I am a lifelong Grateful Dead fan, and I mourn the loss of Bob Weir this past week. I came across his perspective on planning, and it aligned with some of my own thoughts related to business. As we start a new year, most companies are scheduling their annual kickoff and rolling out their plan for the year, complete with goals and metrics and financial projections. However, in the volatile world of early-stage and high-growth businesses, the clarity of our vision declines rapidly the further out we look on the timeline. The year ahead may look obvious in January, but the one thing we can count on is that the year will not unfold exactly as planned. Mike Tyson famously said “Everybody has a plan until they get punched.” He was paraphrasing Prussian Field Marshal Helmuth von Moltke’s line “strategy rarely survives first contact with the enemy.” In the business world, that is contact with the competition, the market, macro and micro economics, and world politics. So, if we know the plan will not survive, why make it in the first place?
That was the question Bob Weir raised when he said “I’ve never made plans, and I’m not about to, because I’m too damn busy doing other stuff… and really, making plans seems like a waste of time because nothing ever works out like you expected it to, no matter who you are. So why bother?” [https://www.rollingstone.com/music/music-features/bobby-weir-grateful-dead-company-interview-1235290296/] And yet, we all agonize over building the annual plan and presenting it to the team with excitement and flourish at the annual kickoff meeting. We schedule board meetings to review and approve the plan, and we carefully construct mechanisms to track progress and report metrics.
If the original plan is unlikely to survive contact with the world, then we need to think about alternative strategies to accomplish the objective of planning, but to be less rigid than our current approach of one plan for the entire year ahead. This is a Goldilocks challenge; we want to create a plan that is not too small, and not too big. We need a plan that is ‘just right,’ but without a crystal ball it is almost impossible to have perfect clarity for the entire twelve months ahead. There are several schools of thought about how to address the volatility issue in the planning cycle:
Base Case: One approach is to construct the plan as a conservative base case. Make it the floor for corporate performance to demonstrate that even if nothing extraordinary happens during the year, the company will still do alright. Once we know the floor, then as Bob Weir said, we can just get busy doing our best, without constantly worrying about reaching some arbitrary goal. This approach has the benefit of providing ample opportunity to beat the plan, which can be an excellent boost for morale. However, the contrary view is that these plans are not very inspiring or exciting or motivational. For a business that has consistently missed its plans in the past, a ‘beatable’ plan can help the organization get its groove back. The risk is that the organization is so used to missing plans that no matter what the target is, the team will interpret it as a stretch, and be content to further under achieve.
Aspirational Planning: The complete opposite approach is to build an aspirational plan that sets big goals to motivate the team to outperform. On the positive side, outsized goals can spur creative thinking, and be inspirational for the team. Often, teams do not know their limits, so they accept the aspirational plan as achievable and throw their hearts into reaching the goals with surprising outcomes. The cons for this approach are obvious. Failure to meet the plan is demoralizing, and if spending was tied to outsized expectations for revenues, when the revenues fail to materialize the business may be in jeopardy. A best practice in this environment is to develop a modest base plan, and then build the aspirations into stretch goals that will self-fund investment to exceed the overall plan.
Short-Term Planning: If we know we cannot predict what will happen twelve months out, then why not adjust the planning cycle to be shorter, and assume we will re-plan during the course of the year? Some companies have institutionalized a mid-year replan. They create a twelve month plan, but expect to revise it and create a forward six month view at the half-year mark. The purpose of the twelve month initial plan is to ensure the business works (revenue, expenses, cash, etc.) and is headed in the right direction, but as Moltke said, the detailed plan rarely survives contact with the competition, so we need to be nimble enough to respond. The positive result of this approach is that we do a reset and do not carry forward goals that we know are unachievable and therefor just a drag on morale. The negative aspect is that this approach can be considered ‘moving the goalposts’ mid-year if it is not generally understood that this was the intention all along.
Fuzzy Planning: When hurricanes form in the Atlantic, there are initially many different models for the track the storm might follow. The aggregate of all of the models and probabilities is often represented as a cone emanating from the current eye of the storm to show the possible range of paths the storm may take over time. The further out in time, the wider the cone becomes because the predictions have less certainty and the different models produce divergent views. A similar ‘fuzzy’ approach can be applied to building the annual plan. We should be able to predict Q1 with a high degree of certainty, but when we try to predict Q4 twelve months out, things become a lot more fuzzy. We can build a range into the plan from a downside scenario to an upside view, with an expected outcome somewhere in the middle. We will need to align spending and investment to ensure that the business is viable anywhere within the cone. Just as with hurricane forecasting, as time goes by, the cone will shift. Once Q1 is in the books, we have a greater degree of certainty about Q2, and what will happen in the subsequent quarters. With each successive quarter, we hone in on the full year outlook, while always maintaining a general view of the cone of possibilities twelve months out. The understanding is that we can only project certainty in the next quarter or two, and after that things are ‘fuzzy.’’
Bob Weir said he never made a plan, and based on his successful career, that seems to have worked for him. However, in business we need to ensure everyone on the team is headed in the same direction with the same goals, and a shared operating plan is our best tool. The key is to keep the plan relevant, and construct it in a manner that recognizes that we are going to get punched in the face and will have to adjust or pivot throughout the year.