2023 Guide to Annual Planning

Warning: this email is going to be dense. It also will include more templates and guides than anything I've ever put together. Here's a link to the Annual Planning Resource Center where all the templates I talk about below are stored.

This is Jesse's guide to annual planning for a Bootstrapped Giant.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

First, let's take a step back: ANNUAL PLANNING?! That sounds like some corporate shit. Why does it matter?

Early on in my career, I didn't understand planning and its importance. My co-founders and I would build a quick financial model, talk about priorities and then move along. Later on: we implemented OKRs but it was highly administrative and hated by all.

So why is it important?

It is the difference between bootstrapped and GIANT. Said differently, I believe rigor and planning is what takes a company to the next level. VC backed businesses have an advantage here… investors and boards effectively require them to plan so they can communicate and align. In that process, funded companies build this critical muscle.

Bootstrapped companies, on the other hand, answer to no one. While this can be fun and lower stress, especially early on, bootstrappers often lack the rigor, discipline and alignment that come with planning.

Let's change that, today.

So what are the components of a good plan?

1. DFS (Desired Future State) and CR (Current Reality)

2. Goals (Rocks, Initiatives, Objectives, or whatever the hell you want to call them)

3. ICE (Impact, Confidence and Ease)

4. Financial plan & financial projection

5. Hiring/resourcing plan

Before we dive into these, a few important FAQs:

Q: What is the point of planning?

A: It is NOT to accurately pre-plan everything you'll do in your business. As soon as you make the plan, it will be wrong. IT IS a great way to:

1. Learn about your business so you can run it better

2. Decide what to prioritize and where to spend money

3. Align with your team and get them bought in, and

4. Create a strong, ongoing learning framework for everyone.

Q: Where do I start/how do I get this right?

A: Tons of entrepreneurs think planning is a test they have to Ace. If that's you, reframe it. VALUE comes from the process of planning. In other words, come up with quick drafts for the 5 items above. Then iterate them as you learn more.

For example, you may start with a DFS of doubling revenue. Then as you put it through a financial component I'll lay you below, you may realize it means you need to hire 10 sales people. Maybe you'll look at last year, and realize you hired 2. So hiring 10 either becomes unrealistic or something that really needs your attention. So you'll tweak your DFS or adjust your goals.

This visual helps when I talk with my team: Envision screwing the back panel of a cabinet using 4 screws. If you tighten one screw at a time, the panel can be misaligned or warped. Instead, you tighten each screw a bit until it's done. That's how great planning looks. It's a little messy, iterative and changes constantly. That's actually the point.

Okay, let's get into these 5 components:

Component 1:
DFS (Desired Future State) and CR (Current Reality)

Check out this sample DFS Template here.

With DFS, think in terms of periods in the future.

As I write this, behind me is a whiteboard. It's full of DFS ideas for Aux Insights, my private equity consulting company. I like to do 10 years, 3 years, 1 year and 3 months. I go from least specific to most specific. My whiteboard shows the desired revenue and profit, how many customers we'll have, how many employees, what type of customers, what's our org chart, what our office will look like, how we're helping people and our community, etc.

HAVE FUN, dream and enjoy this part. It's your chance to dream up and build your vision. Most entrepreneurs LOVE this part.

Then take a beat and a cold shower. Stare seriously at yourself in the mirror. It's time to do the scariest thing for most entrepreneurs: confront your CURRENT reality. No entrepreneurial optimism. No spin. Just facts and reality. See it as clearly as possible.

Once complete, move on to the 2nd component:

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

Component 2:
Goals

Now that you have a clear head of what exists today and an exciting 1 year DFS, your goals will act as a stepping stone that will get you from today to next year.

What do you need to accomplish specifically to go from today to the future you desire? Nailing these goals is critical because they are the crux of your plan.

I typically like to do bigger annual goals, then break them down into quarterly goals and REALLY zoom in on the next quarter. There should be specific numbers, broken down into specific ideas and tasks. The goals will be owned by individuals on your team, so they need clarity. They will also flow into the resourcing and costs you develop.

A. Use goals as "waypoints."

This is a sailing metaphor. When someone sails, they don't go in a straight line. Instead they sail to a specific location based on conditions. Once they get to one location, they chart out their next path. Waypoints are meant to reflect the non-linear path of building a startup.

There are a few unique approaches I take here:

1. Goals as "state" based vs "time" based. Let's say you get your conversion rate to 5% and your CAC drops to first order profitability. That goal matters whether it happens in 2 months or 4 months. And if you don't honor that, you will scale too fast/unsustainably. It will be like a cheat code in a video game. Sure you jump to level 3, but you immediately lose because you skipped the learning in level 1 and 2.

2. Goals as "doubts" you want to address. CAN you achieve a 60% lead-to-meeting booking rate? What will it take?

3. Goals as "hypotheses'' you want to validate. Maybe you have a hunch that TikTok is a good channel. Is it true? What numbers would make it true?

4. Goals as "learning leverage" Closing ONE big enterprise customer will teach us a lot.

Notice all my goal approaches focus on acknowledging how uncertain a startup is and therefore focus on maximizing LEARNING.

Most leaders do the opposite. At the end of the year, they look at the (overly optimistic) goals they didn't hit and say,

"We did not hit this goal. We are broken. We are wrong."

They tell themselves they should have reached their goals and they go "below the line," as we say in Conscious Leadership. Which means they get scared. They get threatened. They think they're not good enough. Creating an environment of learning and continuous improvement creates sustainable success and is exciting/empowering.

B. Connect your goals all the way to specific tasks.

This is what it looks like:

A couple of examples:

One important thing to remember is that the only thing you actually control is the work that gets done. The "output" metrics are a function of that work, and a leading indicator of achieving your goal.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

Component 3:
ICE

ICE refers to a prioritization framework that looks at Impact, Confidence, and Ease when evaluating potential initiatives.

Impact considers how much a given initiative could move the needle in terms of key business metrics.

Confidence evaluates the likelihood that the initiative will achieve the intended outcome, based on factors like whether similar approaches have worked before.

Ease assesses the level of resources and effort required to execute on the initiative.

Rate each potential initiative on a scale of 1 to 10, where 10 means the initiative has the most impact, or you have the most confidence in being able to execute it, or it's easy for your team to pull off.

Together, these three factors provide a systematic way to prioritize projects and allocate resources to the efforts that are most likely to drive significant business results without overextending current capabilities. Applying the ICE framework forces leaders to confront tradeoffs and make decisions that optimize return on investment.

As an example:

At Aux, a private equity fund showed us its portfolio company's web funnel. We advised them to work on their landing page's conversion rate. Why? A small increase in conversion will lead to outsized revenue growth. So it has a big Impact, the first component of ICE. What about Confidence? Well, I haven't seen a business yet that couldn't benefit from explaining its offering clearer, so the Confidence rating was high. As for Ease, changing landing pages is a design issue, not a technical challenge. So we felt confident it would be easy.

Impact - How much could this move the needle?

Are you looking at incremental gains? Or step functions?

Confidence - How likely are you to achieve it?

Has it worked before? Has something similar worked before?

Ease - How resource heavy is the input?

Are you going to do some light media work? Or taking on a big engineering project.

Here’s an ICE template you can copy and use yourself!

With your goals in hand, you're ready to do financial planning.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

Component 4:
Financial Plan and Projection

This is a detailed forward looking "forecast" for your business. It includes revenue drivers, cost buckets all the way to free cash flow. I use 30/60/90 to indicate my confidence level that each plan can be achieved.

I like to break it down a few ways:

1) Plan - 30% Possibility:

This is your 'stretch' and ties to your DFS. I like to communicate this to the team as what we want to achieve. We'll prioritize and allocate resources to accomplish this ambitious, but doable, plan.

2) Projection - 60% Possibility:

All businesses have risks. Nothing ever goes to plan. This is the case where you take off your ambitious entrepreneur hat and put on your investor/gambler hat. What do you THINK will happen actually? Where is the plan weak? What can go wrong? Assume some stuff does.

3) Just Coast - 90% Possibility:

Sometimes, I start here for fun. What if I don't put any effort in? Don't invest in the business? Have all our new initiatives fail? This is where I land.

Keep in mind, you will tweak these as you adjust items 1, 2 and 3. Where this starts vs where it ends is usually VERY different. Use my template for my SaaS biz as an example.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

Component 5:
Investment Decision

Last but not least, what money do you want to spend? You have a plan, and now it’s time to decide how much money you want to invest in making each initiative happen.

I made this helpful Company Bets Guide so you can quickly reference your business and ask simple questions, like, "Where do I want to double down?" "Where do I want to keep it the same?" "What do I want to cut?" "Which hires do I make and when?" and "What should I spend on and when?”

As you do 1-3, certain resourcing gaps become clear, some needed investments become obvious, etc. this is where you hit on those investments and resources.

Here's a Hiring Plan you can copy and use yourself!

Whew! That may feel like a lot but I would encourage you to move quickly on "first drafts" for each of these. Try to do each of these items in less than half a day. (Or 1 hour each). That level of guidance will help make the process WAY easier for everyone, including you.

So after you have the drafts, what happens? Usually for me as soon as I've done all 5, I start adjusting all of them. They each interact with each other.

Some examples:

1. Each of my goals require 3 new headcount. When I roll that up to a financial plan, the margins look lower than I want. This forces me to prioritize and pick only 2 goals instead of 3.

2. Looking at my financial plan, I realize if I lose a certain person, a major metric is at risk. So I think about hiring a second person there.

One quick "mental" framework I think about with planning is usually you only get to pick 2 out of 3 for Time, Money and Risk. So if you want to hit a big goal in 2024, if you want to minimize risk and deliver it in a certain time period, you will have to spend $. If you want to minimize money and deliver on time, you'll have more risk.

So now that we've talked about the content of planning, what is the actual timeline and process?

Here's a helpful Calendar Guide. I would suggest 3-4 weeks. I prefer starting around now and ending early Jan. Depending on your team size and stakeholders, you may need more or less time. I'll get into this more below.

The calendar guide goes pretty deep but I'll highlight the most important parts of the planning process:

1) Alignment - if you walk into your team and ask them where the company should be next year, it's usually extremely unproductive. It invites lots of opinions, politics and half baked perspectives. Meetings drag on, energy dies. DO NOT DO THIS.

The CEO’s job is the WHAT. The team focuses on the HOW.

Instead, this is how you run the meeting. Once you've iterated all 4 components above, present each component (probably separately or consecutively) and run this exercise:

(Work your way through each person from lowest to highest). Use a white board or google doc.

By the time you've done this (should be under an hour), you should both have a clearer DFS AND the team aligned to it.

Repeat this for goals, financial plan and resourcing.

2) Calibration - the cousin of alignment. As you share this out (depending on your company size) there are various teammates who will be owning the number. Say new sales, or marketing leads. It’s important for them to understand the metric and build a "bottom up" plan to hit the number. Oftentimes, a CEO/co-founder has their number but the VP of Sales or Marketing has a different number. The planning process is a great opportunity to understand the differences and align on a single number going forward. Using an offsite where the plan is 80% baked and then you get a lot of feedback from the team is a great approach. This back and forth is normal and productive for both CEO and VP to learn. Here’s an Offsite Agenda you can copy and use yourself!

Great! Now you've got the plan, everyone is calibrated and aligned. Now go off and get to work! A couple pro-tips to really make this work:

1) I like to have an exciting kick off at the beginning of the year. Review the plan with everyone, highlight who owns what, make it rah rah!!

2) If you make this plan and only look at it monthly or quarterly, that's a BIG mistake. Integrate it into the daily or weekly cadence of the business, I even like to align the teams and orgs around the metrics they are driving in the plan. The company should eat/breathe/sleep this.

3) Have regular "accounting" meetings - I like 2 week sprints where we review how we're tracking on goals + monthly PnL/financial reviews where we look at variance, where we sit relative to plan/projection and what we can learn/change.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.

WOW that was a lot… I didn't expect this to be so long and detailed, but I hope it’s of service. Last but not least, some important disclaimers:

1) ONE SIZE DOES NOT FIT ALL - This is probably what we'll do for GrowthAssistant. It's about 40 people, 8 figures in revenue and growing fast with a massive opportunity. It likely isn't yet appropriate for Aux or Unbloat. But we will do versions of it. Figure out the right depth that suits your situation, get more rigorous as you go. It’s OK to cut corners in the right way. It’s important to timebox this exercise, make decisions and converge/get to work.

2) GOALS MEAN DIFFERENT THINGS TO DIFFERENT PEOPLE - every time I've done this, especially with newer teams, I realize EVERYONE believes different things about goals. There is: "set realistic goals and hit them or die"... there is: "set stretch goals and do your best and it’s ok if you miss"… There is "set modest goals but beat them every time." There isn't a right or wrong here, figure out what you like and communicate that expectation to stakeholders and use it consistently.

3) LEARNING > BEING RIGHT - oftentimes with goals, plans and metrics, we founders want to be RIGHT. We want to hit the target. Our teams then take this on. Pretty soon: being right or hitting our target no matter what becomes MORE important than learning, adjusting and improving. I think this can work in the short term but it fails in the long run. Oftentimes, I'll tell founders: "I never set nominal targets" (e.g., $50 CPA), I only set moving targets (e.g., reduce CPA 3% per month). Perpetual targets, constant improvement comes from a learning and growth mindset. From what I've seen, draconian target/goal setting IS NOT effective to getting that orientation. So use these systems as tools to learn. A simple question I ask when we miss a goal: What can we learn from this?

4) ANY SYSTEM WORKS - Traction/EOS, OKRs, GIST and any other planning system: I like them all and they are all great. Like software or any system, whatever you will use is the best system. The real goal here is to have the right conversations, create accountability and learning throughout your organization.

5) FUNDED vs BOOTSTRAPPED - When you're running a venture funded company, you take money from people who expect a big exit. So every year you have to set a big goal, and back into figuring out how the hell you're going to hit that goal. If you don't hit it, you are a failure because you won't be able to raise your next round. At GrowthAssistant, Adriane and I are the only owners. We don't play that game. We set challenging but achievable goals focused on perpetual growth rather than hoping for short-term 10X home runs. So when we study the results of this annual exercise, instead of penalizing ourselves for misses, we analyze and improve.

Well, as promised, this was dense and meaty. I hope it was of value!

Jesse

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What questions do you have about planning, reply here and ask and I'll publish the answers for everyone!

Here's a link to the Annual Planning Resource Center where all the templates I talked about above are stored.

Want more guidance? Next week, I'm hosting a 2 hour workshop on this for only $199.