The vast majority of my readers use the calendar year as their fiscal year. That means that on December 31st, they close their books, add up the score, then begin a new year. In sports you are not supposed to be thinking about the next game until the current game is over, but in business we don’t have the luxury of waiting. The things we need to do to succeed in the coming year often require our attention well in advance. Will your business grow? Should you hire more employees? How much new capital should you invest? And, what results do you expect from these actions?
“We didn’t lose the game; we just ran out of time.” – Vince Lombardi
It may be too early to make decisions, but it is never too early to look ahead, ask some smart questions, and start thinking about your response. “But Tom, it is all just guessing! I prefer to react.” I don’t agree. There are some things that we can’t anticipate, so of course we need to react. However, most of the normal things that businesses deal with are quite predictable. We can quibble about accuracy, but knowing that the economy is going to tank or soar is more helpful than not knowing – if you are proactive.
Predict Then Project
First, predict something likely (and relevant) and then project what the impact will be. What questions should you be pondering in September about the coming year? Glad you asked. I have a list:
- How will the overall economy perform in the next year? Why?
- How will demand in my industry segment change next year? Why?
- How will existing demand for each of my core products or services be affected by these trends? Why?
- What steps will I take to increase demand for my products and services?
- Given the trends cited above, how will these steps affect demand for my services?
- Given the demand I have predicted, how should I alter the pricing for my products and services?
- How will that affect demand? Why?
- How will that affect gross profit? Why?
There are no wrong answers, just bad guesses. The better your sources and reasoning, the more accurate and relevant your predictions. On year two add these questions to your list:
- How accurate were my predictions about the economy last year? How should that affect what I predict this year?
- How accurate were my projections on its effect on my business? How should that change my projections this year?
Planning in Action
Once you are comfortable with your predictions and corresponding projections, then express that plan by creating a simple response for each question. Here is an edited-for-length example I developed with a client in the fall of 2016 for the 2017 fiscal year.
- We predict increased optimism from the financial markets in 2017, which will lead to more spending in general.
- Corporate communications systems in particular will see increased demand because the globalization of business requires reliable, secure, and easy to use communication tools.
- We expect demand for control systems, projection systems, and seamless video walls to decrease. We expect demand for networked direct view displays, service agreements, and hardware as a service to increase. Customers want less complexity, more reliability, and reduced capital spending.
- Our marketing efforts will focus on the customer experience and at the same time we will purposely advocate for installed systems that require less technical support. We will increase outside sales efforts while compartmentalizing the sales support process to increase productivity.
- We project that a more responsive sales process and more accessible solutions will help us close 10% more business than we did this year. We expect market demand to add another 10% in revenue for a total of a 20% increase in sales.
- We should continue to reduce margins on hardware while increasing margins on labor and services. When possible, offer a solution as an operating expense rather than a capital expense.
- Creative funding and maintenance solutions will get us closer to the economic buyer and switch the conversation away from technology and towards customer needs.
- We expect a net 3-4% increase in gross profit on installed systems by focusing on much better margins on labor while reducing margins on hardware. Our expected margins on service agreements will decrease while we expect sales to increase significantly.
Learn as You Go
Revisiting the exercise this year, my client has learned to measure his optimism. The strong economy has not had much of an effect on overall demand and the effects of evolving technology have not come as quickly or decisively as projected. The only thing that occurred as expected was the improvement in the sales process and the emphasis on service contracts and system leasing has been well-received. The investment in new sales personnel and systems could have been smaller, but the net result is that the company is on track to grow 12-13% (instead of 20%) and gross profit increased by two percentage points instead of three. All in all, good results, but this year’s predictions will be tempered slightly and the resulting projections will reflect obtainable goals.
Tom Stimson MBA, CTS helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. He is an expert on project-based selling and a thought leader for innovative business processes. Since 2006, Tom has successfully advised over two hundred companies and organizations on business strategy, process, marketing, and sales. Learn More at TRSTIMSON.COM