Fence It and Forget It
It’s the beginning of 2015 - a new budget year for many businesses - and - for a whole bunch of us - this means the start of another painful year of trying to live with a bunch of made-up numbers which – in all likelihood – aren’t really even of our own making. They’re driven by all kinds of external considerations including, but not limited to, the requirements of management; the needs and demands of investors; and, frankly, by the apparently universal belief that every new year’s numbers need to be bigger and better than the prior year because – contrary to the scientific evidence – in the start-up fantasy world - apparently trees still can grow to the sky.
So you can look forward to twelve more months of trying to make someone else’s dreams (or delusions) come true. Sorry to be bursting your bubble so soon in the season, but now’s the time when it’s still possible to have some honest conversations with the appropriate parties and to make some simple adjustments and changes in your projections and budgets that will make everyone’s life a lot easier and more rational and – most likely – will also make for better ultimate results and happier folks as well.
Now I understand the need for ongoing growth (although some companies these days would do a lot better to slow down their growth efforts until they could convincingly demonstrate to someone that there was a profitable bottom line and eventually some brighter light at the end of the tunnel) and I also appreciate how the whole annual planning “process” works as well as anyone. So my problem isn’t with the basic procedures; it’s with some of their most central and sorely misguided underlying assumptions.
We go about the budgeting process in the same way each season and we never seem to learn – even with the demonstrable results staring us right in the face year after year – that: (a) not every aspect of any business can be defined, measured and documented in the same way (one financial or analytical approach – for sure – doesn’t fit all) and (b) not everything in a business can be predicted or calculated in advance with mathematical precision because – try as we might to prevent it – sometimes the world and the people in it just have other plans. But we soldier on and everyone plays the same game of making forecasts (with an occasional wink on the side) and the numbers get generated and rolled out and that’s when the real problems start. Because even though we all know that these are “best guesses” at best; too many people on the outside take them for gospel. They seem to have forgotten that saying alone doesn’t make anything so.
Sure you had “input” and you told everyone that there were a lot of uncertainties again this year and the bean counters listened very attentively (and even sympathetically for a while) to your suggestions and advice, but ultimately when the rubber hit the road and - whether you liked it or not, they needed some concrete numbers from you to plug into their big old spreadsheets so they could crank out the upcoming year’s budget documents, it turned out that they weren’t leaving your office without them or willing to take “I don’t know” for an answer. So you held your nose, bit your tongue, and did your best at making a few wild-ass final guesses to fill in those nasty gaps in the numbers. And then you went about the rest of your day hoping that the numbers wouldn’t eventually come back to bite you. But you didn’t feel good about it. And that’s the rub. It’s hard in your heart to sign up for a story which you yourself don’t believe and it’s even harder to execute. Even your most fervent prayers won’t help because you can’t pray a lie.
So, is there a better way? Can we fix even a small part of the problem and save ourselves a lot of pain in the process? I think so. I say – especially where we are dealing with matters that are demonstrably beyond anyone’s ability to predict or control – that we just admit to that simple fact and adopt a new strategy which I call the “fence it and forget it” approach. It’s clean, straightforward, ridiculously easy to administer and – as a bonus – it leads to results which are likely to be far closer to the eventual truth which makes it much easier for everyone to get a good night’s sleep because they’re not worrying about things they can’t really do anything about.
And, while you will have to decide for yourself which are the best situations in which to apply it, I can guarantee that, once you get the hang of it, you’ll never look back regardless of what kind of business you’re in. Let me give you two radically different cases as examples from each end of the spectrum. The first is a church which runs a soup kitchen and tries every year to keep up with the growing and unpredictable demands of its clients and the second is a sales business where expensively wining and dining the buyers is still the way the game is played.
Case One – The Churches
Yep, even a church needs to have a budget and watch its expenses. But when it’s crunch time and it’s freezing cold outside; no one gets turned away or goes hungry at the soup kitchen - regardless of the budget or the best laid plans. That’s just not the way the world works. And so, year after year, the end is always the same. It’s sorta shame on the operators because it ended up costing more than they had planned to feed all the folks who showed up. Of course, everyone knows that no one knows how many folks you’re gonna have to feed until the year’s over. But nonetheless, the board blames you for spending too much to do too good a job of doing your job.
Case Two – The Clubs
No one ever said it was easy to manage your sales team’s T & E expense line or to make sure that every meal really mattered and helped to make a sale. Or to determine (whatever the post-trip Salesforce notes may have said) that every trip needed to be taken to close a deal or to keep a customer close. And believe me, you can drive yourself and your team crazy sweating the small stuff like this. And that’s really the point – it’s small potatoes in the grand scheme of things and you can’t let it get under your skin. Worrying about whether $50,000 over the course of a year is going to be pissed away on drinks and dinners when you’re trying to make your company’s first $15 million year in top line revenues a reality is a waste of your time which – well-spent - is worth a lot more than the measly $50k.
So what’s the solution in both cases? You’re worried about the sales guys taking too many trips? Take your best guess at what the number and costs should be – add 5% to be safe – and tell them that that’s all they get for the year and it’s on them to make it work. Same deal for the pantry – try your best to estimate the volumes and the costs – set the best budget amounts you can and add a small cushion and then you’re done. That’s the number and now it’s mainly in God’s hands.
What have you done? You put the problem in a box – you fenced it in – and then you were able to forget about it and focus on the much more important things that really matter. It’s simply (1) constraining the problem and then (2) being content to live with the consequences and then, most importantly, (3) forgetting about it. We’ve got to all learn to live with some conscious and intentional ambiguity in our businesses if we want to make them better in the long run. We just can’t sweat all the small stuff.
Now I know that this idea – conscious ambiguity and cost indifference – will make all my most anal and controlling friends (and every accountant in the city) anxious, but we’ve just got to admit it. We don’t know everything and never will – we can’t find out everything even after the fact – we can’t predict everything (and wouldn’t that be boring anyway?) – and we can’t control everything. So what. Get over it and pay attention to the important stuff and to the places where you can make a real difference.
Here’s What You Do.
(1) You pick some categories and you determine a budget number for each – your very best guess. You put the numbers out there for the team.
(2) You make it clear that these are serious numbers (but not written in stone) and that you expect everyone on the team to live with these numbers and try to make them real, but you don’t kid yourself or them about it or obsess about it every day.
(3) You let the chips fall where they may throughout the year and you spend your days doing what really matters.
(4) Next year, you can take a look back and see whether the numbers need adjusting. It never hurts to be a better estimator as you learn.
(5) You congratulate yourself on how much less stressful your day seems now that you not concerned with policing all these petty matters or worried about a few bucks one way or the other – cause that’s all these things will ever mean to your bottom line.
Here’s Why You Do it.
(1) You do it to put an end – once and for all – to all the false precision and made-up metrics that used to creep into your budgets and destroy whatever real credibility and integrity they may have had. Once everyone knows that no one knows for sure – that it’s always our best honest guesses, it’s a lot easier for people to put their heads down and go for the gold because everyone’s in the same boat pulling in the same direction.
(2) You do it to give your team the clear message that you have confidence in them and that you trust them to make the right choices and decisions in the field and in the moment that no rule book and no budget will ever be able to address in advance. Because it’s a real plan and a real budget, everyone can buy into it and take ownership and responsibility for the numbers – not lay them off as someone else’s concern – and “owners” at any level in your business are exactly the folks you want minding the stores and pinching the pennies whenever they can.
(3) You do it because you’ve got much bigger fish to fry. No one likes to waste money – whoever’s money it is – and so when you see that kind of behavior going on in your business – it’s not about the money – it’s a message to you and the rest of management that those folks don’t feel good about the business and that’s the real problem that you’ve got to fix. You won’t see it or be able to recognize and fix it if you wandering thru the weeds worried about nickels and dimes.
PS: “You Get What You Work for, Not What You Wish for”