Just like young women assume there were always jogbras, young entrepreneurs assume there were always spreadsheets. There was life before spreadsheets (and before jogbras). When I first started working in finance in 1981, VisiCalc had just been released, and Lotus 123 wouldn’t hit the market till 1983. And it would be until the mid-80’s when PC’s became readily available that doing business or financial planning on a spreadsheet became common.

1981, the year AspenTech was founded, was right at the beginning of the software industry. People were just figuring out how to license software and how to price it, and the metrics for selling, supporting and developing software products were unknown. It was Larry Evans’ idea to model the business. Larry was the principal founder and CEO of AspenTech, a chemical engineering professor at MIT, and irrepressibly optimistic about the future of our little company. He suggested that, just as chemical engineers develop algorithms to model chemical processes, we could make appropriate assumptions about the company’s operations, and test out different approaches in a financial model.

We gained access to some financial planning software on the MIT computer on a time-share basis, and started programming, using the language provided in the software. Although the printouts would be recognizable to a financial planner today, the programming would look arcane. At the same time, having to program all the details (including things like column width and number format), forced us to be very clear about our assumptions.

Let me say that again – be very clear about our assumptions.

That is the core of good quantitative modeling on a spreadsheet. Be very clear about what’s an assumed number versus those numbers that are calculated. In other words, which is the input, and which is the result.

One of the first things that my clients learn is to separate their assumptions into clearly labeled assumption pages, linked dynamically in the spreadsheet.

An early AspenTech example shows the difference a simple model can make for a company’s vision.

We were struggling along at $4 million in revenue and profitable, doing some fabulous development, with really close relationships with the 500 most brilliant chemical engineers in the world. We even had a team member who referred to the other 200,000 chemical engineers in the world as a “mere mortals.” We were starting to look ahead and exploring bringing in serious venture funding to expand the product line and our international distribution. We had a choice. We could either do this really challenging technical work for a small number of users, or we could make our technology easy enough for the other 200,000 chemical engineers.

I did a simple little spreadsheet with lots of assumptions, but showing the revenue potential of those two paths, and then translating that revenue potential into share value. Of course, any one of the PhD’s in the room could have made that calculation quicker in his head, but seeing it starkly on the spreadsheet galvanized the energy in the company. It turned out that ease of use was just as challenging to bring to the market as were complicated algorithms. Remember – this was before graphical user interfaces. Yes – there was life before those as well.

I have to say that this focus on ease of use of our highly technical software was the single most pivotal decision we made in the early stage of the company. It was a strategic decision that was simple and obvious once we looked at that simple model.