Elections, Terrorism, Financial Markets, Hell Freezing Over, the Red Sox winning the World Series: These are all things which can have a significant impact on our businesses from year to year. As most of us are well underway with planning for next year, it is easy to get caught up in the drama and emotion of the moment.
However, these are also things which we as business executives have little control over.
When planning for a new year it is good to remember that despite the conditions around us – there is a lot we can do to make our own success.
Three Keys to Planning your 2005:
It is never safe to assume that the product you are selling today is the product you will need for next year. Companies of all sizes make the mistake of not requiring that their product management justify the continuation of the P/L from year to year.
From features/functions, pricing and selling model to channel partners, M&A and competitive positioning – the entire business is ultimately governed by how the market perceives the value of your products – as a result it is common sense that your organization must trust that its products are ready for market.
How can this be done easily without disrupting the entire organization?
One idea is to require that each P/L manager present an updated business case prior to signing off on next years budget. This does not have to be a prospectus, but it should include defensible information regarding:
Products rarely lose their market power over night, instead, products fall behind due to a slow competitive erosion and normal market forces. By requiring your P/L management to justify there product every year, you are ensuring that erosion doesn’t catch you by surprise.
2. Aim revenue too high and you may burn yourself
Every January we all sit in Sales meetings which psyche the troops up by making any number of bold and aggressive claims about the ability to achieve big things. Sometimes it works out, often it doesn’t. I heard a scary statistic recently that the average tenure of a Sales VP at a large enterprise is 18 months.
In 2005 give your Sales VP a fighting chance by setting attainable goals.
The most effective way to do this is to set your targets in alignment with the public market consensus. As a rule, product revenue cannot reliably grow faster than the market itself. Sure there are rare exceptions, but we have all sat in revenue setting meetings knowing that the targets being set were unrealistic when compared with the most rudimentary market data, yet we signed up for it anyway. (You know who you are)
If you don’t trust the Market data you are being given, that is a separate issue. Sales can only tell you what has happened, product management can only tell you what they wish would happen. There is really no real alternative to reliable market knowledge. Factor this into the 2005 plan and you will be giving your sales executive a real shot at success.
3. Align your product strategy to match your corporate strategy (or vice versa)
Which came first the corporate strategy or the product strategy? In many companies these two area are often in silent conflict. What the CEO or the CFO tells the markets and what the sales people are seeing can be very different things.
Corporate strategies can often take on a life of their own, created and locked away at the highest levels of the organization, many times it is little more than an articulation of what the executives wish were true rather than what is actually happening in the field.
Conversely, product strategy is often a “make do” reaction to today’s demands from the sales organization, not necessarily an indication of a trend. Making the number and making a product are very different jobs and too often the twists and turns of a product lifecycle are dictated by the strongest personalities in the sales organization.
Both of these situations can be a major roadblock to growth. Corporate strategy must be more than a spreadsheet - powerpoint combination for investors. Products need to be market driven, not sales driven. It is never safe to assume that these things are in synch for 2005 - more often than not it is this problem which lays the groundwork for failure in the second half of the year.
Requiring that each of these plans support the other for 2005 will give senior management, as well as employees, a holistic view of the opportunity they are facing next year. It will also provide you with an honest basis for a true valuation of your business and provide a defensible justification for major capital expenditures, something many boards and investors are very interested in having in our post-Enron world.
Of course there are any number of things to consider when looking towards 2005. These three go right to the heart of your business. They force you to examine, in sometimes painful ways, the health and viability of your products, your markets, your internal alignment and ability to sell.
Doing these things right in 2005 will allow you to overcome any number of other challenges. The Red Sox have won the World Series, and the elections are over - 2005 should be a great year for business opportunity, especially those who have planned well.
Are you feeling Lucky?