Eisenhower Take II: “*Budgeting* Is Everything?!?”

In a previous article, I emphasized the importance of the planning process itself, even if you are 100% convinced that the plans you make and execute upon will come to naught, “as soon as you meet the enemy.”

No, I am not implying that the market and customer are your enemy, although I do recall working in IT back in the early 1990s, where we commonly complained that, “if only we had no users, everything would run perfectly.” It was intended to be humourous (and appeared so to us), but is likely more an indication of how little we young ‘uns understood who really paid the bills.

While my primary focus was on business plans and vision for startups, whether startup companies, startup customer products/services or startup internal products/services, Prakash Durgani from Singapore, with whom I had the distinct pleasure of working for more than a year, took the insight one step further. His quote:

“The process of creating a budget gives you a lot more insight about your business than the budget itself.”

Prakash was being particularly insightful. Many small businesses and startups have begun to follow the “no-budget” trend. I understand the motivation behind the trend. Leaving aside the younger founders who have never actually worked inside a functioning (or even dysfunctional) business, those who actually came from larger businesses have a particular dislike for the budgeting process. The absurdities often inherent in the process have featured prominently (and regularly) on Dilbert. One particularly salient one is:

Dilbert.com

The issues people on the sharp end of the stick, those who actually have to execute in sales, marketing, R&D, customer support, etc., have with the “finance mandarins” and the budget process generally boil down to:

  • Budgets are set up to a year or more in advance, an eternity in the real world, yet the budgets rarely adapt to deal with changing realities… except to be cut indiscriminately if the business doesn’t hit expectations.
  • Budgets are set up to a year or more in advance, when the people expected to make the budget requests have no idea what they will actually need in 6 or 9 months.
  • Budgets are set by the finance department, who often appear to live in an “ivory tower”, completely distanced from those who actually have to use the budgets to achieve deliverables.

In response, some people are going for no budgets at all. They invest in opportunities as they see fit, give flexibility to their people, and eliminate much of the tension around the budget process. It seems like Nirvana, but that is an illusion.

Prakash’s critical extension to Eisenhower’s insight is that for budgeting, as for business plans and battle, the budgets may not survive first contact with the real world – indeed, they should be tossed out if they do not match reality – but the budgeting process is important for aligning priorities and incentives, and knowing what to adapt in the face of changing realities.

The problem with large companies is the rigidity of the process, “laird of the manor” management from many finance departments, and inability to adapt. Like battle plans, the budgets need to be adapted… to a new one, with ease and rapidity, but not tossed out entirely.

Ensure you have a proper, lightweight but goal-oriented process for your business plans, budgets… and battle.

 

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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