Your Budget Is Your Real Strategy
An owner told me his strategy was to move upmarket. Then he handed me the budget, and about forty minutes later I asked the question he could not answer. Where is the upmarket money?
Almost every new dollar in that budget pointed at the customers he already had, served a little faster. The strategy lived in the deck. The company’s real direction lived in the budget, and the two described different companies. He had said upmarket at the offsite, put it on the first page of the plan, and repeated it to me twice inside ten minutes. He believed it. So did his team. None of that reached the spreadsheet.
The budget is the ultimate reality check.
Two seats are supposed to point at the same place. One sets direction and answers where the company is going. One decides what the company can afford and survive. When the person setting direction describes one company and the money quietly funds another, the budget is where you can see the gap, because it is the only document that cannot flatter anybody.
From the direction seat
Strategy is generous, because intentions cost nothing. It is written by the people who think about where the company should go, and it is honest as far as it goes. The trouble is that a direction stated once a year competes, every single day, against a hundred small funding decisions made by people who are not in the strategy conversation. The owner sets the destination and then leaves the steering to a budget process that has never heard the speech.
From the money seat
The budget is a stack of commitments already signed, built forward from last year’s budget with a few percent added, because last year worked and reopening it invites a fight nobody wants in November. Read only the increases, the lines larger than last year, and you are reading the company’s actual plan for the future. There are usually fewer than twenty of them, and they almost all point backward, at the business that already exists, because the people who ask for money are the people running what already exists and they ask well.
They have evidence, a queue of work, and a customer who is unhappy right now. The new direction has a belief and an owner who was enthusiastic in October. In any fair process the new thing loses, and most budget processes are fair. Two more people in delivery for existing accounts. A system upgrade for customers already served. One marketing hire, budgeted below what reaching a different buyer would actually cost. Each line was argued for by somebody sensible and approved for a reason that made sense at the time. Read together, they are a vote for the company you already are.
What an outsider does with this
An investor or a buyer runs the same read in an afternoon, and it tells him how much of your plan is real. Needing money to grow is no mark against you. Paying for the gap between where you are and where you want to go is the whole point of his check. What he watches in the budget is whether the money and people you already control have started to move toward the direction you claim. When every dollar you decide today still points at the company you already are, moving upmarket is something you believe but have not started to do, and he has to price the risk that his money lands on the same habits and pays for more of the past. The discount is for a plan you have not yet put your own money behind.
The fix comes before the deck. Set aside the money for the new direction before the requests come in, instead of sorting between them after they do. Once the requests are on the table, the future is competing with a customer complaint, and it loses to a customer complaint every time. Decide what the new direction gets, up front, and make everything else fight for what is left.
Read only the increases in your budget. Which company do they build, the one you have or the one you keep describing?
SCALE helps companies and investors remove the structural constraints that limit execution and enterprise value.