I’m always struck by how often good business ideas, conceived with the best of intentions, get flipped upside-down when applied by some managers. A favorite example is the 3x pipeline rule about which I’ve already blogged (see The Self-Fulfilling 3x Pipeline Coverage Fallacy). Another might be the 50 calls/day rule for an SDR or a 100 lead goal for a marketing event.
Instead of using tools and metrics to intelligently guide us, we all too often become slaves to them. We get 3x pipeline coverage because sales management will scream if we don’t. We make 50 calls/day — even if they’re all “left voicemail” — because everyone else does. We generate 100 leads, regardless of their quality, because that’s what the boss wanted.
As we approach annual planning season, I thought I’d take a moment to post on the corporate budget — a useful tool if there ever was one, but one all too often used as an instrument of oppression, rather than one of empowerment.
I won’t go into an analysis of the major problems in producing corporate budgets both because I’ve already done so (see The Great Dysfunctional Corporate Budgeting Process) and because the Wall Street Journal also recently featured an excellent op-ed piece describing the key problems (see Companies Get Budgets All Wrong).
Instead of talking about problems with the budget creation process, today I’m going to focus today on how executives communicate to their teams about budgets and budget-related issues.
All too often managers de-power themselves by saying things like:
- “I know we’re dying for resource here in technical support and trust me, I’m fighting as hard I can for you, but ‘Dr. No the CFO’ just won’t give us any more resources. I know it stinks, and that maybe it means we really don’t care about our customers, but perhaps next year it will get better and your job will suck less.”
- “I’m sorry — that’s a great idea, but we just don’t have the budget for it.”
- “I’d love to hire that amazing person, but they cost 108% of what we budgeted. Go hire someone within budget.”
- “Gosh, $15,000 for an experimental marketing program is a lot of money that we don’t have budgeted. Let’s not try it.”
I’ve heard all of these statements myself, multiple times, in real life as I worked my way up the corporate ladder. Each of them is a cop-out where the manager fails to show leadership, positions himself as a victim, de-powers himself in front of his team, and demotivates his team in the process.
I expect my executive team members to stay within budget (unless I’ve given them explicit approval otherwise) but it’s also very important to me that they not cop out and act like a prisoner of the budget, instead of its master, in so doing.
To make this philosophy actionable, I have come up with five things executives should say more when talking to their teams about the budget:
- “We need to spend what we have before we gripe about needing more.”
- “Show me a rockstar and I’ll hire them.”
- “I always have $50K for a great idea.”
- “$15K is a rounding error in my budget.”
- “Great things often start with small investments.”
“We need to spend what we have before we gripe about needing more.”
The fast-track way out of most executive jobs is to give an impassioned speech to the operating committee about how much your team is struggling under an undue workload, how close everyone is to the breaking point, and how unsustainable the current situation is, only to have the following dialog ensue:
CEO: “I understand that calls per agent are up 30%. I understand that we struggling to hit our SLA targets. I understand the team is working hard. What I don’t understand is why you are making this speech. You are tracking to spend only 85% of your budget this quarter and have four open headcount.”
I saw this happen once in a management committee meeting. The speech was touching. The passion was real. But the logic was threadbare. The new head of customer service did not make a similar speech at the next meeting.
Executives need own their budgets both in the sense of not exceeding them, but also in the sense of spending them. The company has allocated resources to solve a problem. It is the executive’s job to deploy those resources. Particularly in high-growth companies, spending too little can be worse than spending too much.
Executives should also be transparent with their teams. If the team is behind on hiring, executives shouldn’t pretend that Darth CFO is the problem. “We’re the problem. So let’s go fix it.”
In the event the budget is fully deployed, executives still shouldn’t cop out. Instead of saying, “we’ve spent all that corporate gave us, and we’re still dying,” they need to reframe the situation as a challenge. “Either we need to find a way to meet the caseload with our current resources,” or “we need to do a better job at building a business case that convinces the company to give us more resources.”
We’re not victims. We either have an efficiency challenge or a better business case to make.
“Show me a rockstar and I’ll hire them.”
Hiring generates its own challenges. Headcount may open and close with the ups and downs of the sales forecast. At some companies, HR will foolishly not support a recruiting process 2-3 months before a headcount opens, thus building-in automatic delays. Sometimes we find people who cost more than what we’ve allocated in the budget.
Here is what I tell my team:
“I need to admit that I have a huge soft spot for talent. Show me a rockstar and I’ll hire them: budget-schmudget, headcount-schmedcount. We need to build a top-quality organization and I know that top-quality people don’t always come along at exactly the time and at exactly the cost that we have in our budget. So abuse me. Exploit my weakness. When it comes to talent, paraphrasing Rogers and Hammerstein, ‘I’m just a CEO who cain’t say no.’”
Why do I do this? First because it eliminates all possible excuses to not hiring great talent and second because I honestly believe it. Suppress your inner bureaucrat and don’t say “gosh, that guy’s a little too expensive” or “I think we’re going to have a headcount freeze, so let’s slow down on this one.”
Instead think: if after I hire this rockstar, if things got tight financially and I had to eliminate someone else to do so, would I? If the answer is yes, make the hire. Sports teams get stronger by recruiting players stronger the current line-up. Unlike sports, however, business isn’t zero-sum. We can take all the great players we can find. Once in a while if that means having to zero-sum things when the budget gets tight, so be it.
One convenient side-effect of this policy is that it lets you see who your executives think are rockstars. If someone uses the rockstar argument on me and the person in question is a dud, I’ve learned important information about my executive’s talent identification skills.
“I always have $50K for a great idea.”
I starting using this when I got my first marketing management job because I was so tired of hearing my bosses say, “that’s a great idea, too bad we can’t afford it.”
Let’s think for a second:
- Either something is a great idea and management should figure out how to do it.
- Or it’s not a great idea and management should tell its originator why.
But, please, don’t cop out and say, “it’s a great idea, but we can’t afford it.”
To flip this problem around I long ago adopted, “I always have $10K for a good idea” which I’ve title- and inflation-adjusted to $50K. Obviously, the number should scale according to your budget, but the point is first that you change your own reaction to new ideas and second that you don’t kill them at birth with, “before you tell me this, you should know I don’t have any money — so what’s your idea again?”
Instead say, “you’ve got an idea — let’s hear it — I always have $50K for a great idea.”
By the way, budgeting for this is highly recommended. I usually carry a cushion of 1-3x my “nut” each quarter to be sure that I can back up my words.
“$15K is a rounding error in my budget.”
Managers can get so focused on not exceeding budgets that I’ve literally been in meetings where people with $3M quarterly budgets take valuable executive team meeting time talking about $15K items. $15K is one-half of one-percent of a $3M budget. So, yes, while $15K is a lot of money and while money should never be wasted, I think executives need to remember what their 0.005 threshold is and remind their teams about it.
I don’t want to talk about items that either rounding errors or, more amazingly, completely invisible when rolled into the final quarterly numbers. Let’s, shall we, worry about the other 99.5% of our expenses?
The other way to say this is that executives should look holistically at their budgets. An excess focus on incremental expenses (often combined with a lack of planned cushion) is what leads people to lengthy discussions of rounding errors.
“Great things often start with small investments.”
A side effect of working at successful companies is that they grow. Teams get big. We have 100 engineers here and 200 engineers there. We’re spending $1M on this marketing event or that. People starting anchoring their idea of size relative to the core teams or programs that drive the company.
In so doing, they forget the critical principle that great ideas often start with small investments. Business Objects, which eventually sold for nearly $7B, was created on only $4M in venture capital. The entire Salesforce Social Enterprise vision, which helped catapult the company from $2B to $3B in revenues, was created on the back of a $70K outsourced Twitter connector, conceived by the amazing Service Cloud team.
Instead of starting with, “we need millions of dollars to build Chatter, integrate a feed-based paradigm into our entire CRM suite, and then become the social enterprise company,” the Service Cloud team started small. They said, “I bet companies would love to be able to find unhappy customers on Twitter, automatically create cases in response, and leverage their entire contact center infrastructure to provide support on social channels.”
They hired an outsourcer to build a Twitter connector, cases began flowing in, and the seeds of the Social Enterprise vision were born.
The moral of all this, of course, is that great ideas can start small. Instead of saying, “sorry, we can’t find $2M to fund your new idea,” executives needs to say, “how you can re-cast your idea to start small, so we can try it quickly, see if works, and then build from there?”
Sometimes it’s not possible. You can’t build a nuclear submarine or a 787 on incremental budget. But in information technology and consumer services, you can go a long way by starting small with a little money.
Nice take on budgeting. It is surprisingly how we let ourselves get hijacked by tools that are meant to help improve our performance. Performance Mgt. System is another one like this. Good to remind ourselves that it is the spirit behind these practices that matter most…
Dave – totally agree that there should always be budget room allotted or created for elite talent (and I have seen you act this way). All leaders should follow. Huge CEO “sin” to miss this point. It’s all about talent, and budget cannot / should not ever get in the way. Thanks for putting that out there for all to see…
Dave – Once again, an excellent post. We lose respect as leaders when we blame the ‘system’. If executives and leaders talk like this, the teams get disheartened and more importantly something is fundamentally broken. Either the company has really terrible processes and even executive management is not empowered (happens!) or we as leaders are dropping the ball (guilty!).
If we truly believe you can’t find $15K or hire great talent, we should either change the system – after all that is the job of the executive management team, and how we earn the right to be leaders – or leave the role & the company.
Thanks for codifying the rules.
Pingback: 5 Things Executives Should Say More About The Budget | Creative Media Systems BlogCreative Media Systems Blog