Monday, January 5, 2009

Startup to IPO: Building your annual plan

It's January - and the time of year when we put together our annual plan. Our fiscal year ends Jan 31 and so we need to have our plan locked in and approved by the board by the end of the month. (Well as locked in as you can with a rapidly changing market - we revisit our assumptions each quarter).

I was prompted to write this post when I was asked by a friend (an executive at a rapidly growing new company) which came first - the strategy or the budget? She was in the situation where her team was starting with the budget and then determining their strategy for the year and she was curious about how we do it.

My description here comes with a big caveat - this is a small company process. It would not work with a large company with many product lines and many different agendas - I've run those type of processes; they are different and if nothing else they take a lot longer! In a small company I put an emphasis on a) a strategy for greatness b) team alignment and c) a pragmatic roadmap of how we are going to achieve our plans within a reasonable budget.

I start our planning process with strategy - usually kicking off with a brainstorming session. This year I brought two senior sales people out from New York to participate and we spent a day and a half at the white board writing down all our ideas based on our market, the markets we're being pulled into, our customer requests, competition (to the extent that we have any) and what the next exciting leaps of technology are that we are on the edge of. I run the meeting in a very open way, just white board and pens, and get everyone involved in the discussion - prioritizing, debating; the net result I am aiming for is a strategy statement, market model and short list of strategic projects that the team agrees is the right list for FirstRain. This year was pretty typical - lots of great discussion, some rough models and then it took a handful of one on one discussions, some sleep and a few days off for me to integrate all the input into one 2009 strategy statement and simple diagram that we can rally everyone behind.

The next step is to take the high level initiatives and map them into a product roadmap - getting a sense of timing given current resources and the operations management team - YY, David and Marty - do the heavy lifting here. This is the beginning of a highly iterative, couple of weeks, process. Given current resources, what's the sequencing? If we reallocate resources, move people around, maybe add in some new skills we need - then what's the sequencing?

This step iterates with the budget. Unlike a larger company we don't put much stock in "run rate" for budgeting purposes. It's a starting point, but nothing is sacred; instead the focus is on how do we get done the projects we've decided as a team need to get done. And our controller - Eugene - works the financial model as part of the feedback loop to operations.

The net result is a plan document:
- the strategy - our market view, how we segment and prioritize the markets we are serving, what are the growth drivers
- the 2009 strategic initiatives that come from the strategy - these are both product/technology initiatives and market strategy initiatives like partners and distribution
- the 2009 product roadmap and near term plan (next 3 months, 1 quarter out, and then 2nd half - and revisit/revise every 3 months)
- the financial plan - quarterly P&L and cash flow forecast

The final step is communication. Not only to the board to get their approval, but also to every single employee. I want to make sure everyone knows the strategy, understands it and understands their part in it - why what they are doing matters. So this means an all hands meeting in the US and in India, plus follow up discussions with all groups in the company.

And then... all hands on deck for an exciting new year!


Anthony Ware said...


Thank you for sharing the experiences of your team at FirstRain.

As a consultant to small firms and a second-year entrepreneur, I find your posts to be very informative.

Your comments on the level of communication and openness within your team have helped me and my team as we complete our planning process for 2009.

I look forward to reading future posts. Best wishes to you and your team in 2009.

Anthony Ware, CEO & CNO

Penny Herscher said...

Anthony - I am so glad it's useful!

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