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with pro CFO partners back with create the next our weekly podcasts. I'm here with john Chappell. And john, we're talking today about planning. And Holly and I, Holly farty have talked a lot about this one year, five year three year plans. And you're really thoughtful about a three year plan, which I think is interesting, because some of us have trouble planning for the next quarter. Or we might have some big ambition for the next, you know, how many of us started 2020 with a big plan, and we're looking back and none of that happened. Talk to me about a three year plan, what's the value of looking forward? What's the value of getting outside my comfort zone of what I feel like I can immediately control and getting maybe a little bit more adventurous in the ways that we can think but then grounding that in reality in the practical aspects of business? Well,

you know, with a three year plan, five year plan, 12 month plan any degree, the first thing is being forward looking and really anticipating what direction the company wants to go in. Why it needs to attempt to achieve to accomplish its objectives, understand where there might be some gaps and challenge points in coming ahead. And with that, how will the team together work on those issues and opportunities to realize the potential?

Do I discover those things as part of making a three year plan? Or are those part of my three year plan understanding where there's weaknesses, understanding where there's opportunities? Is that something that I chart along the way? Or do I need to kind of feel like I've got those things squared away before I can set a vision for the next three years?

Well, you know, the world is always changing conditions are always changing, I think it really comes down to first, knowing where you want to go. And with that, do you have the capabilities to realize that whether it's with your product offerings, is it with your needs to drive innovations is a with your organizational effectiveness, the ability to drive profitability, there's many different considerations that need to happen. And when you're doing a three year plan, I think the first point you really need to do is at least on a leadership team level, truly understand what are the strengths, the weaknesses, the objectives, and building a high level roadmap on how you're going to get there? Again, dropping down numbers on a top down perspective that I want to grow 50% per year for the next three years? It looks nice in PowerPoint, the real question is when the rubber hits the road, how will you achieve that? And working cross functionally understanding, again, our commercial strengths and weaknesses and the opportunities for supply chain and whether or not to the extent that we are going to grow that level? Do we have suppliers in place or manufacturing capabilities to achieve that? Do we have the infrastructure in place with people process and technology as we scaled the business to support that growth? And with it? How can we do this while building an organization that believes in operational excellence?

says a lot I think there to unpack if I'm, if I'm if I'm diving into this, what do you recommend? I've prioritized? First, what do you recommend that I? Is it that kind of SWOT analysis, is it? What do I first do to sort of start to have a strength around this through your vision and not just feel like I'm throwing darts against a board and hoping things stick?

Well, I think that the top down parameters are measures that you want to achieve with key value drivers in sales, the cost of sales and creating marginal improvement, your overhead investments, your investment and commercial span, weather, media promotion, those are all important and with it, as you look through it, you need to also understand again, other aspects of the business. But first, putting those guardrails in place give us a framework towards to working towards. And from an organizational perspective, I think that SWOT of understanding where our strengths and our opportunities with based business, new products and innovation, organizational excellence, people, and leadership, those all need to be built into the context of where we want to go. And traditionally, if you've got that framework in place, the next step I always think is gathering the leadership team to make sure there's an alignment on what we want to do, and our achieve our capabilities of getting there. Every organization and every function is going to have their own wish list of things to do, and fires to put out on a day to day basis. But an overarching strategy and overarching alignment on these are mandated objectives and priorities and these are the things that we need to Focusing on and how each one of our functions can contribute to achieving those. I think that's that one. I think that coming down with the top down targets, is very commonplace. But ultimately, I think you need to start dissecting the different operating segments, and understanding and how can you build that roadmap to get there?

Now, do you have guidance around? When I think about the goals, I see a lot of organizations put way too many goals out there, or they have a three year plan that is too involved. They're trying to do too many things. They've got too many big visions. And then I see other organizations that say, if we can just get these three things, you know, and now maybe they'll try to work backwards, you have guidance on that, how, how broad should we be thinking, I'm thinking of this, let me come and put some context in it from a leadership team, where we've got some visionaries who want to take on the world. And we've got others who are very sort of pragmatic, and really would like to, you know, let's focus on this, or let's have these three checks done, or whatever. And there's a balance there that any leadership team needs to find. But what's your guidance on that? Should we think big? Or should we think specific?

Well, I'm never going to frown upon anyone being ambitious and thinking big effort, as far as making it a realistic and attainable plan. I really like to focus on the value drivers, what are the keys are going to get us there, and focus on doing those two, three or four things really well, and executing again, flawlessly and winning on the ground. And ultimately, to the extent that you have those other wishlist items, if you've got the bandwidth with resources could be people or money. You maybe embark on those, but as a primary goal, particularly considering most organizations have limitations on resources, whether they're people in money and how many initiatives they can work on. I'm a big advocate of looking at the big wins a few select items in November very well.

How do I set a three year goal that? I don't, that isn't just sort of floating around and I'm willing to shift it around and adapt and you know, throw it out and build another one next year? How do I stay disciplined on my three year goal, even as market dynamics or as business dynamics are so often changing around me, so that I need to pivot sometimes pivot is the wrong word. I need to suddenly move sometimes but but I'm not losing focus on what I said I was going to do in 2017 is still relevant here in 2020.

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That's an excellent question. I think as you go down this path, planning and estimates and forward looking views are always going to change. As you said, there's many different conditions in the marketplace, competition timelines have been been impacted. So we'll change those. I think the best way of doing this is actually using a roll rolling type of plan. First of all, from a business planning perspective, many companies as you said at the start, don't know what the heck's going to happen in next month, they loan the next quarter, or next year. But as you build those plans to extend, you have three month planning four months, six month planning 12 month planning, using that as the base and then building out our periods based on drivers. The key areas of impact any plan will be your top line. And whether or not you're driving that through sales price, or volumes through acquisitions. It could be also with new product innovation, your cost of goods sold and understanding again, how do you control that driving your higher selling price is driving product mix that is more profitable. And at the same time squeezing cost out of your cost of goods sold and driving efficiencies in your operations. So your overhead costs are nominal. And to the extent that you're now generating profit reinvesting that in the business through commercial investment, track your brands, it's never gone. It's an ongoing process. It's a cycle that never really ends. And if you at least have that foundation in place for the near term, adding on to that for additional periods. Isn't that complex? Yeah. Yeah. And I think that that's something that it should be a living, breathing document. I don't think a three year plan is something I traded in 2017 and put on the shelf, and I created another one in 2020, and then put that on the shelf. This actually should provide a framework for where we're going. And as the management team leadership team, the owners periodically assess where they are, where they're going. That's where again, they're going to decide how to pivot and where the change because they're setting targets with a product or dimension. They're setting it with a customer dimension, or channel dimension. And how are we performing against those into expensive we're lagging our objectives? What steps do we need to address to close those gaps?

Do you recommend that as I work backwards from the three year goal? How much should that inform my quarterly goal, because what I see a lot happen is we get really focused on these quarterly goals. It almost as if I've got an idea to run a marathon. And I'm going to start and that's my three year goal. But I'm going to start by training for for a five K, because that's what I'm ready for. I can get so fixated on the five K, that I can lose sight of that larger thing. So in this moment of quarterly adjustments, and you know, annual adjustments, I'm thoughtful about that three year goal, how informed should that be for, for these short term goals that I'm making? Or should the short term goals just always be made in consideration of Yeah, but we said in three years, we wanted to be here, everybody.

I think, again, it also depends upon the pressures in the audience. If you're a publicly traded company, you certainly have a very sharp focus on the quarter to quarter to quarter earnings. And as a result, you are going to probably draw be more short term focus and adapt to the short term needs. If you are a privately held company, hopefully, again, you're generating enough liquidity and cash flows, to continue to fund your objectives. And you can stay the course and drive that the importance of Year and Year improvement is always going to be there. And I think you need to measure that and needs to be incorporated in the goals. But the sensitivity to a quarterly earnings. And at what did you do for this specific quarter varies based on the nature of the company, certainly a start up early stage business, a privately held business is not necessarily going to have the same pressures for quarter quarter earnings as we held. And it's really, really interesting insight. Talk to

me about people for a minute. How important is it that my team is bought into the three year goal? And especially what do I do when they're not? What do I do when there's something going on? Where this isn't quite what I signed up for? Do I try to nurture those folks? Or do I have to sort of say, look, this is the team that we need to build around us? And that might mean some tough decisions? What's your guidance on some of that?

I think that the guidance needs to come from the top of the house. And when I say top the house, including all the functional leaders. So with, you need the game in alignment with the leadership team. And I believe then it's their responsibility to cascade those objectives and ensure that their own functional goals, objectives, mandated performance objectives are incorporated and that there is alignment. So yeah, I think that the first step is ensuring that the leadership team is all on board, if not resolve it there. And then after that is champions of that of that mission, and you cascade in their organization and gather the buy in across their team,

you make a great point about the different pressures that are being faced from a publicly held company, the three year plan isn't necessarily so there's there's a vision there that we kind of have to stick to versus the privately held firm. In my experience, those are the companies that can just be you could you could pull out that pull up that PowerPoint from three years ago, and you're talking about a completely different company doesn't even none of the things you thought were going to be important, have been the things that you focused on. And I think discipline is one of those really important things, audacity and discipline and thinking big and not being afraid to think big and have those stretches, especially for the privately held. But then to have the discipline to say, we're going to stick to this even if we need to move and flex even if we find it takes five years instead of three to get there. We at least Let's all be rowing in the same direction. do agree. I totally agree with that. I think that it's imperative that, again, once you have those alignments, and typically on the success drivers, you go out and execute, you're going to be measuring your plan versus actual you're going to be reassessing what went well and what didn't go well. You're going to

tweak your app, your activities and execution to hopefully again, minimize the downsides and take advantage of the opportunities. You're constantly going to be driving a spirit of continuous improvement in the organization and ideally dry at deliver those outstanding business results. Improved KPIs, not only financial, operational and the process To begin, again from a typical budgeting process, and again, I see a three year plan. It's just solely being an extension of this. And it's really important, particularly for smaller held companies, because they are going to have pressures and seasonality or cyclical nature of their payroll weeks are going to be more cash, require more cash. If you're looking at your supply chain and are doing assembly yourself, are you going to actually manufacture yourself? Do you have to invest in further machinery and equipment? Do you need to line with different strategic partners for sourcing, those types of things are also going to be benefits of a longer term plan? I don't think anyone is building a plan that my revenues are going to be flat for the next three years, right? So if you're going to grow, how are you going to do that commercially, gaining distribution, getting your products into the places where consumers or buyers have them and again, continuing to innovate, supplementing that product portfolio, constantly reviewing your cost of those products to drive higher gross profit. And as I said before, the administrative cost of running the business and the amount of money that you're investing in commercial to continue to grow your brands and grow your products, means that you control your costs, generate more cash profits, and again, ideally drop that to reinvest in the business, as well as to hire even

john Chappell frontrow CFO partner, just kind of a roadmap for us to think about the next three years, so much great, specific advice in our conversation today. Thank you for sharing some time and expertise with us today. Can't wait to have you back and keep talking about this stuff. Very great, Chris,

I thank you again for the time and hopefully you have a great rest of your week. Yeah, YouTube. Thanks. Thank you.

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