Stop Budgeting and Start Planning!


Originally Posted on ActiveRain

It’s that time of year again: BUDGETING

Executives and business managers around the world are TRAPPED in conference rooms trying to create plans and budgets for the upcoming year.  And then they need to revise and rationalize their budgets after review by the CFO.  And then they need to revise and rationalize their budgets again after review by the CEO.

Rinse and repeat.  Rinse and repeat.

Why are all “budgeting” processes largely a waste of time?  Finance teams and executive team need to think about continuous strategic planning, instead of budgeting.

What do I mean?

The current budgeting exercise is a pure unadulterated tragedy of the commons.   I, as an exectuive,  throw my full budget requests into the pot as there is limited personal downside to my requesting more budget so that I or my people work less or I have greater probability of hitting my objectives.   In a company, there is limited upside in executives or managers doing more with less.  I have never seen a business manager say “increase my revenue target, ‘cause I have a lot of gas in the tank.”  Even if the CEO or CFO keep the revenue forecast flat, I guarantee that executives would start coaching the numbers down.  It’s just human nature.

The CEO and CFO of a company need to be excellent at strategic planning.  “Budgeting” should be happening everyday and there should never be a budgeting cycle where executives have a free pass to reset their expense budgets and increase headcount.

So how does the CEO and CFO move from budgeting into strategic planning:

1) Back of the Envelope Model: The CEO should maintain a back of the envelope financial model for the company.  It should not be more than 20 lines in Excel.  It should clearly communicate to every executive and employee what the key levers for the business are to achieve an aggressive revenue target.  If the CEO cannot communicate this, it is likely he or she  needs to work harder to be crisper with his strategy and how the business model works.

2) Look at Investments, Not Expenses: Every dollar of increased expenses need to be viewed as an investment with a return on investment.  Too often, managers argue to increase expenses without justifying a financial return to the business.  Any time an increase in expenses hits the CFO’s desk, the CFO should quickly understand the return on that investment in a dollar metric.  For example, the return on investment for adding a sales person, a marketing manager or an engineer should be easily understood in a common language.  That language is a simple return on investment calculation – dollars returned to the business for dollars invested by the business.   That means for every incremental dollar being spent, you should have a strong perspective on the financial return on those dollars.  The entire company should share in this mindset.

3) Aggressive Accountability: Executives and hiring managers should be held accountable to justify the return on investment for ther headcount and their expenses.  This is a really unusual thing to say and it rarely happens.  The CEO and CFO should be pushing their executives and their managers on the financial return and the investments they are making every day in their business.   The CFO should be challenging the CEO and other executives based on the underlying drivers and unit economics of the business.  The CFO should create a culture where getting resources should be reasonably hard for the company.  The CFO should be pushing managers to be creative and forcing the discussion whether we should be doing certain activities and what must fall off the plate.

Every dollar spent must be a CONSCIOUS decision.

Every dollar a company spends should be thought of an INVESTMENT, not an expense.

Once your company moves to investing from expensing, then you can move from budgeting to true planning.


A Tale of Two Cities: Yahoo vs. Google


It’s rare for me to discuss an article in the Seattle Times or San Jose Mercury News, but a good friend of mine David Eraker, CEO of Mindsite and founder of Redfin, saw this one.  Great review of the relationship of Yahoo and Google and how the battle between Google, Yahoo, and Microsoft was foretold in nascent business development relationships from the early 2000’s. 

As someone who has spend a significant part of his career working the backrooms and lobbies for business development and corporate development (I am on the advisory board for the University of Washington’s Business Development Certificate Program), I thought it was a very interesting article of the power of good business development in terms of relationship building in the industry.  Clearly Google has been pretty tactical in their business development or corporate development activities over the past nine years.  It seems like that business development really set the stage for Google ascent to power.  In many companies, business development is an amorphous function that has limited power and limited ability to forecast landscape changes or drive new opportunities for the companies.  Companies that do not invest in business development (especially on the Internet) and enable business development professionals to drive revenue or change can really miss out on big opportunities. 

More on good business development to follow soon. 

HERE IS THE ARTICLE: Yahoo Pays the Price for A Good Deed to Google  

Real Estate & Mortgage Round-up: Zillow Gaining Recent Traction


I thought I would follow-up my previous January post covering the real estate January Effect with a February update.  As interest rates decline and we are entering prime home buying season (spring to early summer), we are seeing suprising resilience in the online real estate and mortgage category.  The BIGGEST surprise is that Zillow traffic has ramped significantly in the month of February.  This is very interesting.  Zillow has made a number of big announcements around acquiring more listings.  There is a high correlation between traffic, nationwide coverage, and the number of listings that a web site has.  Zillow recently broke through the 1 million listings barrier which is a major milestone for the company.  I wonder if the recent uptick in traffic has to do with increased refinance traffic.     

In Tier Two of online real estate, HomeGain appears to be on a tear growing reach nicely over the past three months.  This is largely due to HomeGain’s significant affiliate network and SEO investments.  BuyerLink is the growth engine for that business and is probably doing well in this environment.   

All players in the mortgage lead generation industry (BankRate, LendingTree, LowerMyBills) are seeing increased consumer demand for information around refinancing their mortgage ever since the Fed made its aggressive rate cuts in January.   Notice significant traffic increases in January which appear to have declined in February.  LowerMyBills and LendingTree seem to be experiencing steadier traffic levels.  It is clear that both LendingTree and LowerMyBills have reduced their ads spends significantly over the past six months.  I have been impressed by Experian swapping out LowerMyBills ads with ClassesUSA where appropriate in their banner advertising strategy.

Tier One Real Estate Reach:  real-estate-tier-1-reach.gif

Tier One Real Estate Page Views: real-estate-tier-1-page-views.gif 

Notice how Zillow reach (or unique visitors) seems to be increasing but pageviews have been declining.  Interesting trend.  Maybe an indication of more people checking the value of their home versus spending increased time searching for homes for sale or neighborhood information.

Tier Two Real Estate Reach: real-estate-tier-2-reach.gif

Tier Two Real Estate Page Views: real-estate-tier-2-page-views.gif

Mortgage Reach: mortgage-reach.gif  

Mortgage Page Views:  mortgage-page-views.gif

Kodak to Enable Microprinting of Newspapers


Kodak has staged a major turnaround of its business by transitioning from film to digital technology.  They are looking to enable another industry hit hard by the Internet – newspapers.  Kodak is developing a high-speed printer that will enable newspapers to microcustomize their content and ads in newspapers at the neighborhood level.  Interesting idea that would require major change from the newspapers.  My gut tells me that this is a technology that is searching for a market.  The real challenge to micronews in my opinion is local sales and service to small businesses, not the printing. 

Kodak Knows a Little About Dying Business Models – Bits – Technology – New York Times Blog

Content Publishing on the Net: Survival Strategies for Content Creators

ff_bryne_f.jpgDavid ByrneThe Internet has obviously turned all media on its ear by disrupting or destroying the power of traditional physical distribution.  Go down the list: first the newspapers, the music distributors, now film & television…  The Internet is enabling anyone to be an artist, but the challenge is not distribution – it has become marketing. 

In last week’s Wired Magazine, David Byrne of the Talking Heads goes through the various models for music publishing and how artists should evaluate alternatives.  The six models are:

  1. The 360 or Equity Deal: Every aspect of the artist’s career is handled by producers, promoters, marketing people, and managers.  The artist becomes a brand, owned and operated by the label.
  2. Standard Distribution Deal: The record company bankrolls the recording and handles the manufacturing, distribution, press, and promotion. The artist gets a royalty percentage after all those other costs are repaid. The label, in this scenario, owns the copyright to the recording.
  3. The Licensing Deal: The license deal is similar to the standard deal, except in this case the artist retains the copyrights and ownership of the master recording. 
  4. Profit Sharing: Minimal advance from the recording label; artist and publisher share in profits from day one.
  5. Manufacturing and Distribution Deal:  Artist does everything except manufacture and distribute the product.  Artists have full control.  Most labels don’t do these deals.
  6. Self-Distribution Model:  The artist does everything.  Music is self-produced, self-written, self-played, and self-marketed. 


I believe all content (words, music, images, video) will ultimately fall into one these buckets/models and new publishers will emerge to capitalize on the opportunities left open by the traditional distribution model.  Ultimately more power is shifting to high quality content creators.

David Byrne’s Survival Strategies for Emerging Artists — and Megastars

Kayak for Real Estate? – Roost Launches Real Estate Metasearch, an anti-social network


More innovation in the online real estate business.  A team from TotalMove and VacationSpot (acquired by Expedia) have partnered with the General Catalyst’s Joel Cutler, the venture capitalist behind, to create a new twist on real estate search. which publicly announced today is enabling consumers to get all the listings in a market from the MLS and use Kayak-like refinement and tool bars to search and sort the listings.  They get paid by real estate agents and real estate brokers when a consumer clicks on the link to get more information on a listing.  Great UI and smart business model that should be very scalable with relatively low incremental cost.  CEO Alex Chang is really smart about the real estate industry and how they are approaching partnerships with the MLS and brokers.

What’s Roost’s competitive advantage: NO BS!  Roost provides consumers with all the listings and is all about getting consumers to the listings they want as fast as possible.  Incredible!  Rather than using community and content like Zillow and Trulia to get people to browse to increase pagviews, the Roost model is the opposite – give homebuyers and sellers what they want as fast as possible and try to monetize that relationship.  Brilliant!

Roost launched today in a number of markets – Seattle, San Francisco and New York were not among the launch markets.  They will be challenged from a public perception basis of not being “nationwide”, but that is manageable.  Website is a bit slow today, but that could be due to traffic or the fact that they are still working out some of the kinks. 

Two thumbs up on the whole!

The Future of Online Real Estate? – ActiveRain Secures $2.75 Million Series A Investment


Big news in the online real estate industry.  ActiveRain is one of the fastest growing professionally focused social networks and blogging networks on the Internet.  ActiveRain was founded about 18 mos ago and, in that time, they have attracted close to 70,000 real estate agents and mortgage broker members, who are very very dedicated to the service.  Their traffic has grown significantly since the beginning of 2007 and is generating significant consumer and real estate professional traffic.  What is most interesting though is that the major online real estate players – Zillow and Trulia, etc – are trying to attracting hyperlocal real estate blogging.  ActiveRain is the online firm that I can think of that has been able to attract significant real estate agent participation online. 

Today they announced a $2.75m strategic investment from HouseValues.  HouseValues is one of the original online marketing firms.  Ironically, HouseValues had a very active agent-to-agent message board called the MasterMind Forum, where agents provided advice and referrals to other agents.  ActiveRain expanded this concept exponentially.  ActiveRain is doing something really special.  I encourage everyone in the real estate industry and online marketing to check them out.  

Real Estate Blog – ActiveRain secures $2.75 Million Series A minority investment