6 Steps To An Annual Plan That Accelerates Growth

It’s that time again, and most CEOs and leadership teams are pulling their 2018 plan together. There are a lot of ways to plan and set targets and expectations for the new year. Here are some ideas to make the process more than a financial document and yardstick, but a tool for alignment and clarity on priorities that your team can use operationally in the year ahead. Hopefully, it can also help you get more done and accelerate your growth.

1. Set a simple but clear process.

Create a calendar with a set meeting schedule and list of mandatory attendees. Consider assigning an owner of the process who’s not the CEO. Odds are the CEO is trying to close deals and secure renewals late into Q4, so a BizOps person or Finance lead with business context (and FP&A skills) can be the champion for the process. But the CEO has to require it, oversee it, and be a co-leader during the sessions.

I’d recommend 4 to 5 key meetings during a 4–6 week planning sprint, where you’ll set the strategic table, functional leaders will deliver key inputs, and then, you’ll debate tradeoffs. Set a final all-hands meeting where you roll it out to the whole company. This will ensure a collaborative process, and will provide a forcing function to get you done on time.

2. Define clear planning principles.

Here’s a suggested list to get you going, but you should do what’s right for you and your culture:

  • Principle 1: iterate; don’t get bogged down. Get a framework constructed and populated with starting data quickly. Many problems resolve with iteration so don’t stop too long to get to perfection in any one revolution of the plan.
  • Principle 2: be inclusive and transparent. Planning is about alignment, so be open, transparent and inclusive with your leadership team. Also, I suggest letting everyone see everyone else’s ideas and wish lists, not just sending over their own. You will have a challenging prioritization exercise towards the end of the process, and everyone will need to compromise. Best if there’s trust and belief in the process, or gaming and sandbagging will naturally occur.
  • Principle 3: be clear on the immovable constraints. For example, if the board has established a maximum monthly burn level, or if revenues need to be above a certain threshold by a certain date for whatever reason (could be just because you want it, could be because it’s meaningful for a financing round), let everyone know up front. But have as few immovable constraints as possible.
  • Principle 4: be clear on the purpose of the plan and its role in management and governance. In most companies, it’s a placeholder for the key assumptions in the business and is used for tracking performance. For others it’s a sacred budgeting and cash management tool. For others it’s a control system. Do what’s right for you, but I do have a recommendation to help avoid over-negotiating. Have two different vehicles for planning: 1. The plan, often called the “budget”, which doesn’t change during the year, and 2. The “forecast”, which is updated quarterly (or whatever frequency you want). Tell your team, that if the world turns out differently than we think now, we’ll adjust. Everyone will relax and the planning process will go more smoothly. The only exception here are Sales quotas, which should not change except under exceptional circumstances, but that’s a topic for another post. As a board member, by Q2, I generally want to know what management believes, not what the budget says. I know what the budget says. Having an updated forecast is very helpful.
  • Principle 5: set your working materials and keep everything consolidated. There are typically two: a spreadsheet planning model, and a deck of slides that capture the ideas and priorities for the year.
  • Principle 6: you’ll be more constrained by your ability to execute than by your ability to come up with ideas. Always challenge proposed projects with the team’s capacity for doing them well.

3. Bring a unifying vision to the strategic portion of the plan.

Here, you’ll look out to a more distant period to set your vectors. Companies in our portfolio use the “desired future state” approach, where you and your leadership team (and/or board) visualize your company in three years and define what success looks like. How has your market changed? How are you seen by customers? What impact are you having on customers and their lives? What would you want a Wall Street Journal reporter write about you and your market? How much revenue? Growing at what rate? What makes you differentiated and special? What’s your product mix? How many sales reps in what regions of the world? How much cash are you burning or generating? How much is on the balance sheet? You can do this looking out 5 years or more, but going too long can make this a less and less useful exercise. Better to imagine a world you can squint and see in 2–3 years, because the point of it is to then ask what you need to do in the next 12 months to set your course and speed for the desired future state in 3. Don’t take too much time on the 3 year visualization. One meeting with your leadership team should do it, maybe 2 at most.

This is a good time in the planning process to list your stretch or transformation ideas that can propel you towards this vision. For example, you might have ideas for new products, new channels, new Marketing approaches, new productivity programs that someone is championing on your team. Assemble this list and put it in the deck. You’ll debate them as you iterate from here.

Now, use the desired future state idea to set your waypoint for the end of the upcoming year. It’s time to head towards realism, but still build a wishlist. You’ll iterate, so don’t get hung up on the first cycle. Start with Bookings and Revenue: What topline growth rate is possible? How many reps, at what ramp rate? New geographies? Customer churn? ACV? Contract durations? Payment terms? Close and win rates? Pipeline generation? Pre Sales and BDR ratios? Then Product: What needs to ship for our major Revenue assumptions to be true (New customer acquisition and retention)? What longer-term initiatives need to start this year to realize the 3 year vision? What customer or internal commitments are firm? What other strategic projects should be prioritized in Dev to set up future velocity and reduce impedance? Fill in your spreadsheet model with these assumptions as you go.

Next, allow these revenue and product assumptions to set the agenda for the other functions of your organization. How many people and what new programs in Customer Success, based on the new customer adds in the model? New/expanded Marketing programs? Recruiting needs for expected hires? Finance and other G&A hires, or new vendors, to support the expected work volume? Assumed travel budgets based on drivers like number of sales reps and/or new customer adds? You can add placeholders for major services, like legal, accounting for now and adjust later.

You now will have a model and plan that are over-optimistic. Don’t worry. That’s about to be corrected.

4. Challenge assumptions and do a revised, bottoms up plan.

Send each member of your Leadership team off to challenge these starter assumptions and do a bottoms up, realistic, revision to the plan. Remind them that the output of the plan will be their goals for the year, including quotas and bonus attainment thresholds. Ask them to be fact-based and use historical data wherever possible to challenge the metrics. For example, if the starter model assumes a time to productivity of new sales hires of 3 months, what has really occurred to date? What evidence is there for customer-count workloads in Customer Success, and where does NPS suffer? Have your Execs work with their teams to do high level estimating for future programs, and return by the 2nd scheduled meeting. I recommend 1 to 2 weeks for this phase. This is a decent amount of work for a few people, so it’s key that you set this expectation in advance, and why communicating and then sticking to your planning calendar is so vital.

Congratulations, once you gather and synthesize all these inputs, you will now have a second draft of your plan that is way too expensive and conservative. That’s about to be corrected.

5. Rapidly iterate with your leadership team.

Use the meetings you set in your calendar and return to the immovable constraints to govern this process. Keep checking in with your three year desired future state to ensure you’re not cutting without strategic context. But, you’ll be cutting. Your role as CEO will be to drive to the outcome, ensure near and longer-term needs are balanced, and vitally, that the team is collaborating transparently. Here, trust in the team and trust in you really matter. In teams where it is lacking, schedules get padded, or the opposite, people offer the answers they think are expected vs. what they really believe. The result is a false plan no one believes. Your job is to get honesty, and to push for evidence and well developed cases for projects and hires. This leads to a plan with legitimacy, and that leads to organizational performance.

If you adhere to principle #2, you’ll see that when one leader makes a case for a program, or set of hires, others can effectively challenge because they’ve seen the supporting historical data. If you don’t do this, all the pressure will be on you as CEO to say no, and it can get burdensome. The best teams do this together, and do it in a spirited but non-personal way. You’ll need several meetings here to get to a few drafts of the plan.

I’d recommend at this stage, once you have a few drafts that are feasible, and where the tops-down and bottoms-up plans align but perhaps the ending ARR or cash burn implications differ, you consider running them by a board member or two. You want to ensure you’re headed to an outcome that will be in an acceptable range financially. Then, you can circle with your team, have a final board discussion and move to closure.

6. Canonize your outputs with summaries that you share with the company. The slide deck is the perfect place for this which may include the following:

  • income statement metrics at a monthly grain, including cash impacts
  • operating metrics and business drivers that map to the financials (e.g. new logos, ACV, and churn) — these can be monthly, but also have quarter-ending targets
  • expense plans across the organization — for everything
  • a staffing/hiring plan — for every role, and every start date (remove compensation data, unless your company shares that info)
  • funnels with key assumptions on the key operating processes, like lead to cash, hiring and on-boarding of staff, customer activation, quota attainment, sales cycle length
  • a meaningful product plan with assumptions on the revenue impact of shipping things during the year

Here are some additional tips and tricks for planning:

  • There are more robust alternatives to spreadsheets, if you’re bigger, or motivated, or a planning geek. There are some great SaaS FP&A and budgeting products on the market with advanced features for collaboration, project details, nesting expenses, and more. But for many early stage tech companies, a spreadsheet is enough.
  • Get sample templates from a friend. You can see how they capture AE attainment, customer net churn, per-hire on-boarding expenses (laptops aren’t free), accounting and legal fees, travel, and costs that are easy to overlook, like landlord requirements for deposits and pre-payment of months’ rent. Study their ratios, learn how they’ve thought about how everything converts to cash, and see if you might be missing something (hint — it’s easy to underestimate recruiting expenses). You’ll want to build your own model in the end, but it can save you time to borrow ideas.
  • Add a quarterly touch to your process. Here, you can revisit your assumptions, update them in your forecast (remember, the plan never changes) and keep the juices flowing for trade off making among the leadership team. This likely maps to your quarterly board meeting cadence, so you’ll be doing it anyway in board prep.

There it is, you have a plan for the upcoming year. Better still, hopefully you’ll have one that the team is bought in to, understands, and believes in. If you have that, you’ll have more than a plan. You’ll have a program that will make hitting your goals much more likely. Good luck, and happy planning.