Product Council
Taming the Annual Budget

Conquering the Dreaded Annual Plan


As we enter into the autumn season, it’s time to consider the dreaded annual plan. Most startups begin work on this in November and with the Christmas holidays and end of quarter, a lot of work gets crammed into the last week of December. Then departmental budgets and plans come together in January, jammed between the Sales kickoff and the board meeting. It’s a lot of pressure, but somehow everything gets done. And then next year, in an effort to reduce the pressure, the process starts a couple of weeks earlier. Yet the same dynamic plays out. It’s still a last minute scramble. You can try to tame the beast by giving it more time, but the budget process never gets any better. What’s going on?

For most startups, spending more time on the annual plan and budget doesn’t materially improve the business. And there’s a good argument that beyond a certain effort, more time spent on planning reduces time that could be spent on execution. (The Germans, depressed souls that they are, have a word for this. Verschlimmbesserung: an attempted improvement that only makes things worse.)

The annual planning process is important. But don’t mistake the map for the territory. I’ve rarely seen a plan make it all the way through the year without some adjustment. Think of it as a first draft for what you hope will happen in the coming year. It’s important to have a plan, but there’s no such thing as a perfect plan. A good plan is one that states your priorities, what you’re trying to accomplish and what resources you need to do it. It’s also good to identify the things you are saying “no” to in order to stay focused.

SWOT Analysis

If you’re not sure where to start, one approach I have used it so create the MBA standard SWOT analysis. This is a useful framework for identifying internal Strengths and Weaknesses and external Opportunities and Threats. Writing is a great way to clarify your thinking and focus on the top challenges your business faces. 

Think carefully about what is working and what’s not working. Where are you hitting your goals and where are you missing? How is your product landing with customers? What do customers like? What is unique in your offering? Where do you miss the mark? Are some segments performing better than others? Why? When customers churn what do they tell you? 

From your SWOT analysis you should identify a handful of top initiatives for the company. This should include hard unsolved problems. These are often complex problems (or opportunities) that span multiple departments. Are there new features, integrations or distribution methods that could open up additional markets? Are there limitations in your product that are preventing you from closing large deals? Are there additional opportunities in the market that your company is uniquely qualified to solve? Don’t get too hung up on which category items belong to. But generally speaking remember: Strengths and weaknesses are internal, opportunities and threats are external.

It’s unlikely that there will be easy answers to these questions. It may take days or weeks of contemplation, discussion and refinement before you get a clear picture of the priorities and what can and should be done. I have found that writing the SWOT process helped me identify internal problems as well as market opportunities. Sharing early drafts to executives and getting feedback, helped crystalize my thinking. Sometimes creative ideas would present themselves at strange times, during a long run, in the shower, driving or other times when the normally critical brain functions are not as dominant. 

Your annual plan might include a handful of strategic initiatives. These might be product related, market related, or something else. Here are a few examples of initiatives from when I was at Duo Security:

  • Expand the business into Europe with a field sales and support office 

  • Develop a partner / reseller channel

  • Launch a new Enterprise product and go-to-market strategy

  • Develop a vertical market plan for health care

  • Launch a new premium service offering

Each of the initiatives you embark upon will require additional focus and headcount. So be careful of taking on too many things at once. If you can identify projects that are no longer a priority, that can be useful to free up resources. You want to make sure that all departments are working together to make these initiatives successful and everyone is pulling in the same direction. Each department must be aware of their contributions and how things rank in priority to the routine day-to-day operations.

Can Your Team Scale?

Think also about the management team. Who’s running a good operation? Who is struggling? Who has capacity to take on more? If the company doubles over the next year, who will be in over their head? Who are the up and comers who should be challenged to take on more? Who is strategic in their thinking? Who has the pulse of customers? Who is thinking about the competition and how we can beat them? If there’s a need to drive a new strategic initiative, who has the skills and bandwidth to do so?

If your team can continue to take on new growth and the related initiatives with high confidence, that is the best situation. But most executives have a range (span of control, number of products or functions) and when you get beyond their upper bound, it’s normal to bring in people with more experience and a broader range. Someone you hired to grow sales from $1m - $10m in product-led growth is probably not the ideal candidate to grow revenues to $100 million in Enterprise sales. If they want to learn from a more experienced mentor, you may be able to retain them and have the continue to contribute, while you expand the skills and range of the executive team.

Let me know if this has been helpful. In a follow-up post next week, I will provide guidance on how to tie together departmental plans and develop the annual budget.


Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.