This is the time of year when we dive in and set expectations. However, it is unlikely that you’re going to hit your business goals. While you will definitely build a forecast for this year, most people won’t achieve it.
Here’s why: Because you don’t obsess about it.
When we set business objectives, we do it in a half-baked fashion. Frankly, most people don’t even like bothering with financial modeling in the first place. It’s another language to many so they just want to get it done as quickly as possible and move on. If you want to achieve your goals, you need to obsess about the process.
Here Is What That Looks Like:
Step 1: Assess the Environment
Your ability to perform is not just driven by your hard work. It is driven by your ability to adapt to the environment. To assess your environment, you can take a look at our “Assess the Environment” post.
Step 2: Approach Your Objectives Both Top-Down and Bottoms Up
Top down means that you are assessing your goals at a macro level. Bottoms up means that you are looking at customer by customer, pipeline target by pipeline target.
- Top Down: For us to hit our goals next year we need to close XX deals at an average selling price (ASP) of $YY and retain ZZ customers. We believe that given our market position and capabilities that this is reasonable relative to our competition
- Bottoms up: We have $XX million in our late stage pipeline and $YY million in our early stage pipeline. Here is where we are at with each of these accounts and here is our plan to close them.
Step 3: Create Accountability
Goals aren’t hit if people don’t own them. Each line item in the P&L should be associated with an owner (literally, write a name by each line item) Every revenue item and every expense item is driven by someone making a decision/taking an action. They should be accountable.
Step 4: Know Your Capital Expenditure and Expense Drivers So You Can Confidently Invest
There are key ratios, when analyzed over time, that are predictive of future expenses as your revenue scales. How does your headcount scale with revenue? How many sales and service people do you need to close more business? When you know your expense drivers, you can be more confident in your investments.
Step 5: Build Your Glanceable Dashboard
As business owners, we often struggle to know what altitude to dig into the details and often times we dig so deep that we miss what really matters. Create a very short list of predictive key performance indicators that you want to manage. It could be qualified sales leads, deals closed, contribution margin, revenue per employee or churn rate. Don’t get distracted with anything else.
Step 6: Get Your Books Closed Timely
If you are waiting 30 days for your books to close, then it’s too late. You need quicker information and data that is actionable. Make sure that you are getting rapid closes (even preliminary closing) of your numbers from your accounting team.
Step 7: Create a Highly Productive Meeting Structure to Maximize Impact
Achieving forecasts requires very proactive and functional communication among the executive team. How you structure your cadence and interaction will have a direct impact on outcome.
There are many reasons why companies won’t achieve their targets, some are controllable, and some are admittedly out of an owner’s control. But you must obsess. Looking ahead requires extreme focus on the critical few, while ignoring the trivial many. Are you willing to do less to achieve more this year?
