Fred Wilson’s blog last week on end-of-year planning was a good reminder to get everything in order (strategy, plan, people) to hit the ground running in 2017. If you have anything of a hiring or sales cycle, however, most of 2017 is already baked.
End of year planning can work well for consumer businesses, where (once a product is developed) the turnaround time from spend to revenue and margin is very short. You can move the levers of marketing spend to drive more site traffic to conversions to transactions quickly to impact revenue – almost in real time. But even in these businesses, there persists a bottleneck on hiring people. The national average time to fill a job is about a month, though weighted heavily to hourly positions that are much faster to fill than professional roles. Startup hiring cycles are often longer. Then you need to add ramp time. Sales person ramp time, for example, is combination of training, experiential learning and the normal sales cycle baked together.
Here are rough guidelines on how long it takes new hires of different types to reach 100% contribution in a startup:
- Executive: 6 months (many would say longer)
- Developer: 6 months
- Inside sales: 3-6 months (for the ~50% that make it)
- Outside sales: 6-12 months (for the ~50% that make it)
- Marketer: 2-4 months
So, in a consumer startup you might still have hiring cycle + ramp time = 1 month + 3 months = 4 months lag if you are relying on new marketing hires to scale the business. That means trajectory through Q1 to early Q2 is pretty baked in the worst case.
B2B businesses are much worse with lag time = hiring cycle + ramp time for sales people.
- In SMB = 1 month + 3 to 6 months = 4 – 7 months
- In Enterprise = 2 months + 6 to 12 months = 8 to 14 months
Based on this, if you are a B2B enterprise startup, your 2017 is pretty well baked already. Note that this math doesn’t include any capital raising needs which can add another 3-6 months if you need the capital to make the hires. Yikes! Given such a lag in cause and effect, end-of-year planning is not a very practical time for fast growing startups to set the plan for next year.
Instead, startups should maintain an 18 month forward plan at all times to avoid the hiring and ramping bottlenecks discussed above. This is equivalent to driving a dark road at night where your headlights illuminate a continuously rolling path ahead. This plan is a weekly referenced operating plan for startup management and something the Board should review and adjust formally 2-3 times a year. At the operating level, it changes all the time. With this plan continually in hand, end-of-year planning is more about how you will measure success and reward performance in the next calendar year; you already know “the 2017 plan” and are likely thinking ahead to 2018.