Business planning for start-ups
I have recently been reminded of the importance and simultaneously of the difficulty of planning in a start-up. On one hand, as soon as a founding team is done with the product market fit phase, pressure increases to start charting a roadmap for growth and articulating how they will go to market and scale. On the other hand, there are still too many uncertainties and variables, and the team is still learning and testing various lead and sales channels. Most of the time no sooner than the planning exercise is complete than the plan is rendered obsolete by new information. This makes every plan a wild guess at best.
In my view, the benefits of establishing an initial plan still outweigh the cost and the uncertainty. The discipline of trying to articulate the business model and quantifying the go-to-market strategy has a number of key benefits: First, it helps the management team set a convincing vision, with the best information at hand. Second, it gives the team a robust framework for analysis and decision making based on data. Furthermore, as teams learns from their experiments and gains useful insights, they can reflect these learnings in the plan and iterate it periodically. This gives them a powerful tool to communicate and share best practices quickly. The process of thinking about the plan and the time spent by the team discussing it are as important as the plan itself. The team will come out from such an exercise stronger and more confident.
I have come across three types of plans that serve different purposes and address different audiences: The base plan, the stretch plan and the long-term plan.
The base plan, is, from experience, the most conservative version of any yearly plan. It is the one used internally with the board, the finance team and the investors. It is also used as a base for resource planning. In mature organisations, a good base plan would commonly have a variance of ± 10%. I have very often heard from finance teams or high level executives that this sort of tolerance is the hallmark of the best teams. While hard to achieve at an early stage, as founding team get more experience at it, they gain in confidence and credibility.
The stretch plan, is the yearly plan used to stretch and challenge teams and get them to over perform. This is especially applicable to sales teams. It is put in place to aim for aspirational goals. Teams that use OKRs will be able to link those OKRs to the stretch plan, and roll up individual goals at company level. An achievement level of 70% is considered good for OKRs so the same will apply to this kind of stretch plan.
Finally, the long-term plan is a very useful tool to plan market expansion and long term growth. It is meaningful when the management team has acquired experience in going to market and has a good idea of the potential of the product. This kind of plan could be a 3-year plan, where the team tries to project what they could achieve in this timeframe, and what the maximum achievement could be. It aims at setting a long term and very ambitious vision, in terms of revenue or market share, then reverse engineer these results to understand what is needed to achieve them, in terms of resources, programs, tools and management support. This kind of exercise liberates the minds of the sales teams from the day to day challenges, and the very short term view they might have. The outcome of successful plans can be to identify great new initiatives and game changers that take time to be implemented but that can be decisive in scaling and gaining a dominant market position.
Setting up the right level of expectations and understanding the audience is key to a successful planning exercise. This can be a very powerful and motivating tool for a founding team.
