Commercial planning survival guide: Part 2 - Unrealistic plan, thx finance
Commercial planning survival guide: Part 2 - Unrealistic plan, thx finance
Here's what to do to not get screwed by the financial plan
It’s August, so that means it’s planning season.
And in honor of that, I’m running a 3-part series on the pains of planning, and how to make it better.
Make sure you’re subscribed to not miss the series:
Part 2: Penetration test your plan (this post)
Let’s face it, no one looks forward to planning season.
I don’t think anyone actually enjoys the process.
Sometimes it just feels a little bit useless.
We created a massive plan last year and we definitely did not end up hitting that plan.
So why even expand the effort to do it in the first place?
Despite it feeling useless, we can’t avoid planning… because we kinda still need it.
And the reason we do is simple: while plans will never hit like we think they will, it’s still the best we can do to guide us in the right direction.
Because we need direction. Budgets need to be allocated. Targets need to be set.
But by the time we get our top-down plan, that’s where the problems really start:
We’re constantly setting unrealistic targets
We’re always arguing on the best resource allocation
And we’re constantly discovering impossible assumptions
So it’s no wonder it’s such a headache for most of us.
Where Finance comes in
I say this with all the love to my FP&A folks… but Finance doesn’t understand the GTM.
And, in all fairness, why would they? They’re not in the trenches like RevOps or the GTM leaders. We can’t expect them to understand all the ins and outs. Just like we don’t even need to pretend we know any of the details of finance.
And while finance doesn't get the GTM, they still create a plan that in 99% of the cases, we need to at least take as an anchor for all following discussions.
Let’s first understand how finance actually does it.
In a nutshell, Finance works like this.
They get an ARR target from the Board/CEO (or the CFO just recommends one…)
How do they figure out what number to shoot for? There’s a whole other science to it that Dave Kellog explains very well.
From there, they calculate what the financials need to look like to reach that number.
Think month-over-month Revenue growth, expenses across sales, marketing, product, etc., and finally, getting a grasp of cash burn and cash balance.
Some good finance teams go so far as to break those numbers further down into pipeline, opps, leads and so forth.
Where the chain really falls off though is that finance struggles to connect the cash they have to invest with what needs to happen to generate that pipeline, to create those opps to attract those leads.
So what ends up happening is that it all becomes a budgeting, not a planning, exercise.
That means you get what Dave Kellog calls a “buckets of money” problem.
Instead of analyzing what’s working in the funnel (that we can scale) and what’s not (that we can cut), we end up with piles of money and ask what we can invest in.
At best, it’s an inefficient way to look at your GTM. But I think it’s really an outdated method in an already ever-changing landscape.
But like I explained last week, there’s a reason that finance works the way they do. It’s up to us as RevOps/CRO to wade through their work and connect it back to the realities of our engine (aka bottom-up planning).
And the best way to do that? Steal something from Product of course….
Penetration test your financial plan
In Product, penetration testing is the process of simulating a cyberattack on your system, network, or app. The goal is to discover weak points before they’re discovered by real attackers and address the issues before they can be used maliciously.
Essentially, it’s about fixing problems before they have the chance of happening.
That’s exactly how you as a CRO/RevOps should look at commercial planning.
But instead of testing for weaknesses from hackers, you test your revenue engine against the initial top-down plan to see if it’s even viable the way it is.
Only then can you start to reverse engineer your funnel to meet that growth goal.
So what would that look like?
Is our growth projection achievable?
This is the simplest test of your top-down plan, and probably the first thing you should consider.
It’s not a hard science, and there are plenty of outliers that kind of prove the rule.
BUT, in general, your growth rate will always decline.
If you grew 150% last year, you will very likely only grow 125% this year.
If you see a plan that shows you grew 120% last year, and now they want to grow 160% there is probably something off.
Unless there is a hyper-clear explanation as to why that is, this will be the first failed test.
Is the CAC Payback reasonable?
Once you know the growth rate. Ask about the CAC Payback expectations.
The same logic applies here as well.
Big jumps from one year to the next is a failed test.
Yes, teams are able to move the needle here, but changes are usually gradual in nature and take a long time to materialize.
Unless of course, there is a big change that drives that. And that would need to be clearly understood by you and the team - as you are clearly going to be asked to execute it.
Test your budget to your revenue model
Now that you have a grasp of your desired growth rate and the rough money you have to spend on it.
There are essentially 2 aspects you should test next:
Pipeline creation
Capacity
Between those two, pipeline creation is probably the more hairy problem to solve.
While finance might think about pipeline as a monolith being created. You know that’s not the case.
Inbound vs. outbound, demos vs. webinars, US vs EMEA. And the list goes on.
All of them behave differently, generate pipeline in different ways and with different costs associated.
So really what you’ll need to do is to go through all your pipeline sources, see where you can scale things up and then move those dials in your plan until you hit the desired ARR number.
And then you need to make sure that you have enough capacity across the funnel to work through all of this.
Enough AEs to handle those deals, enough CSM to onboard those customers. Etc.
If you get this wrong and you have too much capacity, meaning too many reps.
You’ll not only spend too much money but you’ll also create an unhappy team.
They won't be able to hit targets and this will create even more bad vibes in the team.
Same with CSMs - but rarely do people hire too many of them.
Mostly it’s that you plan for too few CSMs. This might lead to grumpy customers or much more likely missed out upsell potential.
And then - and this is an evergreen miss - people forget to account for attrition.
Think about your best AE leaving. How long will it take you to fully replace her? With ramp and everything probably a year. So how will you really manage those capacity fluctuations?
Better to have a plan already now. By the way, we do this super easy at Growblocks.
Seeing and Closing the Gap.
But, I am sad to say, while the above seems like a lot of work - this was only the easy part.
The difficult piece now is to attach costs to all of the above.
Because right now you only know who you can hit the ARR number.
You don’t know how to do that under the CAC restrictions the CFO gave you.
That’s where the penetration test hits hard.
Because what you’ll discover is that you can only get to your ARR numbers by spending too much money.
How should you best close that gap?
Let me reserve this topic for my next letter. Make sure to hit subscribe if you don’t want to miss it.
On the podcast this week
