As we are approaching the mid-year mark it seems in some ways that the macro picture and business dynamics are settling down into a new-normal, compared to the past tumultuous 12 months in the public and private markets. Of course there’s a war raging in Ukraine, which remains an ongoing tragedy and risk of escalation. In this new-normal, our companies continue to see steady demand and continue to grow, which speaks to the strong value proposition of their products and solid clients. We hope to see many of you at various events in the coming weeks and hope everyone has a chance to take some time off in the summer months.
All the best,
The 3TS Team
3TS KEY LEARNINGS
Getting Ready for the Mid-Year Review
Annual plans are important, but we know things change, sometimes in just a few weeks and certainly over a 12 month period. Client demand, marketing efficiency, sales performance, competition, product delivery timing, macro issues, and many other factors that are in or out of the management team’s control. One best-practice our companies have had good results with is the Mid-Year Review. Think of it like “half-time” or “intermission”, best done right after Q2 ends, in the July or early August Board Meeting. One or two months don’t make a trend, but a series of datapoints across the first six months of the year certainly do.
Here’s the 3-step plan for implementing a Mid-Year Review
1. Blow the dust off the original Board approved Plan and give it a fresh read
- Don’t judge or defend the plan at this stage – have your team just re-read the financial targets and assumptions, then ask Board members to do the same.
2. Indemnify everyone, set egos aside, and conduct an objective variance analysis
- This should be a stoic comparison of actual results versus the plan
- Take a panoramic view of the business using the financial dashboard, operational dashboard and marketplace dynamics. Break down first half results and categorize using three buckets: On Plan = 90% to 105%, Exceeded Plan = 106% +, Below Plan = 89% or less. Take the current year’s six months of data and add the prior six months to gain a 12 month view. Now you have a trendline. Are things getting better? Worse? Remaining the same? Specifically examine the growth rate of pipeline, conversion rates, quota achievement, number of orders, bookings, revenues, expenses, EBITDA, and cash flow.
- Ideally the original business plan highlighted 3-5 high priority business objectives (besides making the financial numbers) required to clear log jams, position the company for growth in the future and increase competitive advantage. What were these objectives? What has been accomplished in the first half? What remains to be done in the second half? Given the perspective of the six- and twelve-month financial results, are these objectives still the right priorities for the business? Remember these are intended to be the top priority “must do” focus areas for the entire company. (yes, to the exclusion of other things)
- Don’t let this Mid-Year Review deteriorate into a tactical review of Q2, nor an un-grounded “strategic planning meeting.” Don’t think snapshots, think run rates and trendlines.
- Most often overlooked at midyear is resource alignment. Resource allocation and alignment of people to opportunities is as important as the rightsizing of expenses to revenue reality—in both upside and downside scenarios. At least 60% of the time we see resource deployments that are suboptimal or even fundamentally misaligned with business realities and priorities, because company team members are constantly incrementalizing resource adds, and lose perspective on the whole picture. A simple way around this trap is to find an analogous larger or public company the management team admires and benchmark your business model against them. How much do they spend on R&D? Sales, Marketing? What about revenue per employee? Map or re-map 50-75% of your resource allocation to the key priorities. Spreading resources too thinly across too many areas is a common mistake and frankly a cardinal sin that impedes scaling.
3. Establish a Second Half Game Plan
- Discuss and approve second half financial targets. Publish confirmed/refined/new list of key objectives (themes, objectives, programs). Review specific plans related to the fastest growing areas of the business, any areas that are new and any that are broken. In what areas/opportunities will you “do more” by allocating more resources? What areas call for “doing less” by shifting resource to higher priority, faster growing areas?
- Challenge and resist the temptation to go with second half game plan as originally defined even though contradicted by first half results or changes in the business.
- “Business as usual/work harder” is rarely the correct response for rapidly growing technology companies. Your target market is not static and you should be learning and responding to change.
- Don’t hesitate to throttle down second half revenue targets, and expense levels if required. As painful as this may feel now, it will feel even worse at year-end, if your story is that “revenue fell below expectations, but expenses are right on plan.” This is viewed by most Boards as bad management.
- Boards of Directors like management teams who meet or beat the plan, but if for whatever reasons, that just isn’t in the cards, you are better off to step up to it at mid year, acknowledge the problems, layout a game plan to fix key areas, and then meet or beat the new targets.
- If you are fortunate enough to be able to raise topline targets and growth rates, use discipline (better to raise and raise, than raise and lower).
- Given the first half actuals and assuming the second half develops as expected above, get proactive and start thinking about the next fiscal year plan (ahead of normal October/November planning period).
- Don’t think single points, but rather “planning ranges” for bookings, revenues, expenses, cash flow, etc. Don’t allow the spread between the “low scenario” and “high scenario” to become too wide (or you will defeat the purpose). Create a middle case, financial baseline and flesh out with high-level bookings, employees etc. Present to Board and gain agreement on “planning ranges”. You are not approving the plan, just framing it. Work bottom up in H2 to refine and flesh-out the proposed Plan with periodic interaction with Board.
As always, if you’d like to discuss further, want to see examples or need benchmark data, feel free to reach out – firstname.lastname@example.org.
3TS PORTFOLIO & NETWORK NEWS
We are excited to announce our investment in Spectrm, which is the fourth portfolio company around our personalization investment theme. In Spectrm, we found that leveraging the combination of social messaging and GPT-based interaction, is a compelling way to build a new, marketing automation platform for B2C CMOs to drive revenue from new or current customers. Traditional online ads or email-based tools have declined in response rates and privacy has reduced the efficacy of incumbent marketing. Meanwhile social messaging is used by billions of consumers globally and becomes the new “rails” to reach customers. Concurrently, innovation in GPT enables one-to-one, controlled automation of campaign responses that lead to unprecedented consumer engagement, response rates, and conversion to new revenue. We look forward to working with Spectrm and help the business scale rapidly.
Exciting to see retail industry veteran, Martin Kempkes take on the role to lead sales, marketing and customers success at Safesize. For the past 25 years, Martin has helped retail industry leaders like Peek & Cloppenburg, Interspost and Karlstadt expand their businesses across over 20 countries and multiple continents. Safesize was fortunate to have Martin serve on its Board of Directors, and now we are lucky again to have him join the company in an even more exiting role.
Influencer marketing platform Boksi acquires Monochrome
With this acquisition Boksi adds capabilities that are complimentary to its influencer marketplace and enable clients to achieve faster campaign launches and improved results. Monochrome had established itself as a key player with proven customers including Lidl, Roti G, Mountain Dew, Tummeli and many others.
How Oktopus Tripled Online Memberships with PerfectGym
As the health clubs re-opened in 2022, heavy competition for members ensued. Oktopus was able to grow right past its peers only by using PerfectGym’s omnichannel communication, self-service, booking, payments and end-to-end member management suite. Oktopus is one example out of PerfectGym’s hundreds of health club installations across three continents.
GOOD READS & GREAT IDEAS
Strategic Planning Made Simple: Adopt the One Hour Rule, from Inc.com
In the challenging environment everyone is facing, planning is more difficult, but rolling out plans across the organization so everyone can execute is even harder. McKinnsey found that 67% of plans fail, and its usually because after a plan is initially set, not enough time is spent, consistently enough, with a regular cadence on implementing the plan’s steps. The One-Hour Rule is a useful tool to ensure plans are executed at every level in the organization.
If Your VP Hasn’t Done Some Key Part of the Job by Day 90, They Never Will, by SaaStr
CEOs – we know its hard to build an executive team, but it’s also essential in order to bring on the know-how and experience to scale your business. At the same time, hanging on the key hires too long is much worse than not having them at all. Studies have shown underperforming VPs can cost €650k-1.3m per year in direct expenses, without counting lost opportunity (revenue, retention, product delays). This list of flags helps proactively identify if a key hire will work or not. Hire well, but replace fast.
State of Private Markets in Q1 2023, by Carta
Considering all the uncertainty in the venture and private equity markets, Carta has done a good job outlining the major trends. Yes, valuations are decreasing (1 in 5 rounds are down-rounds), it takes longer to raise capital and rounds are smaller. All of that means, making sure your cash runway is at least 12 months, preferably 15-18 months, or longer. At the same time, there’s ample capital on the sidelines for the best, fastest growing companies, if you’re lucky enough to be one of them.