April 2025
Having done long-term (12 to 36 months) and short-term planning (3 to 6 months) for different businesses, I wanted to share a series of articles on what can be done better in planning. In this article I will focus on just long-term planning. I will try to set enough context – who are the people involved and why do they behave the way they do. I will sprinkle some humor to keep you entertained.
| Monthly Plan | Quarterly Plan | Annual Plan | |
|---|---|---|---|
| Intent | · Drive specific action to deliver the quarter (financial and product launch) | · Ensure the business is on right trajectory for the year | · Reshape the business · Balance short- and long-term needs |
| Time to impact | · 1 – 2 weeks | · 1 to 3 months | · 1 to 3 years |
Meet the C-Suite Cast
CEO: Always ready to redefine the company’s mission—whether it’s from “value” to “growth” or “growth” to “hypergrowth.”
CFO: Keeps an eye on the balance sheet while trying not to break into a cold sweat when the CEO mentions “aggressive growth.”
CRO: Wants ambitious goals but are terrified of their team getting burnt out. Think of them as the kid who wants a rollercoaster ride but insists on wearing a helmet and knee pads.
CPO: Dreams up products that sound like they belong to a sci-fi movie (e.g., self-stirring coffee mug that plays motivational speeches to up your morning game)
CMO: Dreams bigger than their budget. “Why have one brand when you can have twenty?” they exclaim, while everyone else wonders if they’ll need a second marketing team just for logo design!
Replicate this cast for each of the business segment a company has (i.e., a group president, a group CFO, etc.). Now you have a battalion churning away with Excel and PowerPoint to develop an annual plan.
Prelude to Planning: The Opening Act
It’s kicked off by a corporate finance team in quarters 3 or 4 of the current fiscal year so you have plans ready before the next fiscal year begins. They define schedules and templates like they’re organizing a three-ring circus—complete with juggling acts and tightrope walkers. Sometimes it feels like they are herding cats!
Performance: The Balancing Act
You essential need to answer two critical questions in your annual plan:
- If your operating expenses remain unchanged next year, how much can your revenue and margin grow?
- In other words, can you grow a garden without watering it? Spoiler alert: You can but it requires specific plant choices and maximizing natural moisture!
- Now, add an extra $5M or $10M or $50M OPEX—how does your revenue and margin change?
- This is akin to saying, “Here’s some extra fertilizer; now grow me a beanstalk!”
To answer the first question (1), one needs to estimate what your baseline performance is in the current year. However, in the corporate world, this is a very difficult question to answer. In part due to how accounting is set up, recent or frequent re-organizations, and one-time events (e.g., ship stuck in Suez) that hit the business in the current year. Hence, we embark on creating what baseline performance is in the current year.
To get a better view of revenue and gross margin, there are two key things to understand:
- Where does your business/category stand in both macro and micro cycle? Is your category in a secular decline (macro)? OR is your category flat but experiencing small ebb/trough this year?
- What factors have contributed to your margin improvement this year? Can they be replicated (most of the time it’s no)? Your suppliers (cloud providers) are not always going to pass through efficiency.
Now that you have a reasonable estimate of your baseline performance of the current year, the better question to ask is how I can improve it next year.
- How can I improve my product market fit?
- Am I in the right sub-categories? i.e., are there sub-categories that your need to supercharge or just kill? For example, within security software, I should focus on endpoint protection and exit identity management.
- Am I in the right market segments? (Enterprise vs SMB vs Public Sector)
- How can I change my sub-category or market mix? How can I redirect spending (sales and marketing) accordingly?
For the second question (2), business owner must come up with a groundbreaking idea or an “initiative” – a true game-changer! But often, what we see are either “me too” products or ideas so far-fetched they belong in a sci-fi movie. Successful leaders test ideas like they’re auditioning for “America’s Got Talent”—iterate, gain traction, and then wow management with their best act! This is easier said than done. In some cases, the testing and iterating are going to be multiple years – especially if it is shifting the business model (transactional to subscription) or entering new category (hardware to software, or launching AirPods)
Below are some key questions to answer:
- What insights drove you to this breakthrough idea? This should be a mix of data led insights and creative ideas observing real customers
- What have you tested with customer that is building your conviction?
- What is your “game” plan for this year? (e.g., build prototypes, launch in a new city)
- What is your “grand” plan for upcoming years? (who doesn’t like a hockey stick)
- What support do you need from other teams? (e.g., engineering, design, marketing)
The Process Itself
The planning process can feel like being given a last-minute assignment due tomorrow. You get 4-5 days’ notice for presentations that require groundbreaking thinking. More importantly, you don’t understand the “template” and don’t know how to fill it (e.g., is dependency a risk? What is “major” about major milestones).
The best way to prepare for this is to make this an all year exercise instead of letting the schedules dictate you preparation. Good leaders have brainstorming sessions and hackathons within the business groups (think PMs and engineering teams) at least once a quarter to solicit ideas. They also exhibit a good understanding of cross-functional needs; growing in a vertical (e.g., healthcare) is going to require investment from marketing and sales teams.
Typical Outcomes
Here are some classic outcomes from annual planning:
- The CEO realizes their growth plans are about as robust as wet tissue paper.
- The CFO concludes that cutting OPEX is like finding hidden treasure.
- The CRO hesitantly deploys quotas while worrying about attrition—like sending kids off to camp.
- Mid-management feels like they’ve been asked to build a rocket ship with no funding.
So, what can be done to avoid the typical outcomes and improve the planning process:
- CFO should lead some form of zero-based budgeting to get a decent picture of the business segment’s P&L. Allocation methodology should be well laid out and should be revisited every couple of years at least. This allows the rest of the leadership to make informed decisions.
- A group president should keep the ideation pipeline brimming throughout the year. Not trying to cram them in the last few months. PMs and engineering teams bring up ideas in quarterly reviews and prime the executive audience.
- CRO should evaluate bandwidth to enter new markets or verticals. Sometimes it is better to have the business development team sit within the business group to test/iterate vs throwing seasoned salespeople at a new product
- CMO should engage much earlier in the growth plan definition. Pressure test offering based on existing user insights.
- Middle management should build networks within the company and see cross-functional collaboration as a strength vs time sink.
- All of them should look for efficiencies. Is there a better way to do things that would reduce the cost profile?
- More importantly, sharing (information) is caring (for your company). Too often teams take a silo-ed approach
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