Dan Martell - How To Build a Forecasting Process For Your SaaS Business

00:00:00.000 Hi there, I'm Dan Martel, serial entrepreneur, investor,

00:00:02.300 and creator of SaaS Academy and in this video,

00:00:05.400 I'm gonna teach you how to build a simple forecasting

00:00:08.500 projection system for your startup that doesn't require

00:00:11.740 to buy NetSuite or SAP or deal with tons of spreadsheets

00:00:16.320 and be sure to stay to the end where I share with you how to

00:00:18.320 get a copy of my weekly sync agenda structure.

00:00:21.260 It's what I use every week with my companies that I coach

00:00:24.200 to help them scale and grow their business and keep their

00:00:26.360 whole team accountable and on track.

00:00:30.000 So when I was building my company Flowtown,

00:00:44.200 one of the things that I always struggled with,

00:00:47.160 and maybe you can relate to this,

00:00:48.340 is setting crazy ambitious goals.

00:00:50.800 We read these books and they say you gotta define a BHAG,

00:00:53.560 a big, hairy, audacious goal.

00:00:55.260 So when we sit down with our team and we're planning,

00:00:56.980 we're like, all right, we're gonna 10X this year,

00:00:58.760 we're gonna 20X.

00:00:59.540 We're gonna crush it in the next three months.

00:01:02.040 The challenge with that, what I discovered really quickly,

00:01:04.740 is all of a sudden you start teaching your team

00:01:07.140 that it's okay to lose.

00:01:08.680 You set this crazy goal for the next three months

00:01:11.060 and then you fall short and you have to go back.

00:01:13.180 And look, it's typically like real legit reasons

00:01:16.320 that you don't hit your numbers.

00:01:17.500 The product wasn't done on time,

00:01:19.020 a key partner didn't do the distribution

00:01:21.000 the way you thought they did or would

00:01:23.200 or you didn't hire that key engineer

00:01:24.740 who's supposed to build that, you know,

00:01:26.840 artificial intelligent machine learning component

00:01:29.440 that was gonna change the game for you but what happens is

00:01:32.440 you make it okay and the last thing you wanna do is get to a

00:01:35.980 place with your team where they're okay missing their

00:01:39.480 numbers or they stop believing in some of these crazy,

00:01:43.260 audacious goals you set anyway and kind of, you know,

00:01:46.360 glad hand you and say yes, that's great, dude.

00:01:48.060 I'm gonna accomplish that and then when you turn away,

00:01:50.160 they're essentially gonna do what they're gonna do anyway.

00:01:52.860 I wanna teach you how I had to learn this from my investors,

00:01:56.540 sit down with them and say look, I feel bad because we keep

00:01:59.000 setting these goals and we're not hitting them and they gave

00:02:01.240 me a different way of thinking through the problem and built

00:02:04.800 the solution I'm gonna share with you guys today that allowed

00:02:07.280 Flowtown to go from literally, you know,

00:02:09.780 ramen profitable to over 50,000 customers in an 18 month

00:02:14.080 period so yes, we grew really quick but we also knew how to

00:02:17.720 set our targets and our forecast so that we could hit

00:02:19.780 them and build that momentum and that's what I want to share

00:02:21.920 with you today.

00:02:22.960 Number one, historical data.

00:02:24.860 One of the first things I do when I'm coaching a client is

00:02:27.260 Ask them, you know, whatever their goals is.

00:02:28.960 I want a 10x over the next 12 months.

00:02:30.560 I just ask them if they've ever done it before

00:02:32.460 because historical behaviour is a great indication

00:02:35.560 of future performance.

00:02:37.660 So the first thing we want to do is look at the three month

00:02:40.360 rolling, it's called the R3.

00:02:42.160 What kind of growth have you accomplished in the last three

00:02:44.360 months?

00:02:44.860 What have you done in the last six months?

00:02:47.460 That's R6.

00:02:48.260 And then R12 is the previous year.

00:02:50.160 Now I'm not saying that you can't improve upon that.

00:02:53.560 I just want to know what the baseline is.

00:02:55.360 So when you're sitting down with your team and you're

00:02:56.960 planning your year-end, kind of the next 12-month strategy,

00:03:00.700 work with them by looking at the historical.

00:03:03.100 Get them to pull that data forward so that you can start

00:03:05.560 making some assumptions on, hey, if we improve 20%

00:03:09.300 quarter over quarter, what would those numbers

00:03:11.300 start to look like?

00:03:12.300 So look at the historical.

00:03:13.980 Number two, resources.

00:03:16.120 As much as you wanna grow, you're always gonna be limited

00:03:19.240 by what I call the management bandwidth.

00:03:21.720 You have to work through your people.

00:03:23.560 Your people are an extension of who you are and their ability

00:03:26.480 to execute so if you don't have the resources through people,

00:03:31.060 through capital, maybe partners, maybe intellectual property,

00:03:34.480 you gotta look at everything you have so that you can

00:03:37.260 understand how to properly deploy the resources as you start

00:03:41.320 thinking strategically about growth and hitting your or

00:03:44.160 setting some projections for your business.

00:03:47.000 Number three, go to the end and then work backwards.

00:03:50.580 If you've ever read the book Seven Habits of Highly

00:03:52.900 Effective People, one of the habits is begin with the end

00:03:55.880 in mind, that's the way I think of forecasting

00:03:59.020 and setting projections.

00:04:00.020 I wanna go right to the end.

00:04:01.520 Ideally, three years is the furthest I'm gonna plan out.

00:04:04.580 Then I'm gonna work it back to one year

00:04:06.320 and I'm gonna start looking at what are the numbers

00:04:08.220 I wanna achieve in the next 12 months

00:04:10.220 and break it down by quarter.

00:04:12.120 If I wanna hit that number, what's the milestones

00:04:15.140 on each quarter that I need to hit

00:04:16.960 to make sure that we're on pace?

00:04:18.900 Number four, set targets.

00:04:21.200 Once you know where you wanna go in the next 12 months

00:04:23.540 and you've broken that down into quarterly goals,

00:04:26.540 then your job is to start setting the targets

00:04:28.780 on a monthly basis.

00:04:30.080 If you think about it, if you start falling off pace

00:04:33.780 every month, then all of a sudden the quarterly goal

00:04:35.760 is totally gonna be out of the question

00:04:37.820 and that just keeps cascading.

00:04:39.480 So what you do is you set your monthly targets,

00:04:41.620 then you add, and ideally you have some kind of

00:04:43.520 scorecard spreadsheet report that you look at

00:04:46.160 with your team, I have a scorecarding process

00:04:49.200 that I teach, you can search on my channel,

00:04:51.200 And what we do is we set the targets for the month,

00:04:53.740 then the actuals, where you're at so far.

00:04:55.740 If you're two weeks into the month, there's only four weeks,

00:04:57.980 then you should be at about 50% of target

00:05:00.680 and you review it and measure it every week with your team.

00:05:03.680 So every week you look at the targets for the month,

00:05:06.280 you set the number that you've accomplished so far

00:05:08.720 in the previous seven days and measure that every week

00:05:11.620 and hopefully your actuals based on trend

00:05:14.820 is gonna allow you to hit your targets for the month

00:05:17.260 and that's the focus you need with your team

00:05:19.860 to make sure you actually have a projection process and a way

00:05:23.840 to set the targets and hit them.

00:05:25.400 Number five, review monthly.

00:05:27.500 So there might be a month where you come in and you're off pace

00:05:31.180 a little bit and maybe it was a strategic challenge.

00:05:34.100 So you look at your numbers and you work yourself backwards

00:05:36.440 and say what were the activities that caused these numbers?

00:05:39.440 So every month I highly recommend that you have a team

00:05:42.480 meeting to look at the strategy for the quarter and ask

00:05:46.360 yourself are we focusing on the right things,

00:05:48.980 on the right initiatives that are actually going to allow us

00:05:50.560 to hit our numbers.

00:05:51.240 See, the challenge with business is when we do our planning,

00:05:54.740 we have a level of confidence and understanding of impact

00:05:58.560 and maybe some guesses around how easy these strategies

00:06:02.040 or projects are going to be to deploy,

00:06:03.820 but we really don't know.

00:06:04.900 So what I want you to do is give yourself permission

00:06:07.360 on a monthly basis with the team.

00:06:09.440 Look at your numbers so far.

00:06:11.200 If you're off pace, ask yourself,

00:06:13.400 are there things we need to ramp up?

00:06:14.980 Are there projects we need a table for later?

00:06:17.060 Do we need to double down on something

00:06:18.420 and it might be working really well,

00:06:19.620 but we should really invest more resources into it.

00:06:22.100 But don't wait till the end of the quarter

00:06:24.100 to adjust to realign your monthly goals

00:06:26.200 because if you fall off, then you're gonna have

00:06:28.660 to make that time up in month two and three

00:06:30.600 to make sure you hit your numbers for the quarter.

00:06:32.700 Number six, iterate quarterly.

00:06:35.640 So one of the things that I believe in

00:06:37.380 is that really it's a 90 day sprint.

00:06:39.000 If we think about performance,

00:06:40.440 and this is personal or professional,

00:06:42.280 we want to focus on the next three months in front of us.

00:06:45.320 Yes, we wanna have goals for three years, one year,

00:06:47.820 and break it down per quarter, but at the end of the quarter

00:06:50.460 when we look back at all the progress we've made,

00:06:53.000 we want to use that information to start planning

00:06:55.420 the next 90 days.

00:06:57.160 And when we do that, I want you to give yourself permission

00:07:00.440 to take all of the projects that you plan on doing.

00:07:03.160 If you're off pace, those projects are on the table

00:07:06.840 for being cut.

00:07:07.800 There's no reason that, and I see this all the time

00:07:10.700 with my clients, they're moving forward on strategies

00:07:13.480 or actions that they know will probably not work

00:07:16.720 because the stuff that they've been working on

00:07:18.420 have not performed either.

00:07:19.560 So what you wanna do through a kind of a forecasting

00:07:22.460 and a target process is to teach your team

00:07:27.060 how to hit plan, how to be accurate,

00:07:30.700 how to set the projections and hit the target.

00:07:33.880 And I think that on a quarterly basis,

00:07:35.740 you need to give yourself permission

00:07:37.480 to reset the strategy.

00:07:38.840 Maybe you're way off in Q1, you need to fix that for Q2,

00:07:42.640 readjust the projections, and then move forward.

00:07:45.080 Now, I'm not giving you permission to get off the hook

00:07:47.880 for your goals if you set them,

00:07:49.720 but I think that it doesn't serve anybody

00:07:52.160 to not talk about the big challenges you might be facing

00:07:54.960 if you're missing your numbers on a quarterly basis.

00:07:57.200 Number seven, don't teach your team to lose.

00:08:00.660 I mentioned this at the beginning,

00:08:01.900 but I think it's probably one of the most important things

00:08:04.940 that you can do as a leader.

00:08:06.940 Your job is to work through your people, 0.89

00:08:09.240 to coach them to success,

00:08:11.080 and to ensure that they have the ability to forecast

00:08:14.700 and be consistent on hitting plan.

00:08:17.240 That, to me, is the sign of a mature management company.

00:08:20.880 When I see somebody's pro forma or their estimates

00:08:25.320 and then I look at their actuals

00:08:26.420 and it kinda goes like this

00:08:27.480 and there's no consistency in their numbers

00:08:29.680 or they continue to give me these lofty goals

00:08:32.260 and always come short about half,

00:08:34.420 to me, that's not a great sign of great leadership.

00:08:38.080 That's telling me that you have been okay

00:08:40.860 with setting goals and teaching your team

00:08:42.420 that it's okay to lose.

00:08:43.360 And when you get into this spiral,

00:08:45.040 if you think about some of the great sports teams out there

00:08:48.680 that have gotten these spirals of losing streaks,

00:08:51.140 like it's really tough to get out there

00:08:52.960 and build this champion mindset, right?

00:08:55.740 This team that winning is the only option, right?

00:08:59.300 So if you set these goals,

00:09:00.620 and one strategy I learned from my buddy Todd Herman

00:09:02.680 is good, better, best.

00:09:04.320 Think about it like this is good.

00:09:06.460 If we hit this, you know,

00:09:07.540 maybe it's 25% growth for the year.

00:09:09.580 That's good.

00:09:10.580 Best would be 50% growth,

00:09:12.160 or better would be 50% growth,

00:09:14.160 and then best would be maybe 75% or 100% growth

00:09:17.240 over the next 12 months.

00:09:18.300 It depends what that would mean for you.

00:09:20.300 What would be a stretch?

00:09:21.800 But you still wanna make sure that you set a good

00:09:24.380 that is aggressive for your team to grow into,

00:09:27.380 but allows them to win, and then I always plan for best

00:09:31.380 so that when I'm talking about strategies,

00:09:33.080 I'm executing on strategies that's gonna get us best,

00:09:35.880 and then if my team gets good,

00:09:37.880 then they feel great about our progress

00:09:39.960 because at the end of the day,

00:09:41.460 you are the person curating, hiring the people that they're

00:09:44.900 gonna work with, funding the resources they're gonna need to

00:09:47.460 execute and you wanna make sure that they don't feel like

00:09:50.340 you're asking them to do the impossible without giving them

00:09:52.480 the resources and support they need.

00:09:54.300 So I highly recommend that you try to be accurate in your

00:09:58.580 projections and allow your team to hit them and win.

00:10:01.780 You don't wanna teach them to lose.

00:10:03.520 So quick recap.

00:10:05.020 Number one, use historical data.

00:10:07.880 Number two, review your resources.

00:10:11.080 Number three, go to the end and then work backwards.

00:10:14.980 Number four, set targets, measure weekly.

00:10:18.860 Five, review your monthly progress as a team.

00:10:22.420 Six, iterate quarterly strategies and tactics.

00:10:26.660 And seven, don't teach your team to lose.

00:10:30.100 So as I mentioned at the beginning of this video,

00:10:31.440 I wanna share with you an exclusive resource

00:10:33.160 called the Weekly Sync.

00:10:34.400 It's my agenda structure and it's got a bunch of details in it.

00:10:37.580 You can click the link below to download it.

00:10:39.480 but it's how I manage my team on a weekly basis.

00:10:43.020 In there, there's a line item for scorecard.

00:10:45.980 That's where you would actually put your numbers,

00:10:48.700 your projections, your targets and measure your actuals on a

00:10:51.460 monthly forecast basis and also every week have your team lock

00:10:55.540 those numbers in there.

00:10:56.460 It's super powerful.

00:10:57.500 One of my favorite things to do is customer headlines so that we

00:11:00.500 actually celebrate our customer wins as a group.

00:11:03.680 So click the link below, download your copy of that.

00:11:06.400 If you like this video, I would encourage you to share it with a

00:11:09.080 friend that you care about that might benefit from it,

00:11:11.580 click the like button and leave a comment.

00:11:13.720 Let me know what part you feel you need to add

00:11:16.020 to your planning process and as per usual,

00:11:19.020 I want to challenge you to live a bigger life

00:11:20.920 and a bigger business and I'll see you next Monday.

00:11:23.720 Good.

Dan Martell - October 01, 2018

How To Build a Forecasting Process For Your SaaS Business

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