Prepare for 2016: Take Scenario Analyses, Operating Plans, and Budgets Seriously
By Bilal Zuberi
One of the most important things Boards do in the beginning of the year is to approve the operating plans and associated budgets put together by founders and company CEOs. This is a short post to say: “take that exercise seriously, even more so than you may have done in the past”.
2016 has gotten off to a somewhat rocky start. I just got off the phone with a journalist who wanted to talk about the stock market declines (esp in China) Fed interest rate hikes, sinking oil prices, refugee crisis in Europe affecting its economy, threat of terrorism in Middle East and elsewhere, and the impact of all of the above on tech startups. Oh boy, there was a lot of negative in that last sentence.
Every CEO is starting off 2016 thinking at least a little about the macro environment. Is this the year that the proverbial tech bubble bursts? Will these multi-billion dollar private tech companies be able to go public? Will early stage investors pull back, and will valuations across the Board get crammed down? Will new hires look for higher compensation, or will employees flee to safer grounds of large tech companies? It doesn’t take much for investors and potential hires to be spooked in choppy waters, but great CEOs anticipate and manage this as a key risk.
The best way to plan for uncertainties is to stay lean, nimble and be more prepared with scenario analysis/planning. The fun and glorious days of the last few years has meant that some CEOs (and Boards) did not consider planning to be a useful spend of their time. Boards accepted generic high level plans with some rough numbers around it to call a budget. Don’t be that CEO in 2016. Prepare for the upside and for the downside scenarios and rigorously test your assumptions with your Board and your investors. I am encouraging CEOs I closely work with to think through their operating plans carefully. What are the internal and external dependencies that we should keep a close eye on, and scale spending up or down accordingly? Lets assess team capabilities and upgrade right away wherever necessary. Lets be more resourceful and cut any extra fat on the expenses aggressively. Find non-dilutive sources of financing, look for earlier revenue opportunities, and let’s keep a close eye on gross/net margins. All obvious things but takes discipline to get them done right.
Frankly, I am excited about 2016. Yes, there will be uncertainty, but great companies will find it easier to cut through the noise and emerge as winners. They will be able to stay lean, recruit better, and fundraise effectively. They will also be more customer-focused, and generally aligned on core business metrics that truly create long term enterprise value (vs hype). Be that company!
