The new year is an opportunity for reflection, planning, and goal setting—for individuals and businesses. By setting the strategic direction of your company for the year, every project and action at your company can be assessed through the lens of whether it serves your broader goals and objectives. Take time for annual business planning, meaningfully charting the direction and goals for your company for the year ahead, to align your entire company on what’s ahead.
Whether you’re a small startup finding your footing or a more established scale-up with product-market fit, this yearly exercise will keep everyone growing in the same direction. Set aside time at the end of the year, or at the very start, to complete annual business planning—from setting your operating budget to setting ambitious goals that keep your startup on track.
The day-to-day of a startup often includes putting out operational fires and jumping from task to task. A whirlwind of growth or the race to find product-market fit leaves little time to pause. But urgent doesn’t always mean important, and there’s immense value in slowing down to be strategic.
Here’s why you should spend time on annual business planning for your startup:
Setting realistic plans begins with an understanding of how your previous plans panned out. If you set business goals last year, this is also a good time to assess if they were reached, unmet, or discarded entirely. Before diving into your annual revenue goal or product roadmap, reflect on your business progress in the previous year. This will provide a baseline for future goals and context on where your business stands today.
Here are a few areas of your business to gather information on and ask key questions:
People and Operations
Marketing and Sales
If you’re a venture-backed business, these are many of the metrics and insights that investors will expect to see in updates. Similarly, if you’re a bootstrapped startup looking to raise money, this is information that investors will anticipate on your pitch deck. Regardless, this is information you should gather across your company to better understand your business.
Often there are forces exerted on businesses outside of their direct control. From economic downturn to emerging trends and technologies, it’s challenging to predict or plan for the unexpected. However, it’s worth spending part of your annual business planning to think through the current market and economic conditions, and what you might anticipate for your business as a result.
In November 2022, DigitalOcean released a Currents Research report on startups and small-to-medium businesses that surveyed over 550 founders, CEOs and executives. The report found that 46% of respondents had been “somewhat negatively” impacted by the current economic situation. Despite this, many remained optimistic with 20% reporting feeling “very positive” and 43% being “somewhat positive” about their business outlook for 2023.
Here are some of the opportunities that respondents saw for their businesses:
Think through everything your company may need to do in order to grow sustainably and remain competitive—from freezing headcount or fast tracking key hires to making technological investments or prioritizing specific product development.
From faster growth to more efficient processes, there might be a dozen or more things your company wants to accomplish in the new year. However, it’s often the case that having too many priorities means having none at all. Consider this solution: an overarching vision for the year.
Reflect and come up with a single vision, theme, or direction for the year ahead that can unify your entire company. To come up with this vision, it’s valuable to think about the largest problem your company needs to solve, and focus the entire energy of the company in that direction.
For example, if your biggest challenge as a company is…
…user churn, make it the year of solving for the customer
…ballooning costs, make it the year of operating lean
…product bugs, make it the year of engineering excellence
…stalled growth, make it the year of radical exploration
…low moral, make it the year of cultural reset
It’s worthwhile to make this overarching vision short and memorable so that it can be recalled by anyone at the company with ease. As leaders across functions—from software development to customer service—set departmental goals, they should have the overarching vision in mind and ensure their objectives help realize the company’s broader vision for the year.
Assess your current financial situation—revenue, expenses, cash flow, capital expenditure—and make revenue projections, to set an operating budget for the year ahead. Determine whether your operating budget has room for expansion, can stay the same, or may need to shrink compared to the previous year.
As you work to establish your operating costs, consider both variable costs—expenses that change depending on your company’s production, sales, or growth—and fixed costs—expenses that your business will incur regardless of production, sales, or growth.
Here are variable costs to consider:
Fixed costs to consider:
From there, allocate a budget towards each department to operate within. While there will naturally be unexpected costs, aim to create a realistic operating budget that allows each area of your business to plan accordingly.
With an overarching vision set, and an operating budget to work within, set your focus towards creating granular annual goals that will serve your business in the new year. From “decrease customer churn by 10%” to “expand our product offering from two to ten to match our top competitor,” specific goals will define the day-to-day of your company and what your employees are working towards.
There’s no one size fits all approach to goal sitting, but there are a few popular methods that are worth understanding, and potentially adopting, for your own team.
The Objective Key Results (OKR) method was pioneered by Andy Grove, the former CEO of Intel. While this method is often used by large corporations, it’s also a useful framework to help startups find alignment on their goals. The method combines big-picture goals with actionable steps to achieve them. Here’s how it works:
For example: An objective could be “increase customer retention”, while “conduct 100 user interviews,” “increase participants in customer loyalty program by 30%,” and “revamp customer onboarding process by March 31, 2023” are all specific and measurable key results that support that objective.
Goals are ineffective if they’re vague and ungrounded. SMART goals provide a solution by prioritizing goals that are specific, measurable, attainable, relevant, and time-bound. Here’s how to create goals with these criteria in mind:
For example: If one of your business goals is to “convert more of your free users to paid users,” you can apply the SMART framework to instead “Optimize our lead generation and sales strategy strategy to convert 10% of our free users to paid users by the end of Q3.”
As a startup, not all goals are created equal—some are more important than others. Yet, often it’s urgent goals that take up a team’s time and attention, leaving important but not urgent goals to languish on the list. The priority matrix method is a useful method for goal setting and prioritization that categorizes your company goals into four distinct quadrants: 1) High Importance, High Urgency, 2)** High Importance, Low Urgency**, 3) Low Importance, High Urgency, 4) Low Importance, Low Urgency. This method is particularly useful if your team has a laundry list of goals, but a lack of direction on what to approach first. Here’s how the framework works:
For example: Here’s how you might sort a list of goals into the four categories—“Significantly reduce our burn rate by optimizing your software costs and cutting discretionary spending” (1), “Improve team cohesion and collaboration by planning a team offsite in 2023” (2), “Submit updated compliance forms to governing body” (3), “Decorate the Austin, Texas HQ Office” (4).
As with all effective goal setting, create added accountability by ensuring a specific team or individual at your company is responsible for achieving each goal.
Annual business planning is a team sport. While company leaders should guide the process and set the overall company objectives, collaborate closely with team leads (and, potentially, team members) across the company who will have the strongest understanding of their corner of the business. Here’s why stakeholder feedback is key:
Once your annual planning is finalized, roll out the plan to your wider team, allowing employees to start the year with knowledge of the company direction. Consider rolling out the annual business plan in a Slack announcement, company-wide email, or all-hands meeting. While you may not want to share every aspect of your annual business planning with the entirety of the team (e.g. operating budget and need-to-know information)—lean towards transparency and sharing as much as possible.
Having a broader understanding of your business goals for the year will give employees important context that will inform how they approach their roles and responsibilities.
Your annual business plan won’t be impactful if you roll it out in January and it’s never spoken of again. Ensure that your plans are more than a Google doc or a slide deck by operationalizing it across your business and checking in regularly on the goals you’ve set, the budgets you’ve established, and whether your company’s overarching vision is being realized.
Encourage leaders within the company to center the annual business plan on their own teams, ensuring that goals are on track to be met.
Creating an annual business plan will set you up for success in the year ahead, building a roadmap that aligns your entire company. Check out all of DigitalOcean’s resources for startups and SMBs in The Wave, our startup resource hub, for more company-building advice to help your startup thrive.
Make investments in your technology this year and sign up for a DigitalOcean account to start building your product on DigitalOcean’s virtual servers, databases, and more.
Sign up now and you'll be up and running on DigitalOcean in just minutes.