume has fallen – price hasn’t changed so it must be a fall in sales. Our model will show that a price cut would get revenue growing again.” Show a 3-item figure showing the causal links for revenue = sales * price, and time-charts on each.

“For sales to fall, either we must have had declining customer numbers, or their purchase rate must have fallen – the purchase rate has not fallen, so we must have seen falling customers. Our model will show that a price cut would get customer numbers growing again, and increase their purchase rate. (‘Customers’ is in a box to show that it is a resource we need to build over time.]” Show a 3-item figure showing the causal links for sales = customers * purchase rate, and time-charts on each.

“For customer numbers to have fallen, we must have lost customers faster than we won new ones – both have been happening. Our model shows that we could reverse this, so we start winning customers faster than we lose them. (The thick arrows show that ‘new customers’ is filling the ‘tank’ of current customers, and ‘customers lost’ is draining that tank, just like cash flows in and out of your bank account.)” Show a 3-item figure showing how the customer win-rate and loss-rate change customer numbers over time.

“Our price drives all three rates – how fast we win customers, how fast we lose them, and their purchase rate. Our model shows that a small price cut will likely improve all 3 of these rates, winning customers faster, losing them slower and raising their purchase rate.” Show a figure linking price to those other items.

“Putting these pieces together, you can see how a too-high price has allowed customer numbers to fall, limited their purchase rate, and led to falling sales and revenue. Our model shows that a small cut in price would reverse these issues, leading to both a short-term sales increase and subsequent sales growth. The price cut means that revenue will not increase immediately, but will then grow as rising customer numbers drive growing sales.” Show a figure of the whole model.

(PS – as this is a software product with no significant ‘cost of goods’, growing revenue also delivers growing profits).

As I say – “telling the story” like this should simply follow the rationale by which you built the model in the first place.

Ideally, you should have done this with your ‘client’, so they would be deeply familiar with it already. But it is still likely that you will and/or they will need to explain it to others – their bosses, colleagues, employees, investors. So telling the story like this is an important skill.

__________

You can learn exactly this “AgileSD” process in our course "how to build a digital-twin business model" here … coupon blog20 gets followers a 20% discount.

Categories: : business models