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Welcome to another 🔥 Hot Take Alert 🔥 where I opine on something that I feel very strongly about and try to make it a little bit better. I plan on doing these a few times a month. I don’t expect you to agree with all of them but please keep an open mind. Or don’t. It’s your subscription.

Past 🔥 Hot Take Alerts 🔥 have included:

• 🔥 Hot Take Alert #1: PRDs are the worst way to drive product progress

• 🔥 Hot Take Alert #2: Stop calling it Growth Hacking right now

• 🔥 Hot Take Alert #3: The world doesn't need any more 25 year old "startup coaches"

It’s Fall here in America. The birds are chirping, the leaves are changing, and people in the U.S. are busy carving faces into pumpkins. It’s also time for everyone’s least-favorite, professional rite of passage: the Annual Planning Process.

I’ve now done an Annual Planning Process (henceforth known as APP for short) at ~8 companies and helped several others with theirs. In total, I’ve probably witnessed or participated in the APP at 15 or so companies. It sucks. Every time. Employees hate it. Leaders hate it. Likely the board hates it. For most people it feels like a performative exercise that sucks up a lot of time with minimal results and an endless cycle of planning and re-planning.

In this post I’ll address:

• Why everyone hates annual planning

• What the best leaders do instead

• What you can do differently

Why everyone hates annual planning

Recently I posted a fun gif about annual planning on LinkedIn and here were some of the responses:

Yes, it is triggering. So many people feel like the APP is a lot of work that gets thrown out the window early the following year.

So if everyone hates them and feels like they’re largely a big waste of time then why do we still do them? I asked some of my peers to weigh in on annual planning and here is what they had to say.

Stephanie Bowker, co-founder of Ourspace and former VP of Marketing at Spendesk:

“I honestly don't think it's the right horizon for most companies. For early stage startups it's pointless to pour a bunch of time into mapping out a 12-month plan when you need to learn and pivot on a weekly/monthly basis.”

Yousuf Bhaijee, Growth advisor and former VP Growth at Eaze:

“Annual planning does more harm than good when low/medium conviction bets (ie Growth R&D) are baked into the financial plan as high conviction or bankable growth/revenue. 

Even when teams build in bets to their annual plan as a ‘risk adjusted expected value’ (eg 50% likelihood — so revenue = 50% x the potential impact) the number of these bets in the plan is so low that you have a lot of variability. The discounting becomes meaningless. Timelines also slip.”

Stephanie and Yousuf raise several interesting points here. The first is about the timeline and what I’ll call the conviction fallacy. When you’re early on in company building you have a lot of uncertainty which you chip away at by learning and iterating.

A longer-duration, annual plan can either fail to acknowledge this uncertainty OR acknowledge it so much that everything becomes a guessing game. When you fail to acknowledge the uncertainty teams get rewarded for promoting ideas with high conviction but then lock in ideas that have lower conviction.

If you then need to make changes as you learn this becomes even harder because you have to go back and admit that your annual plan was wrong or ask for changes in resources that were already committed to. It quickly becomes a hot mess.

This gets to Yousuf’s point about causing more harm than good. Let’s call this second fallacy the financial fallacy; compounded further when coupled with the conviction fallacy.

Companies get into serious trouble when they take a purely tops-down approach to producing a revenue target during annual planning and then try to back into the work that will get them there bottoms-up. They end up both overestimating the probability of success (most bets won’t pay off) and then baking them into their financial plan as a sure thing. 

There’s a third fallacy with annual planning; I call it the kitchen sink fallacy. This is summed up nicely by Andrew Silard, SVP Marketing at Grove Collaborative:

“[Annual planning is] often defined as ‘plan everything’ exercises when they should be used to enable the most important decisions (should we raise? hiring plan? marketing budget? resource allocation across teams given highest impact priorities?) and not force ranking those outputs up front is a huge mistake. That force ranking can help define the time scale and frequency…”

I have experienced the kitchen sink fallacy many times. It can come about due to a lack of opinionated company strategy (note: in a future post I’m going to cover this topic). Instead of prioritizing and stating where the company won’t focus its energy, you see leaders open up a company exercise to “figure out what we should do.”

The intentions are good—trying to create an inclusive, participatory and democratic process—but without guardrails in the form of company strategy it can waste an enormous amount of time.

I want to provide an example of my personal experience with fallacies in the annual planning process.

There are many things we did well at Patreon, but one year in particular we really messed up our annual plan due to the financial fallacy. We wanted to hit a particular year-over-year revenue growth target and were modeling the various levers we had to get there.

One of those levers was around pledge retention—the rate at which a particular patron’s pledge to a creator retained with that creator. The lever was a good one but the problem was that we made an assumption that we could easily pull it and we baked that assumption into our financial plan.

We had never actively worked on pledge retention, knew very little about the inputs that drove it, and therefore had a lot to learn. It ended up taking us a lot longer to understand and address some of those inputs and as a result we built an overly aggressive financial plan that didn’t account for our level of uncertainty in one of the core drivers.

So we’ve identified a few of the reasons people hate the APP and why they often get it wrong—the conviction fallacy, the financial fallacy and the kitchen sink fallacy. Now the question becomes: what do we do about it?

What the best leaders do instead

Everyone I spoke with advocated for some type of planning process, but one that acknowledges the fallacies above and serves to make the best use of everyone’s time.

Stephanie Bowker suggests that a bespoke planning process that takes into account stage of company is important; for example, a longer time horizon might be appropriate at a certain size:

“At scale, you need to think longer to anticipate and plan for impact which sits better with a 3-year vision and then H1 and H2 roadmaps.”

Brian Balfour, founder and CEO of Reforge, echoes this and reminds us that we shouldn’t force fit one type of process across all types of companies or initiatives:

“Horizon is customizable and I don't think people realize that. Stage of a company is one element. But [the] stage of an initiative [is another]. In a larger company like Reforge we have specific initiatives that are more mature, more clear, and we can do reasonable longer term planning against them. Some initiatives are less mature, doing 1 year of planning is a waste and [the] horizon might just be 1 quarter.”

I asked Brian and Stephanie why companies still do annual planning processes (if everyone hates them). They both view the process as a way to  re-align and communicate vs. an exercise for making hard and fast commitments.

Brian compares planning processes to the role that board meetings play:

“They are a forcing mechanism to step back, look at the bigger picture, realign and re-communicate in a synthesized way.  Which I think are valuable.  Similar to how the value of board meetings is in that vs. the actual discussion at the board meeting.”

And Stephanie emphasized their role in internal communication:

“I agree with Brian, particularly on the ‘re-communication in a synthesized way.’ Planning is really about internal communications which is ultimately necessary for effective team collaboration.”

This was a sentiment echoed by many people I spoke with and is reflective of my positive experiences with planning.

Once we’ve narrowed our planning process down to only the elements that fit our company strategy then we need to match the planning time horizon to both the company and the initiative.

An unproven, moonshot bet with a lot of uncertainty should have a vision and maybe a sequenced strategy but your goal should be about 3 months of a forward-looking plan designed for learning, building conviction and getting more clarity. And definitely don’t bake this moonshot into your financial forecast for the upcoming year. 

Barron Ernst, Head of Growth at Figure and fmr VP Product at Zenly, talks about goals in annual planning:

“In general, the goal of annual planning should not be ‘let's plan the year out perfectly.’ To me, it's still largely planning for Q1, but I treat it as a time for the team to do a look at their mandates (we use quarterly 1 pagers). If you are trying to plan the year in a waterfall fashion, you are wasting your time. Use the time for the team to make sure they are clear on objectives, to make sure that they are adapting to the changing environment if they haven't done it as well during a challenging year, and to make sure that you evaluate your operating processes and op mechs with a bit more focus since that's often a lot harder when you're going through the normal sprints that happen.”

My preferred approach to organizing your strategic initiatives during a planning process is to leverage an opportunity assessment. Marty Cagan of Silicon Valley Product Group talks about the importance of this for product teams. I’d extend to all teams as part of any good planning process.

🚨🚨 Template Alert! Template Alert! Template Alert! Template Alert!🚨🚨

Here’s the template I’ve used at my last several companies.

An often overlooked part of your planning process is getting feedback from the team as sort of an enhanced retrospective. Especially when you are focused on execution throughout the year you can take advantage of this “forcing mechanism” to collect and provide feedback. 

Barron Ernst:

“I also find it's generally a good time for the team to give feedback on what's working and what's not working with their team and structure and to use it as a time to change that. Not that these conversations aren't happening organically all the time, but usually there's more time set aside for proper reflection and I try to use it for the team to think a bit more deeply about how things are working when they are slightly removed from the day to day.”

One other common thread that every leader I spoke with emphasized was that an “annual planning process” isn’t the only time for both planning and reflection. If your planning process is a forcing mechanism for re-alignment and reflection—and you’re only doing that one time per year—you’re doing it wrong.

And this brings me to the final part of this take: what you should do!

What you can do differently

Before you kick down the door of the next executive meeting or march to the C-suite with torches and pitchforks, let's get one thing straight: I’m not advocating for no planning. I’m not even advocating for no annual planning.

What I’m advocating for is a change in your approach so that we reduce the throwaway work of the typical, performative planning process and move towards a world where we 1) balance our planning time spent based on our conviction in the initiative, 2) throw rigidity of process out the window and 3) bake it into the cake (where “it” is the idea that flexibility should be table stakes in any plan).

Balance

My first recommendation is to align your time spent planning with the conviction you have in the initiative. This will require a high level of intellectual honesty because no one likes to admit uncertainty.

For an unproven initiative with limited research it you should label it as such and a simple opportunity assessment will do. You’ll want to revisit this quarterly or as you learn new information. For an initiative with more proof points and a track record of execution you will be able to provide a roadmap and some financial projections based on current results.

Adapt the Process

Along with balance comes adaptability. Fit the process to the stage of company and initiative. Avoid having everyone across the company fill out the exact same template OR be okay with them leaving certain parts of it blank.

From a financial perspective this is where having a few different projections can be beneficial. You might consider a conservative hiring model that assumes none of your initiatives will be successful (which helps you avoid over hiring and the dreaded layoffs. Then you might have a more ambitious plan for the board and finally you can set even more ambitious goals for your teams.

From Ben Williams, VP Product at Snyk:

“The best annual planning processes are aligned but not uniform across the org. There may be some functions (GTM org in B2B for example) where they weigh more heavily to thinking through that longer time horizon, and other functions (eg R&D) where thinking through and discussing priorities and goals for the year may be useful, but that you're going to need to plan and mobilize teams far more dynamically - most likely on a quarterly basis.”

Bake in flexibility

Everything is changing all the time in the world of startups. That’s OK as long as you acknowledge that in your planning process. Your plan should help you adapt to the ever changing landscape vs. getting fixated on “the plan.” Plans should identify opportunities and problems to solve but be flexible on the details—timing, resourcing, and goals. 

From Adam Grenier, former VP Marketing at Masterclass and Growth at Uber:

“I think they [plans] are great. If... they help you adapt. Everything today changes in real time. Plans are great when they accept that as a tenet of the plan vs. pray it doesn't happen.”

And Ben Williams again,

“In my experience the most important thing is that the org from the exec team down accepts that there’s a strong likelihood that many of your assumptions will be proved wrong. Shit will happen that you cannot predict or control (last few years have and continue to demonstrate that starkly!). That being something that is not culturally ingrained is where I've seen annual planning have more failings because of the organizational rigidity it implies when fluidity is what's needed. Those companies inevitably do adapt but it feels more chaotic than it should be.”

Final thoughts

Throughout my discussions with nearly a dozen leaders from across the startup landscape I was amazed at how nearly all of the advice focused on plans as a vehicle to communicate, align, and document decision-making for everyone outside of the “room where it happens.”

There was very little discussion of the actual planning process itself which underscored the importance of creating something that is catered to your organization and initiatives. The best leaders go through a planning exercise that looks very different from company to company.

I’ll leave you with something that Behzod Sirjani, former research leader at Slack and founder of Yet Another Studio, said that really resonated with me: 

“Good plans are a what and a why, but most artifacts from annual planning are just the what, so the why gets renegotiated whenever someone challenges it, rather than when the underlying reasons for why actually change (market shifts, opportunities, etc).

This isn’t just about plans, but org communication and documentation in general and it shows up very clearly in the planning process.”

Thanks for reading! See you next week.