How to write an annual plan for growth
Let’s see if you recognise this. It’s time to produce your annual plan. As CEO, you look back at the previous year’s revenue and costs. Your Finance Director produces an Excel spreadsheet. The costs from the previous year are run forwards. Projected revenue for the annual plan is increased by a few percentage points but the costs are kept the same. So the resulting plan is to grow the business incrementally from the year before for a little less cost. Sound familiar?
It’s the same in every business I’ve ever worked. The annual plan’s produced by referring back to the previous year. Departmental breakdowns follow. There’s the usual hammering of Marketing as their spend is discretionary and easy to cut. And the arguing over sales figures. Death by PowerPoint looms as each of the directors gets up to talk in excruciating detail about why their numbers are as they are. A bunfight results as revenue and costs are allocated until the spreadsheet is finally balanced. The annual plan is then shelved and no one looks at it until the following year.
If you’re nodding your head in recognition at this description of annual planning, then I’m here to tell you there’s a better way. A far, far better way.
What is an annual plan?
There’s often confusion when I first start discussing annual planning with clients. I ask them if they have a strategy and they tell me confidently that they have. When I ask to see it, they wheel out an Excel spreadsheet very similar to the one I’ve just described.
There’s a big difference between an annual plan and a strategy. The annual plan is the final piece of a much broader jigsaw and without this context, it’s not worth the paper it’s written on. It should contain all the activity for the next 12 months, clearly laid out with quarterly themes and priorities that will take the business to a certain point in a much larger picture.
Linear versus exponential thinking
In my blog a couple of weeks’ ago, I explained how humans naturally default to a linear way of thinking. And we’re self-referential when we do. Decisions are based on our own experience of the world. Even when the world is full of examples of exponential thinking, we tend to look backwards and plan based on what we’ve achieved before.
Don’t limit your ambitions like this! With the right approach and careful planning, it’s perfectly possible to launch your business on an ambitious, exponential growth curve. Equally, if you want to continue bumbling along with your linear graph then do. But don’t ask for my help any time soon!
Preparation for annual planning
There are a few things to do before you start your annual planning process. Firstly, make sure you have an A-Team. Sounds simple right? But this is fundamental. The best plan in the world isn’t going anywhere if you don’t have the right people on the bus. This may mean making some difficult decisions or confronting a situation that you’ve tolerated for quite a while. But it’s important. If you want to be a remarkable business that leaves a dent in the universe, you’re going to have to do something different. And if your executive team aren’t up to scratch, there’s no point going any further.
Now, get your A-Team to organise a post-mortem of the last year in the form of Stop/Start/Continue. Front-line staff and managers should be involved too. What went well? What didn’t? What did you say you were going to do but didn’t achieve? Get all the brutal facts on the table. Ask everyone, if there was one thing that could make a significant difference to your customers, what would it be? Consolidate this and use it to inform your annual plan going forwards.
Instead of doing a SWOT do a SWT (Strengths, Weaknesses, Trends). Root out the trends that are driving your business and get a good handle on what your competitors are doing. The information gathered from the SWT and Stop/Start/Continue can be used to inform your planning. Get all this out of the way first so that, when you come to writing your annual plan, you’ve dealt with any arguments or differences of opinion.
How do you write an annual plan?
There are several major components to yearly planning that need to be ironed out and can feed into an annual plan:
– Set aside two days
The annual planning process needs sufficient time and I always suggest clients block out two days, ideally off-site, to crack it. The agenda is roughly as follows:
The aim is for every person to leave the two days with a clear idea of their focus for the next 90 days.
– Clarity on BHAG (mission) and purpose
First and foremost, you need a clear idea of where you’re heading in the longer term. This alone will set your sights much higher, bringing your nose up to the possibility of exponential growth. Instead of looking at what you did last year, you should work back from where you want to be in three years. And that three years is part of the plan to achieve your BHAG in 15 years.
Your BHAG is out there in the distance – up, up and away on the horizon. It’s not a linear process to get there. Let your imagination loose and feel the excitement.
– Produce a ‘Culture Canvas’
Having created or reaffirmed your BHAG and purpose, hone your core values, beliefs and behaviours. The elements of your culture that are unique to you. I suggest a Culture Canvas to my clients to pull all this together into one place. It clarifies how you’re going to show up in your workplace. And how your culture will look to people.
Review the actions you’re going to live by. As an executive team, how are you going to make this real in your organisation? How will you encourage psychological safety, what rules will you bring in, how will you run meetings, what rhythms will you commit to etc.
– Find your new term goal or 3HAG (3-year highly achievable goal)
From your longer-term BHAG, wind back to only three years from now. Is that the right horizon for your business? It can be a bit arbitrary – it’s roughly where your business would be if it doubled ie you grew 20% year over year for 3 years. If you’re growing faster than that, your near term point may need to be closer than three years.
Where are you now? To get to your 3HAG, where do you need to be in 12 months? Then you can start building your annual plan. What widgets do you need to sell? Who will you sell them to? How much will you sell them for? This isn’t a ‘speadsheet forward’ calculation. To get to your annual planning goal, you may need to sell a product that you don’t yet have, to a customer you don’t yet serve, in a volume that today is zero. Your next year is likely to look completely different from the previous year.
– Drill down into the detail
The 3HAG process that I use has several tools that will help you drill down into the detail. The environmental map will give you a good picture of the playing field you’re on – customers, competitors, routes to market, influences on buying decisions etc. You can bring in the SWT info that you gathered from the post-mortem here. Spend some time working out your core customer – the specific customer that will get you from where you are now to your 3HAG. This may not be instantly recognisable from your main customers today. It’s about the core customer who will give you the most growth because they’ll buy from you at maximum profit.
Then attribution mapping will give you clarity on how you’re going to show up and compete. You’re looking for the elusive ‘white space’ that will give you a market advantage. As part of the process, you work out the activities that underpin each of the attributes. Maybe you can draw up some brand promises with guarantees too. Then the outcomes from the Activity Fit Map go into swimlanes for the next 36 months. You can work back to a horizon of a year and, eventually, the next 90 days. Seamless and so satisfying!
– Plan execution
At the end of the 3HAG process, you’ll have three to five overall differentiated priorities for the next three years. These will then break down into three to five priorities for the next year and 90 days. It’s as important to understand what you’re not going to do here as what you are. Plan the theme, objectives and priorities for the next quarter. Work out what each member of the Executive team is going to do and ultimately, every employee. All that’s left is for this to be communicated and progress to be tracked. Your annual plan is complete!
– Get alignment in your Executive Team
The final part of the annual planning process is ensuring everyone’s onboard – your Executive Team must believe in your annual plan with full commitment to the approach you’re taking. This is so important that it’s the first of the Rockefeller Habits for successful scale-ups.