Non-Linear VC

Well, it’s that time of year; the end of the year that is. Time for holiday cheer, budgets and for a rare few, strategic planning. I say for a few because I’m frequently surprised at how little I hear from the VC community and VC-backed CEOs about strategic planning. When I do hear about planning, it is usually an entrepreneur or VC trying to explain to me why it is not necessary. The rationalizations go something like this:

Planning is for big companies.

Our space moves too fast to plan; if we define a strategy we’ll just have to change it in a couple of months.

We’re small, nimble and well-coordinated so we don’t need to plan.

Everyone in my company already knows what they should be working on.

Sorry to be Scroogy, but to those rationalizations I say hogwash! Go ask five of your employees to define the single most important thing the company needs to accomplish next year. Better yet, go ask your executive team; they should know, right? If you get more than one flavor of answer, you need a strategic plan.

Lets be honest, when you cut to the chase, the real reason entrepreneurs and VC’s object to planning is that it takes time, effort and concerted thought. Planning also implies goal setting and goal-setting implies there are objectives you can measure results against, and that implies accountability. Time, effort, concerted thought and accountability; who wants that hassle?

Planning doesn’t have to be complicated or burdensome. For me, planning is like creating a mental map.

Where am I, where am I going and how to I get there?

The process starts with an honest assessment of where you are. Unfortunately, in our reality-bound world, you don’t get to navigate from where you want to be; you can only navigate from where you are. When you are climbing a mountain, you don’t get to start 100 feet from the summit (that is unless you’ve driven to the top of Mt. Evans, in which case you are cheating in my opinion). Planning forces you to come to grips with where you are on a strategy map.

Planning also forces you to define your destination. If you can’t define where you are going, you are wandering aimlessly in the woods.  The rationalization that your space moves too fast to define the destination is not acceptable. At minimum, you should be able to create a directionally correct picture of the future that you are striving to create (ie. Our destination is to the west). The destination you articulate should be worthwhile and aspirational, yet realistic. Don’t worry if the destination changes in a future planning session; that is natural in an emerging market space. But the notion that the destination may change is a lame excuse for not planning at all.

Finally, planning forces you to create an execution path that closes the gap between where you are and where you want to be. If you can’t define the execution focus that will help you to close the gap between where you are and where you want to be, how can you expect your employees know how to close the gap? Tactically focused, execution oriented people you find in most companies need to know how to get from point A to point B in oder to be effective. It is your job to give them the map and show them how their job fits in.

Planning 101: Keep it simple

Planning doesn’t have to be complicated. To really boil it down, we can dispense with the “soft fuzzy stuff”; mission, vision, strategic intent, etc; although I’m a believer that those pieces of strategy have merit. For an emerging growth company, planning should be about two categories of issues:

1. The things that you can accomplish that will make you wildly successful and;
2. The things that you can do to yourself or that can happen to you that will kill your business if you do not prevent them from happening.

My Partners and I at Meritage call these the “Critical Issues”. There should be no more than five to seven of them. If you have ten or more critical issues, you probably don’t have the time, knowledge, resources or capital to execute your plan. Embedded in the critical issues is where you are, and where you need to go (point A and point B on a map). With those points in mind, the next step is to determine the route you are going to take.

For our companies, we like a set of three to five initiatives lined up against each of the critical issues. The initiatives provide tactical guidance regarding what you can to get from point A to B. Initiatives must be within your control; saying that your market must grow 50% next year is not an initiative. Initiatives must also not be prescriptive. “Sell better” is not an initiative, whereas “implement sales training program” clearly is.

Finally, now that you’ve defined the initiatives you are going to execute against, we have our companies establish measurements that define their success against the initiatives. Measurements must be, well, measurable. In other words, use numbers and dates; 10 enterprise customers by year-end, 8.5+ on customer satisfaction survey, version x.x of the product released by June 30, 2009 and on budget. Again, keep it simple; three to five measurements per critical issue is sufficient in our experience.

Putting critical issues, initiatives and measurements into a three column table gets your entire strategy map on one piece of paper. That is remarkable because it provides a simple communication tool to use with employees, Boards and shareholders. Some of our companies use the three columns as the first page of their Board reports and add a red-yellow-green light next to each critical issue to reflect the CEO’s overall assessment of progress against the critical issues. This format makes for an effective visual representative of progress.

This may sound old school, but its my experience that management teams that are honest about where they are, who know where they are going and are able to outline the key steps to get there perform better than management teams that can’t commit these things to paper. If you don’t have the vision to anticipate where you should be by the end of next year, shorten the time-frame; do quarterly or semi-annual planning.

Choosing not plan at all is a massive failure of leadership. So get your management team in a room and hash it out; you will all be better off for it and so will your company’s performance.