It’s annual planning season and I have budgeting on my mind. Therefore, a thought provoking post from the folks at First Round Review discussing the unique approach to planning and budgeting that Dave Brussin implemented at Monetate:
The first part of the article is a lengthy rant on all that is broken in the annual planning cycle. Some of it is endemic to the annual cycle and some can be fixed regardless of the cadence, a fact that weakens the overall argument/pitch.
Nonetheless, the counter-plan is very interesting:
- Find a group of comparable companies that are viewed as successful
- Time-normalize their financials based on maturity (“year X after IPO” and/or “$80M-$100M in revenue year”)
- Look at key business metrics and identify best, poor and average performance (as well as spread) + analyze what moves/outcomes enabled companies to reach “best” performance
- Use those numbers as guidelines for a quarter-by-quarter 3-year plan (12 quarters) for your company adjusting them in places where you think you’re smarter than them. Where you don’t – if their numbers are different than what you’re planning – they probably know something you don’t…
- Treat every quarter like the end of a 12-month year (trailing 4-quarters). Compare and analyze the results
- Rinse and Repeat
The key benefits in this approach that resonate with are:
- “Smoother” planning – rather than more aggressive course-correction every 12 months
- Longer-term thinking – making decisions in the next quarter in the context of the next 12 quarters rather than the next 1-3 quarter
- Quicker feedback loop – a “year” comparable every quarter
- Better chances of identifying the unknown-unknowns by using other successful companies’ behaviors as guidelines (evens if you don’t fully understand them yet) – rather than being trapped in your own paradigm and limited perspective.