Build A Strategic Operating Plan

“The startup steering wheel”

Getting a startup off the ground is not for the faint of heart. Its hard enough to run around slogging for funding and trying to attract top talent. Developing a Strategic Operating Plan or sometimes called an Annual Operating Plan, will provide you and your team a Map. It will help not only align your entire organization, but better help you drive your company and set milestones you must achieve. The most dangerous thing I see in startups is flailing around. As my friend and co-founder of DataTribe and founder of Allegis Capital, Bob Ackerman says: “Don’t confuse motion with momentum”.

Think of an SOP as your steering wheel and CEO dashboard all in one. In the beginning, you may only have basic short-term goals and small departments (engineering, sales, administration), but with your Seed funding done and you set your sights on your series A round, things get incredibly complex fast. Putting a Strategic Operating Plan in place is one of the most important things you can do to give your startup the best chance to run efficiently and reach the milestones you will need for your next round of funding. It doesn’t stop there. You will be required to have an SOP by your Board Members and this is how they will evaluate you and the company’s performance. The SOP will be presented to your Board usually around November or early December. A good Board of Directors will provide you extensive feedback, recommendations and adjustments to your budget and plan. Once the final SOP is approved by the Board, this is how you will be measured each quarter on performance against “plan”. It’s a Map to see where you are on your journey towards success at every turn.

Your Map

Start-ups aren’t as random and chaotic as everyone seems to think. I have learned a lot over the past 15 years building, investing, starting and advising startups. The one glaring truth I have seen is that they start, progress, and end in predictable ways. Within the minutia, of course, the unexpected happens all the time: a customer writes a check out of nowhere, a founder leaves or funding sources just walk away. If you view things over time, however, you will notice patterns that repeat from one startup to the next, from one year to the next. There is a “Map” that can be built from viewing enough startups over 15 years. Understanding this map can mean the difference between reaching Valhalla or crashing and burning, between running out of cash before you reach “fundable” milestones or having every VC want to fund you with cash in the bank.

The following Strategic Operating Plan elements are built around the Map of repeatable patterns found in startups and designed to help you focus everyone on the “right” goals at the right time to maximize success. There is always too much to do and not enough time or money to do them. Focusing your team, your resources and your time on this Map will ensure you are “driving” the company in every waking hour, to hitting the milestones needed for the next round.

 

Basic Elements of a Strategic Operating Plan

  1. 12 Month Goals
  2. Company Dashboard
  3. Team Alignment
  4. Budget and Forecast
  5. Revenue & Cost Analysis
  6. Time Focus
  7. CEO Control Panel

How Your Strategic Plan Flows

 The below slide is meant to show how setting company goals and milestones, along with aligning the team to accomplish them, feeds into metrics tracking and your dashboard.

Screen Shot 2017-08-13 at 4.38.25 PM

 

12 Month Goals

 Start with where you want to ideally end up, but in early stage companies you need to have a Sniper’s focus and not try to boil the ocean. Set 3-4 goals max. If you try to establish 8 company goals, you are spreading your focus across too many areas with a small team. If you have $1.2M from your Seed round and you have 14 months of runway to close your A Series Round, then chart out the “Success Milestones” you must have at the end of 10 months (4 months to raise $$ for your Series A). It doen’t really matter what market segment you are in, there are certain “Success Milestones” that every VC looks for in order to back a startup in an A Round. The A round is where you put gas on the fire to scale growth, customers, revenue, etc. Setting your goals is critical. It’s the next destination on your Map. Establishing these goals or milestones help sharpen the focus of your entire organization and where you can measure weekly, bi-monthly and quarterly progress towards those goals. This allows you to make adjustments, add resources or move quickly to address the usual lagging behind areas.

Screen Shot 2017-08-13 at 5.23.15 PM

Company Dashboard

This should be your first slide (after agenda) in every board meeting for the life of your company going forward. It is the dashboard that tells everyone how you are doing on each of the critical goals and milestones you need to achieve.

Green – means you are ahead of plan or number.

Yellow – means close to hitting the goal, but not quite there.

Red – means something went wrong and far behind on this goal.

Screen Shot 2017-08-13 at 5.41.47 PM

 

 Team Alignment

Here is where everyone begins to row together and you can measure it. You do not set goals in a vacuum. A good CEO works with his team and asks them to set realistic goals based upon their knowledge and current assets. If they come back to you and say “no way can we make ½ of this with the current team”, well this is where you can decide to adjust your burn or take a little from some other area and hire more talent, outsource or reset your expectations. Once each manager or department leader has worked out the goals with you, this becomes their Map and their performance metrics to hit. Start from the most junior people and work your way up, not the other way around. Make sure everyone understands and believes in the goals set. Your job is to track, support, motivate and measure each departments progress.

Screen Shot 2017-08-13 at 9.22.35 PM

Budget and Forecast

 The real measuring stick for every CEO – performance again plan. Why is this so important? For a whole lot of reasons:

  1. Additional compensation and bonuses will be paid out IF you hit plan. You miss by a lot and bonuses go bye-bye.
  2. Investors and the Board grade the company by whether they hit, miss slightly, miss by a mile or out perform their Plan every year.
  3. You will lose lots of talent if you consistently miss your numbers (plan). Not many sales people stick around if they are not getting bonuses for performance.
  4. When you miss your numbers, your Burn is higher and Revenue is lower. Not a good combination when you’re trying to estimate funding needs.
  5. Something went wrong somewhere –or in a lot of places.

In your first year or two as a startup, your Board and investors understand that your building a company and attacking a market. Revenue projections are just that, projected guesses. The idea of setting a budget with your board is critical as it allows everyone to know what the goals are, milestones that need to be hit and the strategy based on the amount of capital you have. Learning how to establish a realistic budget first starts with how much money you have, then works backwards.

The worst and most common mistake I see in early stage companies is the overestimation of revenue. It’s great to be optimistic, but it usually takes twice as long to get paying customers and costs twice as much.

Screen Shot 2017-08-13 at 9.41.08 PMRevenue and Cost Analysis

 This is where the minutia lies. Analyzing what you are spending on and why. For the CEO and Board, this is where decisions and slight “tweaks” can be made as you examine where you are spending, what can be cut and what can you pour some additional dollars into.

Screen Shot 2017-08-13 at 9.46.34 PMTime Focus

 This might seem a bit arbitrary or unneeded, but thinking about and measuring how, why and where the leadership spends it’s time is critical. To show your Board and others what the leadership team will be focusing on is critical. Many technically oriented founders want to do what is comfortable and spend a lot of time with engineering and goofing around with the tech. Many business-minded founders love to get deep in the business process and metrics. You have to chart out a balance that addresses the goals and milestones that need to be hit. Setting a plan for your time allocation will help guide that every day. You can look at the end of the week and see if your on target or you got distracted and avoided the sales meetings.

Screen Shot 2017-08-13 at 9.55.04 PM

 CEO Control Panel

 I love data. It can be extremely helpful or it can choke you. Understanding what data and metrics you need to track is critical. There is information all over the map on metrics to track, what is important to which VC and what is “in style” or the newest fad in metric tracking. Don’t pay attention to it. Stay focused and start small. As an early stage company, you don’t need to have 15 metrics and get too fancy. As your company grows and the complexity increases along with manpower, then you can get more granular. The CEO Control Panel is a simple “knobs and dials” view that can help you see how far along you are in any quarter to missing or hitting your milestones. If your behind on product, focus your energy and possibly more burn on shoring up the issue. If your consistently way behind on revenue, dive in and try to figure out what the issue is. Is it the sales team, the product, the messaging, the price, competition, etc. Above all, keep it simple and visual.

Screen Shot 2017-08-14 at 7.59.32 AM

 

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