Summary: The planning horizon for a startup venture changes during the first few years of formation. Early in the life of a company, strategic planning and operational plans may only be relevant on a scale of months. Later, the horizon will expand out to years, as the business model solidifies and reduced uncertainty allows longer term planning. Company leadership must understand this evolving planning horizon and adjust the methods of planning, plan deployment and plan review.
Over the last couple years I’ve struggled with how to visualize the path that a startup company takes from early inception to some point 3-5 years later when they have become a successful, sustainable, and stable (but still rapidly growing) organization. It’s clear that the early organizing processes of a startup where long-range planning could be completing a lean experiment during customer discovery are not a substitute for the five year strategic plan. And the opposite is true, that a five year strategic plan with annual operational, financial and marketing plans are going to be a waste of time for a company in the search phase of development and struggling to complete customer validation.
What does the path that business planning takes from an early stage of formation to ongoing stability look like? I’ve concluded that it looks a lot like a tornado, in every aspect of the word. The tornado follows a path that randomly wanders, leaving destruction along the way; its a funnel with tight quick turns at the startup that grow in to larger iterative loops higher up; it is debris filled with baggage from early decisions that is carried to later stages, sometimes to be flung out in bewildering abandon. The planning tornado of a startup has three main sections:
- Phase 1 or the Lean Base – On the ground, the early narrow, tightly turning, section that is moving quickly across the market landscape in search of an anchor – some traction,
- Phase 2 or the Scaling Middle – The middle section is where rapid scaling and sales lift send everything up faster than anyone can fathom or keep up with, and
- Phase 3 or the Stabilizing Top – A later stage we all hope for where the funnel opens up and slows down with more purposeful movement.
The startup tornado came from looking at the diverging boundaries of the short term planning cycles of day to day and later annual planning; and, the long term planning of monthly review to eventually a five year long range strategic plan. Here is what it looks like, with the left vertical axis being the planning horizon in years, and the bottom horizontal axis being the length of life of the company, in years. Notice the three sections of each line reflecting the base, middle and top sections of the tornado funnel. If you are familiar with “S” curves, yes, this is probably a model that shares many characteristics of the business “S” curve.
Application – The three stages of this tornado can be used to design the planning process to achieve three goals. The early stage planning focuses on the “search” for customers and validation of key assumptions of the business model – finding some market traction. The second stage planning focus is on scaling the business during customer development while managing the rapidly changing working capital requirements. The third strange of planning focuses on stabilizing the company for ongoing growth (still growing rapidly) and investment.
Tools – The tools that could be used in each phase correspond to the application goals above.
|Short Term Operational Planning||Long Range Strategic Planning|
|Phase 1 - Early Formation||Weekly Review - Business Model Canvas - Hypothesis and lean experiment planning.||Monthly Review - Cash management. Investment Business Plan.|
|Phase 2 - Scaling||Monthly Review - Customer Development Testing, Production Capacity Plans, Vendor management. Recruiting Plans||Quarterly Review - 1-2 year working capital and financing plans. Product life cycle plans. Organizational culture and HR management.|
|Phase 3 - Stablizing||Quarterly Review - Annual Operation, Finance, Marketing and Org Plans.||Annual Review - 3-5 Year Strategic Plans.|
Question – What has been your experience with planning processes in a new company? Have you see this “tornado” in your companies?
April 20, 2018