Planning Shouldn’t Be Scary!

A recent post entitled Navigating annual planning challenges discussed the top 3 mistakes seen in yearly planning. The post, authored by Liz Christo at Dear Stage 2, is part of a  weekly advice column answering go-to-market questions from the B2B startup community. The content in the post was excellent and led to this question – now that the mistakes are known, what is the ideal method of annual planning? Maybe “ideal” is too strong, but planning isn’t something to be afraid of. It should look like this 8-step process.

1). Review Past Performance

Though many believe that prior results are the best predictor of future performance, prior results don’t lead to fantastic annual plans when considered in isolation. Individuals and teams engaged in planning processes must first assemble and review previous period data, validate its accuracy, and confirm common understanding. Do Finance, Marketing, and Sales agree on a single source of truth? Are definitions and measures standard across functions? Do the teams cross-functionally agree upon a dataset that is “good enough” to be used for planning? “Good enough” is a crucial concept; data is rarely perfect from top-of-funnel to final disposition. Don’t let perfect get in the way of good enough.

2). Establish a Baseline 

Once there is agreement on the past performance dataset, a new baseline should be established. This baseline represents the period of performance to be used for future planning. The period of performance is an important distinction. An organization in hypergrowth mode may establish its baseline using the trailing 90 days. A more mature organization may use the prior year or even years. Selecting the correct baseline is critical to measuring forward because it includes relevant details by channel by period. Examples include top-of-funnel (TOFU) creation, win rates, average deal size, sales cycles, and the like.

3). Model Forward

Now that the baseline is established, logic should be applied. A great starting point might be, “In the absence of intervening variables, where do we predict we will land – by channel – in 12 to 24 months.” (Common channels might be Inbound, Outbound, and Partner if working from Lead Source.) A standard mathematical method for such evaluation would be linear interpolation, which would help explain “Where the trendlines are going to take us.” The analysis and trending should include “seen and unseen” pipeline. Seen pipeline might be enterprise deals forecasted in the salesforce automation system. Unseen pipeline is a derivative of deals those engaged in the planning process are presently unaware of. A simple example of unseen pipeline would be Inbound SMB. Planners may not see the deals yet but can use baseline data to predict what should happen in future months and quarters. 

4). Make Adjustments to the Baseline

Making adjustments to the baseline is where the planning process moves from mathematics to art. SaaS Operators must work cross-functionally to bring reality to the trendlines. For example, trendlines for the Parner Channel may show strong future growth. However, Operators know that the Partner Channel growth rate can only be realized with substantive additional investment. Perhaps the investment won’t be made. Maybe there is diminishing marginal return in the Partner Channel, and the linear assumptions won’t apply. Whatever the case, the Operators who run the business must add their collective experience and make adjustments by channel. This adjusted model should predict where the business will land absent additional investment or programs.

5). Layer in Top-Down Goals

Thus far, 100% of the planning process has been bottom-up and driven by functional leaders. This is very important when it comes to building a successful annual plan; bottom-up matters. Nonetheless, every planning cycle eventually leads to a top-down goal assignment – which may or may not be grounded in data. The top-down goal often comes from the CEO and can be as simple as, “We will grow our MRR run rate by XX% in the next fiscal year, and we will achieve EBITDA of YY%.” 

6). Visualize the Gap

Most SaaS operators will see a significant gap between the bottom-up, adjusted plan and the top-down, assigned plan. To accurately visualize the gap, it is imperative that solid thought and analysis – or Artificial Intelligence – be applied to represent both the seen and unseen pipeline accurately. The delta between the adjusted baseline (seen and unseen) and top-down assigned goals must be filled to meet the top-down objective. 

7). Fill the Gap

When the gap between the bottom-up build and top-down assignment is visualized, SaaS operators can model options to close that gap. The process should allow for the creation of multiple programs for every channel. Which investments drive top-of-funnel for Inbound, Outbound, or Partner channels? How might sales capacity be adjusted in the small business or enterprise segments? If 20 potential programs are suggested, teams should have the ability to toggle proposed programs on and off in the data model. This allows participants to see the predicted impacts of each program and how that program or set of programs drives the achievement of the top-down assignment(s). “Fill the Gap” is where decisions get made, and all roles must reach agreement – CEO, CFO, CRO, CMO, and RevOps.  

8). Make it Happen!

One fundamental mistake Liz Christo identified was “Set it and forget it.” I could not agree more! A well-constructed plan should be the basis for Daily Management. Instead, plans are often reviewed, and problem-solving begins on the same cadence as Board Meetings. SaaS is a “make every month” business and problem-solving cannot wait until month or quarter end. As Dear Stage 2 stated, “Frequent check-ins keep everyone accountable while providing early visibility into potential deviations from the plan. Suppose you see actuals or forecasts dramatically deviating from the plan. In that case, it’s time to discuss why, and determine if you need to reset new expectations and adjust expenses/budget accordingly.”