During my time with Vungle, it was my responsibility to make sure my team was in the best possible position to face the year ahead. This meant quarterly meetings, weekly target-tracking, and above all, strategic annual budgeting.
After a few trips around the block (and more than one lesson learned by trial and error), I developed a budgeting strategy that was different from that of my peers. I came to think of it as ‘the budget triad,’ a strategy in which I would develop three separate budgets for different parts of my team.
When I share this strategy today, I get varied feedback. A lot of VCs don’t see the use in it, but a lot of operative CEOs find the same benefits that I did when steering Vungle to increased sales and profits every year.
Heading into March, it’s not too late to remedy any potential oversights in your 2021 planning. Simply put the budget triad in place for your business, as I will describe here.
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Planning For 2021: Three Different Budgets
First, let’s start with the sales team. Your first job as a CEO is simple: never run out of money.
Well-crafted sales teams are full of go-getters and self-starters. They are the professionals you want on your side. Motivated by big goals, your sales team will cover more ground if you help them see how they can get to some aggressive targets.
Inspiring your team with an optimistic goal is a great way to motivate and empower your team during and beyond the first quarter of the year.
Next, I’ve found a realistic approach is best within my executive teams. With my fellow executives, it’s my job to create an accountable, winning culture, one that will be evident when we later present to the board.
For this reason, fostering a mutual understanding is key, and being as realistic as possible with our budget planning creates a much-needed sense of ownership within the team. The team is then able to share in the responsibilities and accomplishments of staying on track together. And as a company, we have our best thinkers keeping our realistic goals in mind.
Last, it’s always been a rewarding strategy for me to be conservative with the budget I bring to the board. Being slightly removed from day-to-day operations, boards can easily feel panicked when a team fails to ‘meet their plan.’
In reality, a small overspend in one area might lead to massive savings down the road or landing a critical customer, but this is often hard to communicate among board members when the year is already in motion. Instead, a conservative budget can help you manage expectations and win the board’s pre-approval, preventing them from slowing down any future business decisions that need to be made quickly. Additionally, this approach affords you and your executive team the opportunity to over-deliver, to approach your board toward the years’-end with the kind of news you’re all happy to share and celebrate.
Leveraging Your Outsourcing
With this kind of high-quality preparation, CEOs will be in a better position to permanently outsource their 12 month plan. Having made their expectations clear, they should be able to delegate budget-maintenance tasks to trusted peers. From that point onward, they’re able prioritize the longer-term outlook, and do the real future-focused work of a CEO—predict, observe, recalibrate, inspire, repeat.
With more agency, responsibility, and flexibility, your executives will be able to implement your three-tiered budget and get in the habit of ‘beating the plan.’ The value of this can’t be overstated—you want to be a public company one day, right? These are the kinds of performance metrics that will really determine your ability to survive, thrive, and arrive to the public market. If I were back at Vungle, I wouldn’t let another year pass me by without implementing these three levels of budgeting.
Feedback So Far
When I shared this take with my immediate network, I found the engagement really interesting. Prominent CEOs, investors, and owners weighed in with their take. A common theme was the debate around hands-on board members who understand the operating market—wouldn’t they recognize a conservative budget when they saw one?
My budgeting strategy relies on an assumption that most boards fall slightly short of functional. It’s perhaps not always the CEO’s job to convince, but rather to set the standards that will work positively for everyone. Certainly, a hands-on board would require a different approach. But it is the case in many companies that the investors that are good at raising funds and interpreting business models aren’t always the ones with the most operating experience or the most in-depth knowledge of a specific market niche.
Other CEOs weighed in, saying they’d taken the same approach and used different wording within their operations. One model I’ve heard is the ‘low, medium, high’ budget, which describes the same thing in different terms. Another CEO named each budget differently: quotes for sales teams, objectives for executives, and budget for the board. I could see this being an effective way to understand this strategy on an internal level, and help to keep the approaches differentiated.
It can be challenging to properly communicate your first-hand experience, harder still to pass it off as ‘advice.’ Every company is different, and CEOs have infinite combinations of specific strengths and weaknesses; advice is far from one-size-fits-all.