What is annual planning? What are the benefits of a good annual planning process?

Annual planning is the process to create a strategic plan for the coming year – in early to mid-Q4, you want to start to plan out your strategic goals, milestones, and tactics for the next year. You’ll primarily be planning activities in the year to come, but you also want to tie in and revisit your 3 and 10-year goals for the company. 

It updates all your goals and details how you’ll reach them – it will outline your goals, the strategies you’ll use to approach those goals, and the milestones and tactical steps to execute your strategies. By the end, you will have aligned your people and resources to strategies to hit your goals. 

Planning Process

How long does the process take?

Start gathering data for planning in early October – at that point, you have all the Q3 actuals to make for three quarters of current year results. Use this period to gather customer, financial, and usage data, conduct research, and do a retrospective on the current year. Beyond October, your opportunity is limited by Thanksgiving (in the US) and the Holidays in December. 

Prep takes weeks, then annual planning can happen in a 2-3 day session – gathering data and researching thoroughly takes a few weeks—then, you can get everyone together for 2-3 days of planning sessions in November or December. Your meeting cadence doesn’t need to be complicated. You could schedule a retrospective in November and then do a couple days of really focusing on the plan for next year in December. 

Who is involved in annual planning, and what is each participant’s role? 

Assign someone (usually a COO or CoS) to facilitate the annual planning process – it could be your COO, Chief of Staff, or a Functional Leader who project manages the annual planning process. They should clearly articulate the timeline, who will be involved at which stages, and communicate progress against it. They can do it in G-Suite with Slides and Google Sheets. A Chief of Staff can take on the role of running the process from end to end, while the COO may be focused on the operations teams-specific planning.

The CEO should drive the initiative behind the annual plan –  it’s their job to understand what the high-level vision and goals for the coming year are and what broad direction they want to take the company.  

The Heads of Finance, People, Product, and Sales will build out key components of the plan – the CFO will own the budget and financial plan and the head of people will own the headcount plan.

Leadership teams and team leads will contribute to their function’s plans – they’ll review the performance of their function in the retrospective, and contribute to planning for their individual function in the coming year. C-Suite leaders are always involved in the decision-making and planning sessions. 

There’s benefit to involving managers – even if they’re just looking at how their function’s plan rolls up to the overall company plan. This creates ownership and engagement from managers as they see how their role relates to the company’s plan for the year. 

What are the steps to the annual planning process?

Step 1: Do a Retrospective
What it is	Look at the results from the previous year and learn lessons – review how you performed against your timelines, goals, strategies, outcomes, and revenue numbers across functions. Consider all of the relevant data available to you as well as qualitative customer feedback.
Tips/mistakes to avoid	Don’t spend too much time dwelling on failures – it’s healthy to look back at what went well and what didn’t go well. But don’t just list all the ways you failed. Take a comprehensive look at what went well, what could’ve been done differently, and where the mark was missed by functional area and by team. Examine any pivot points in your strategy – was there a point you had to wholesale change your strategy during the previous year? Plans are always evolving, so look at those changes, why they were done, and whether you made good decisions.

Tip: Consider your performance to plan from all angles: 

• How did customer feedback compare to expectations? (This is an important one—the point of your business is to be successful in the eyes of customers; start here and go down to the processes and pillars that support executing for the customers)
• Did you hit your key milestones from the year before?
• Did you hit the key goals, strategies, and outcomes by team? 
• Did you hit revenue numbers
• Did your headcount grow as expected?

Step 2: Review 1, 3, & 10-year strategies and Conduct Research
What it is	Think about what is possible in the next year – let yourself and your executives dream about the possibilities. You can do an exercise called the blue sky approach: If you could do anything next year without restrictions on talent and money, what would it be? Then, you can reign it back in with actual limitations.  Revisit how your long-term strategies have changed – if you have 1, 3, and 10-year plans documented, are they accurate or have they changed? What would be ideal for next year? If you know where you want to go by year three, what does that mean for your one-year annual plan?
Research to conduct	Research on new markets or geographies – some of this needs to be done throughout the year. If you need to make a big decision about entering a new market or geography, review the research that backs it. Research on new customer types or products – any changes to the structure of your growth strategy need research behind them. Start research early to enable these decisions to be made in annual planning. Get financials ready – the CFO and Head of People will start their planning by considering the budget and talent you can afford. Financials will drive decisions around what is and isn’t feasible.

Step 3: Build a top-down plan
What it is	Your leadership dictates the ideal plan and goals for the year – whatever the headline goals are (doubling revenue, getting external investment, etc.), your leadership will have to set them.
Components of the plan	The components include all the parts of your revenue plan:  • Budget • Headcount plan • Revenue plan The leadership team is setting goals around:  • Revenue • Growth rate  • People and talent additions  • Process developments • Technology implementations • Product development • Client count/satisfaction
Tips/mistakes to avoid	It should be ambitious but has to have justification behind it –  it has to be backed by some justification; the CEO can’t just demand 70% growth. There has to be some weight to the goals and reasons you think they’re achievable (i.e., historical performance with growth assumptions added). Usually, executives can aim high with this because you’ll eventually combine top-down and bottom-up to get to a middle ground.  Set guardrails for the bottom-up plan – the top-down approach should articulate a vision for where you want the ship to go so that as each function builds from the bottom up, they know the outcomes to aim at. As you get bigger and bigger, the bottom-up plan from the functional team leads can actually reveal to senior leaders what’s possible. If you’re prescriptive, managers won’t feel ownership when building the plan.

There are three layers of building a top-down plan:

• Start with the overarching company goals first – what are the one to two things you want to look back on at the end of the year and say you did it? Those are the big goals you’ll share with your team and rally everyone around with an internal marketing plan. 
• Consider the strategies you need to enable your pursuit of those goals – what organizational strategies or investments do you need to make to enable you to pursue your goals? 
• Then, come up with the tactical steps to support the strategies – what are the people and monetary requirements pursuant to your strategy? 

Step 4: Functional leaders build a bottom-up plan
How to do it	Functional Leaders get together and build a plan that starts from actuals – they look at their past performance vs. resources, and compare it to their ongoing performance vs. the resources they’ll have.
Components of the plan	Give out a template for each function to build their plan – you can give them a slide with a template that shares the CEO’s top-down guidance and give them two weeks to come up with a realistic plan that fits the guidance.
Tips/mistakes to avoid	Keep a consistent format – this makes the CFO or Chief of Staff’s job easier when rolling it up and analyzing each function’s plan against a top-down plan. It could be a project management tool like Accelo or just a document you ask them to fill out.

Step 5: Synthesize top-down and bottom-up plans
What it is	Merge your bottom-up and top-down plans into one – you’ll go functional area by functional area understanding what the bottom-up version is, asking questions, clarifying planning considerations, and then create a big milestone plan.  Writing out a critical path for the year – based on the milestones you receive back from functional leaders, decide what tasks and investments you need to accomplish in order to get to your desired outcome.  Draw out the dependencies in your plan – you can learn a lot from dependencies between functional areas. If the product team needs to release three features, maybe you need five more engineers, and to hire them, you need two more recruiters. Small changes to your plan can cause big waves across functions.
Tips/mistakes to avoid	Once you have a plan, make sure you can afford it – you need to consider whether the resources you have are sufficient to meet the needs of your plan.  Prioritize based on what’s pressing and what you can afford – look at the budget everyone is requesting, and check that against the investments that are crucial to hit your goals. You often face a tech vs. sales investment conundrum and have to work it out with a balance.

The CEO should synthesize with the CoS/COO and have a draft in December – then you can spend an annual planning session refining the plan, prioritizing investments, and getting buy-in from the C-Suite. You’ll walk out of it with a plan that everyone agrees to and feels ownership over. 

As long as you have a clear goal and strategy, you can assuage denied budget requests – inevitably, you’ll have to deliver a difficult message to some functional leaders about their place in the budget prioritization, If you have clear goals and strategy, that makes that message more palatable because they’ll at least be familiar with the logic behind the decisions.

Step 6: Communicate
What it is	Identify the key stakeholder groups that need to understand the plan – typically these groups are Board, Executive Team, Managers, and Individual Contributors. Create a plan of when each group will receive the message (and in what form) about the plan for the next year. Ideally, these groups are communicated to in December before the new year begins.
Tips/mistakes to avoid	Don’t assume everyone understands – ensure that you proactively communicate your plan and its implications to all of the individuals that it effects.

Step 7: Execute and Measure
What it is	SEE SECTION BELOW

Output

What materials or plans will come out of the annual planning process?

Milestones/revenue plans:

• Create an executive-driven milestone plan – these lay out the milestones for the entire business. The CEO needs to own and drive the business plan.
• Then, ask for a plan from each leader/manager in the business – each of your leaders will run the milestone planning for their function. Some companies then roll them up into one using a planning tool like Accelo.

Talent plan:

• This is driven by your overall financial plan – that will tell you what your budget for headcount is and where you need to hire. Look top-down at what you can afford and bottom-up at what headcount areas you need to prioritize. 
• Be sensitive when prioritizing – people might be disappointed that their budget is not prioritized. Refer to goals and ensure everyone has a clear understanding that it’s a business.

Budget:

• First, take last year’s performance and estimate revenue growth – you can do some rough estimates that you’ll end up growing by x%. If you’re raising capital, incorporate any influxes of capital.  That will give you a simple top-down forecast for your revenue plan. 
• Then, take last year’s costs and account for new spend – when forecasting cost, you need to project the increase in known costs you’ll take on via investments throughout the year. 

How do you communicate your plans to different audiences?

Communication is crucial and needs to happen in multiple steps – it’s important to lock the plan in in December so that you have the time to communicate it out to all of the necessary parties: 

• First, communicate the plan to the board and executive team – get the right approvals and buy-ins that you need from your executive leadership before rolling it out to the broader team.
• Then, roll out the plan in an all-hands meeting in January – you could preview the high-level strategy at the end of December before the Holidays, and then deep dive and share more in the all-hands meeting. 

Try to make the roll-out exciting – if you can provide a narrative around your annual plan and strategy, that helps it resonate with employees. Include customer feedback and anchor in the company purpose, bring in your values and the voice of the customer to make the rollout an internal marketing campaign for the annual plan. Some companies invest in professionally made videos to show at the all-hands where they feature customers, employees and drive excitement and buy-in for the next phase of growth.

Cultivate ownership of the plan among individual contributors – you want everyone to own the plan, understand it, and see how they play a part in getting to the goal. Some companies don’t invest enough in that and then their employees lose heart when things don’t go to plan. If you’re not good at articulating the vision, the failures feel heavier for employees. 

Articulate important target metrics and downstream effects of the plan – tactical function-specific considerations like metrics or sales quotas have to be communicated so that each function and individual can know what their work is geared toward. 

Execution

What frameworks can help you with goal setting during annual planning?

Which framework you use matters less than using one – they’re pretty duplicative and largely articulate many of the same goal-setting principles covered in this guide. Options to consider include:

• Traction EOS
• Scaling Up
• OKRs
• V2MOM

How do you track execution towards the goals in your annual plan? What meetings or communication cadences should you incorporate?

You need to set the rhythm of the business for the whole company – you need to devise meeting cadences for all the relevant stakeholders in the organization. When you’re doing Annual Planning, identify the different groups of stakeholders that need to know the plan. Oftentimes it’s the board, executive team, managers, and individual contributors. 

Create the optimal meeting cadence for each stakeholder group – set the meeting cadence and reporting structure for each level of employees and leaders to monitor and adjust to the plan, ensure progress, and align on the goals. Think of it as concentric circles: External reporting requirements drive it, and usually reporting to the board. So if you need to meet with the board every quarter, there’s likely to be monthly executive meetings. The executive team needs to be prepared for that with weekly leadership meetings. From there, figure out what meetings need to happen monthly, weekly, and daily across lower rungs of your organization. 

Track and measure success against the plan – use the plan as your guide to track success throughout the year. It sets out the activities and goals for the year and allows you to measure your progress vs. expectations.

How should you revisit and adjust your plan throughout the year?

Evaluate your plan in the last two weeks of the second month of the quarter – at that point, you can start to look at it from a finance, sales goals, and talent perspective. You have the opportunity to lightly reforecast the quarter and you can make light adjustments for each coming quarter. 

Overall

What are the most important things to get right? 

Be realistic and consider past results – base your forecasts in actuals from past actuals. Your historic results are the most concrete baseline you have for projecting results into the future. 

Get the right buy-in from the right stakeholders – to ensure that the plan is effective and acted upon. Everyone should feel like they have ownership and understand what their role is in the plan. You need the right people and the right buy-in.

Do quarterly reforecasts – iterate on the plan each quarter. This allows you to be nimble and adjust to shifting realities as you move throughout the year. You can’t be willfully blind to changes. Make sure you have a process in place to measure progress. 

The goals need to be aligned with your vision or mission – you start with a long-term vision for your company, and use the annual plan and your activities for the year to make progress on your goals.

What are common pitfalls? 

Delaying planning for too long – people don’t start early enough and then they freak out when it’s December and they don’t have anything to communicate into January. Start earlier and do it in bits and pieces. Q4 is so busy that you need a runway—if you’re a 50-person company, then cramming everything into two days won’t suffice. 
Ignoring market conditions – don’t plan in a bubble. If there are changes to the market, you need to take them into account when you’re planning for the year.