4 Ways Startups Should Mark the New Year
Around the globe, we just finished celebrating another orbit around the sun. While these events seem arbitrary, temporal landmarks, like New Years, Birthdays, and Anniversaries are important times for reflection on the past and looking to the future. As an entrepreneur, these markers are opportunities to refresh, or create, periodic planning processes. Here are 4 must-haves to kick off the new year:
1) Create a one page strategic plan — For small businesses, strategic planning is about creating a decision-making north star, a reference point for decisions throughout the year. For example, if a prospect presses on adding a new set of features, the strategic plan is a framework for deciding if the request fits within the company’s objectives for the year. In addition to being a litmus test for decisions, a one page strategic plan distills the what, why and how of execution into a concise framework. With a small leadership team, it should take less than a day to create and should be something that gets revisited quarterly and refreshed annually.
2) Define a RACI chart — After deciding the what, why and how, it’s important to refresh the who with a responsibility assignment matrix, sometimes referred to as a RACI chart. This chart establishes the roles, accountability, and involvement in any key projects or initiatives. Because key staff wear multiple hats in a startup, this step is critical to ensure streamlined decision-making and to avoid miscommunication. In reality, this should be updated after every major hire or with each new project, but at the bare minimum, it should be done annually.
3) Build a trailing 4 months model — Every startup has some form of financial model that is rife with entrepreneurial optimism. The problem is that hopefulness skews reality, and can create unrealistic targets. A more accurate measure is a last four months model that extrapolates the trend of the prior four months. This exercise creates a realistic set of targets for execution based on actual performance. By creating these confident, but constrained goals rather than stretch goals, they become more achievable and overall better for company morale and execution. A last 4 months model should be updated monthly, but annually is a good place to start.
4) Determine the exact date of the end of your runway — All of the strategy and accountability planning in the world does not work without cash in the bank. No matter how good sales are or how much a company has scaled, poor cash flow can kill any business, especially growth companies that burn cash. Over $11B in sales and $792M in EBITDA in 2016 could not save Toys R Us from bankruptcy. Every company needs to update its tactical cash plan, cash on hand less any cash deficits over the course of the year, at least annually.
The cliché is that a founder should work on the business, not in it. These methodologies are core to working on the operation of the business. As such, they should be deployed on a recurring basis as appropriate for your individual circumstances. Figure out what fits the seasonality of the business and aligns with the company culture, and apply that timing and sequencing. Great companies plan using Mercury’s new year (88 days), bad companies use Jupiter’s (12 years), you can settle for Earth’s.
