PS#065: My 4-Step Annual Planning Process

In the ​last issue​, we went through my annual review process.

Today, we’re going to discuss Step 4 – planning for next year.

We’re going to take the data, details, and strategy we developed in the review process to help us build out a clear plan for the new year.

For this portion, we’ll again break it down step by step…

1. Big goals

2. Quarterly KPIs

3. Systems and processes

4. Red flags

You’ve likely seen some version of this planning process before. I’ve found it very effective for building out your goals for the year. It helps you manage the big vision as well as the small details that drive success.

Without further ado, let’s dive in.

Step 1: Big goals.

The first step is setting the big goals.

While you may have visions of grandeur, we need to make sure we stay within the realm of our control. So, for aspiring investors or those who are early in their careers, that means focusing on the deal funnel.

We want to set concrete goals that push us to see all of the deal flow within our investment mandate. Of course, we won’t invest in all of these deals, but we do want to make sure we’ve given them at least a cursory review.

So, what big goals should we set?

We want to set clear goals around the volume and composition of our deal flow.

This includes defining the number of the following for the year…

• Leads

• First calls

• Diligenced deals

• New Investments

For example, we might set the following goals…

• 1,000 leads

• 250 first calls

• 20 in diligence

• 3 new investments

This gives us the volume that we’re targeting for the year.

However, we also want to make sure we’re thinking about the composition. This is a bit looser, but we want to define the theses and the types of companies we’re targeting for the year. We can use our fund mandate, the work we did in the review process, as well as the prioritized company list to help us define our focus.

We’ll dive a bit deeper into how we add some rigor around the composition in the next step.

Step 2: Quarterly KPIs.

Those are big goals and big volumes. If we want to hit those numbers, we need to make sure we are consistently doing all of the things that will help us get there.

We need to set up our KPIs.

Personally, I like doing this on a quarterly basis, but you could certainly break it down on another time horizon (i.e., monthly, etc.). The important thing is that you have “mile markers” that will let you know you’re on the right track.

So, what should these KPIs or mile markers include?

In my opinion, you should be focused on two things…

• Volume

• Composition

Let’s discuss these two in more detail.

Volume

This is relatively straightforward. You want to hit 1,000 leads? You’ll need to hit 250 leads per quarter (and so on and so forth).

While it’s easy to set a linear goal like this, just remember that the year isn’t always linear. There are typically slow months over the summer and towards the end of the year. You might be caught in a heavy diligence process that consumes a majority of your time. A lot of things can happen that could throw you off your pace.

Think about the year in its totality and try to be honest about where you will have more or less time to really hit the volume that you’ve targeted for the year.

Composition

This is a bit more tricky.

Depending on the strategy you outlined in the review process, you’ll need to deconstruct your top line numbers into the specific theses.

A disclaimer to start – the purpose of this entire system is to encourage you to review your efforts. If a thesis is not working or there aren't enough compelling opportunities, it’s OK to move on. Just remember that you’ll need to fill that hole with another thesis.

When it comes to attacking theses, my recommendation is to set a minimum number.

I like setting the bar at 20. I need to find at least 20 companies solving this problem. It doesn’t guarantee that there are even 20 companies tackling this problem, but it gives me something to run towards.

If there aren’t 20 companies (or it becomes really hard to find them), I start to ask myself, “Why?”

The answer might encourage you to pursue the thesis more or to pull back entirely. It all depends. The number is just there to make sure you’ve given full and exhausted effort.

And, as I mentioned in the disclaimer, these quarterly cycles should be used to review what is working and what isn’t working (just like in the annual review process!). Venture Capital is all about prioritization. If something isn’t working, make the necessary changes.

Step 3: Systems and processes.

And now we come to my favorite part – systems and processes.

I’m a process guy (if that isn’t clear already). I love a good routine, process, system, etc. Thankfully, venture capital is a big process industry. It’s all about lining up the right frameworks and decision making processes to encourage high quality investments.

When you’re just starting out in venture capital, I think there are two really important processes to focus on that will help support a high quality and quantity of deal flow. These are…

• Sourcing channels

• Thesis building & research

I plan to break these down in more detail in future issues, but for now, let’s cover the key concepts for each of them.

Sourcing Channels

This is all about “how” you’re going to find your deal flow.

This really falls into two buckets: (1) inbound, and (2) outbound deal flow.

More often than not, you’re joining an established firm that provides inbound deal flow (i.e., deal flow that doesn’t require active outreach). In this case, reviewing the deal flow is pretty straightforward. You’re just carving out time to review comes into the firm.

On the other hand, outbound deal flow requires a lot more effort (i.e., active outreach). I actually think outbound deal flow is one of the biggest weaknesses for aspiring investors. They just don’t learn how to build that outbound muscle.

Building the outbound muscle is all about consistency. Just doing the work every day.

What does that entail?

It means setting up consistent processes to make sure you’re hitting all the potential deal flow channels, including…

• Cold outreach

• Warm introductions

• Conferences & events

• Databases & research efforts

• Industry & ecosystem relationships

• Other investors, accelerators, incubators, etc.

There’s a lot that goes into it. You can set specific time or number goals for each of them. It just depends on your style and system. The most important thing is that you’re consistently hitting each of these channels on a daily or at least weekly basis.

Thesis Building & Research

After your review process, you should have the theses you’ve identified for the year.

Now, we need to set up a system for consistently reviewing these theses.

I like to do this on two time horizons: (1) weekly, and (2) monthly.

I want to make sure that I am reviewing each thesis consistently to see if it’s gaining steam or slowing down. Do I want to continue pursuing it? Do I want to stop for a period of time and revisit? Or, do I want to shut it down altogether?

It’s not easy. But, it’s even harder if we’re not collecting and reviewing the data on a regular basis.

My recommendation is to create a centralized document for each of these theses.

Each week, I’ll collect the research, calls, insights, etc. that I’ve found that relate to that specific thesis and add it to the document. I spend a few minutes thinking about the thesis and writing down my most-up-to-date position on it.

Every month, I’ll carve out substantial time to review all this information in its totality. I’ll be able to see the progression of the thesis over time and understand if it’s really working.

Depending on my conclusion, I’ll adjust accordingly.

Note: For both of these, I’m going to discuss this in more detail later this year because I think it’s the foundational skill of a venture capitalist. But, if you’re not interested in waiting, ​check out my course here​.

Step 4: Red flags.

The final step of the process, red flags.

I find this to be a really effective (and creative) way of making sure I remain on track. In this section, I’m writing down all the ways I can NOT achieve my goals.

What are the things that if I did them, I would make sure I don’t achieve my goals?

It could be something as simple as the inverse of everything outlined above (e.g., NOT blocking time for outbound sourcing) or something more nuanced (e.g., not maintaining my mental or physical health, preventing me from performing at a high level).

The exercise of writing this out makes it concrete for me. It makes it real. There’s no hiding from the mistakes when I’ve outlined them in detail.

And, there it is. My 4-step annual planning process.

Hopefully, this process helps lay the foundation for a strong 2024.