The Equity Kicker - Latest Comments in Uncertainty and the need to plan

Re: Uncertainty and the need to plan

nic — Thu, 01 Mar 2007 08:09:45 -0000

Thanks for the comments guys.

I agree with all your points - in particular that flexibility is critical. In most of my companies we set strategic targets pay part of the bonus quarterly for this reason.

I am more with Simon than Alan on the business planning process though. If done badly it can be unproductive, but done well it is a great way to learn and think about your business. I would be dead against throwing the plan away all together. Everyone should be able to tell you where they think they are going over the next year, even if they then change it.

Re: Uncertainty and the need to plan

Simon Cast — Thu, 01 Mar 2007 05:18:31 -0000

I keep pushing for plans (whether tech development or otherwise) not because I think the plan itself is important (to quote a military maxim: A plan never survives first contact), rather it is the planning process itself that is important.

For me I am more interested in all the knowledge developed in the planning process as that is vital to allow you to adapt a plan to uncertainty.

Re: Uncertainty and the need to plan

alan patrick — Wed, 28 Feb 2007 19:16:39 -0000

Incidentally, Agile software stems from the Japanese JiT/Lean philosophy, and a prime tenet of that is "do the right things and do them right" rather than adherence to business plans per se.

There are quite a lot of techniques in risk management (statistics, option theory) to help think this through, but a board will (too often in my experience) plumb for inaccurate simplicity over accurate complexity.

I did find it quite refreshing at FOWA that a lot of the (US) people were de-emphasising the Business Plan Business. I wouldn't throw it away as one person suggested, but neither is it can it be gospel for a startup.

Re: Uncertainty and the need to plan

John Wilson — Wed, 28 Feb 2007 17:06:22 -0000

Compensation plans that are binary are a failure from the outset - unlikely to make your target, then give up; already made your target, then ease back. So I've always believed that graded rewards are important.

The more interesting element is the transparent targets up front. Readers coming from a City background will know that most bonuses are discretionary in our environment (some even feel arbitrary).

A colossal worry is that targets can distort behaviour and people work to meet them, regardless of whether they actually make sense for the business. This is one of the key reasons I've heard advanced by board colleagues why specific targets aren't set in City firms.

Given the uncertainty with startups, it's such a tough call to determine upfront what success may look like and over what time period. Furthermore, how much is will be a factor of environment v management skill. Hence, the ability to flex targets remains key and that is where you make a great point about trust between the board and management.

As an aside, outside observers may find it strange, but many City traders/brokers will have been delighted by this week's volatility and resultant flow, making great returns in the process. For some, next year's bonus made have just been secured!