Narrative and Numbers: The Value of Stories in Business (Columbia Business School Publishing)

by Aswath Damodaran

Once you have a story to tell about a company, the first test is to make sure your story is possible. As you will see later in this chapter, there are narratives that fail this very weak test, and these stories of course are destined for the business fairy-tale book. How, you might ask, would anyone be delusional enough to tell an impossible story? Caught in the heat of storytelling and surrounded by people who think like you, it can happen. The second test is determining whether the story you are telling is plausible, a stronger test. For a story to be plausible, you have to provide some evidence that it can happen, by pointing first to other companies that have pulled it off and then to your own history to make a case that you are similar to these successful companies. The third and toughest test is determining whether the story you are telling is probable, and that requires that you be willing to quantify your story and make your best estimates of how your story will play out in numbers. Not everything that is possible is plausible and many stories that pass the plausibility test flounder when put to the probability test.