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⚖️ Strategic Finance IV: Strategy & the Long Range Plan
Connecting strategy to FP&A


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Strategy as a day job
“It’s the age-old conundrum. How do we turn strategy into action? Can you help us fix it?”
The CFO has asked me to move into a Head of FP&A role to solve this problem.
He was right. There was no problem with the strategy itself. It was well documented. With clear actions, who, what, and when.
It looked great on paper.
But that’s where it stayed. The actions had not been integrated into the operating plan.
The top floor and shop floor were talking about different things.
Delivering the strategy had become the 6th most important thing on every to-do list in the business. Not high enough for anything to happen.
People talked about ‘day job’ and ‘strategy’ like they were two different things. As long as it was seen that way, the strategy didn’t stand a chance.
The solution was less obvious. Once a business has fallen into a rhythm or narrative on a subject, it’s hard to break. And this was a big cruise liner. They don’t change course easily.
The C-Suite had set a challenge to open a new market (with a 15% sales growth challenge). The action was with the VP of Business Development. But she couldn’t deliver on her own. How could she? She needed cross-functional support. And without that support built properly into the operational plans, she didn’t stand a chance.
It was a stranded target. A pipedream.
And it wasn’t the only one. Nearly every major strategic lever hadn’t properly landed into the budget, objectives, and reporting cycle.
No wonder there was an execution problem.
It quickly became clear the fix was to start with the Long Range Plan (LRP). If we could get the initiatives built into the LRP in the right way, with the right ownership from the outset, the rest would be a walk in the park.
By transforming the LRP approach, we could break the objectives down into the annual operating plan, and then the employee’s personal objectives.
And once they were there, they could be measured, performance managed, and bonused accordingly.
It took a couple of cycles to get it working well, but we managed to land the change. And in doing so, we moved the ‘high impact but hard to do’ strategic initiatives from the side of the desk to the top of mind for the business.
Slowly but surely the business started to see delivering the strategy as the day job. Not a side hustle.
I learned a lot from that experience. And when I became CFO I always made sure the stated strategy and Long Range Plan were hand-in-glove.

This is the final part of a 4-part series on strategy from the CFO seat.
Strategy & the Long Range Plan
This is the finale of our 4-week series on strategic finance:
This week, we’ll walk through how to use FP&A to make sure that strategy turns to action.
The biggest risk with any strategic planning process is that it never makes it off the page. Strategies are written on paper. But they are delivered on the ground, by sales and operations teams.
The biggest challenge of any leadership team is to make sure the actions throughout the business are consistent with the strategy. From the top floor to the shop floor.
If your objective is to hit $15m annual recurring revenue (ARR) by the end of the year, you’d better hope you have:
Each sales rep with a personal sales target that aggregates to $15m+ or more in total
A commission/bonus plan that rewards the sales team in line with those targets
A reporting and measurement plan so you know if you are on track or not (including leading indicators)
A performance review cycle to give feedback and address underperformance
The tools and templates they need to do the job
A lead flow to make the target possible
A way for the sales team to talk to the operations/customer success team to ensure those customers don’t churn
And so on…
Individually, these things are obvious. And in isolation, they are easy to build.
But building the systems out across the business to cover the bases in every function AND making sure it is consistent with the strategy overall? That is HARD.
A great FP&A cycle is the backbone of this.
And a great FP&A cycle starts with a Long Range Plan (LRP):
Last year I wrote a step by step guide on how to run an LRP process. If you missed that piece, I suggest you read it here first.
In that breakdown of the LRP, we made one major assumption:
“The first critical question: Does your business have a clear strategy? Defining the documented strategy itself is out of scope for this series, but know this … A good LRP process is downstream from a good strategy.”
I promised at the time we would revisit how to adjust the LRP process when the strategy is unclear. And how you can use the LRP process to force that clarity in the strategy.
It’s taken a while to get back to it, but that is what we’ll do today.
Side note: (And if you missed the 9 part series on FP&A last year you can find it here)
So, how do you ensure the strategy and the LRP work as one?
Let’s kick off with a recap:
What is a Long Range Plan (LRP)?
It is the process for setting a high-level multi-year financial plan for the business.
It’s like a budget, but covering more than 1 year and at a much higher level.
Think of it like a strategy, but written in numbers rather than words.
And while Long Range Planning is the first step of the FP&A cycle, a good LRP process is downstream from a good strategy.
Who owns the LRP?
It is incumbent on the C-Suite (led by the CEO) to ensure strategic clarity up front.
But it’s for the CFO to ensure that clarity flows properly into the LRP. In practice this means getting the right assumptions and scenario plans.
But finance cannot be on an island.
This is a process that should involve the senior team in the business (the number of people depends on the size of the business). Think of it like this:
Inputs/assumptions (owned by relevant C-Suite leader for each input)
Process/modeling (owned by the CFO and FP&A Team)
Output (owned by the entire C-Suite led by CEO and CFO)
Strategy Process vs. LRP Process
The clearer the strategy, the simpler the LRP. In some businesses, the two processes may be so close they look like one. But not necessarily.
The key difference is this:
A strategic review or change is something that should happen as and when the business needs it. It may be informal or formal. As required or directed by the CEO. Early stage businesses in particular may need to pivot frequently. And equally distressed businesses may not have the luxury of waiting for the next ‘annual review.’
A Long Range Plan is a periodic process (typically annual). And is a more formal process with more defined outputs (5-year summary cashflow scenarios by business unit).
The strategic process is more right brained where the LRP is more left brained.
It’s so important to ensure the business takes time to step back from the numbers, and see the context. And to ensure that the strategy still defines the right answer to these questions:
Where to play?
How to play?
What needs to be true to win there?
It is why I like to think of the strategy as distinct from the LRP. Leap into the modeling too quickly, and you might miss the wood for the trees.
Alignment between strategy & LRP
As we said in Week 1 strategy setting is not a finance/FP&A process.
Another way to look at it is that the strategy will feed several business processes. Of which the FP&A cycle is one (starting with the LRP).
Everything is downstream from strategy.
The weaker the alignment between the strategy and the LRP, the longer (and harder) the LRP process.
And if you fail to align the two, the lack of clarity from the strategy flows into the LRP. Which then flows into the budget. Which flows into department plans, and onward into resourcing plans and individual targets. Very quickly the business is working to a plan that doesn’t add up vs. the strategy.
Ouch. It hurts just thinking about it.
But the art here is to use the LRP as a forcing function on the senior team to find strategic clarity. Expose disagreements. Inconsistencies. Force them to be resolved at the start of the new planning cycle - through the LRP.
Those discussions can be difficult and complicated. But on the plus side, by tackling them in the LRP they are contained to the small number of people that can actually make the decisions.
Which means those tough calls are pushed to the right place in the organization.
The impact of poor clarity in the LRP
The minute any fogginess or ambiguity infects the annual operating plans, it starts to affect a large number of people. And once that toothpaste is out of the tube, it’s hard to put back.
Let’s take an example:
If you can’t agree on whether you plan to grow sales by 20% or improve gross margin by 3 percentage points, how do you budget next year? How do you know where to price? Or even how many salespeople are needed? And what about your operational team plan? What capacity do they need? How do you know how much cashflow you will have/need, and when?
Without that clarity, people default to what they want to hear:
The CEO expects 20% growth and the 3 extra points of margin
The CFO forecasts for neither to avoid a cash hole
The CCO pushes for 20% growth but doesn’t plan for the margin
The COO doesn’t build the growth into the capacity plan
You can see how it can quickly become a mess.
And this will get much worse as it feeds down into plans for individual teams and departments.
So we must force that clarity through the LRP…
Using the LRP to force clarity
If your strategy itself isn’t clear enough to direct an answer on key assumptions, then you need to use the LRP process to force the clarity.
I can think of many examples where I felt a strategy wasn’t clear enough on key assumptions:
Is it more important to grow or expand margin?
Will we be doing any M&A? Where? How big?
Where are we reducing costs?
Where are we making investments?
How do we prioritize these things?
If you can’t answer these questions before the LRP process starts, you must be able to by the end.
As CFO, you own the modeling and the scenarios. This is a power that is useful in forcing strategic clarity.
The art is to use the definition of those scenarios and assumptions to expose the strategic inconsistencies. Then when they inevitably don’t reach the numbers you, the CEO, and the rest of the C-Suite are looking for, you can force a feedback loop back through the C-Suite.
And use that power to start the difficult conversations. Coming back to our growth and margin trade-off (a simple example), you could:
Model the growth scenario with no margin
Model the margin expansion with no growth
Reverse engineer a scenario including both the growth and margin expansion to show what would need to be true (and the extra resources required) to make it happen
Then get the C-Suite in the room with the model on a screen, and present the scenarios. Along with a list of ‘killer questions’ to be addressed.
This will provoke a debate of the relative merits of each scenario. And their likelihood, and impact on the financials.
I guarantee this will result in valuable strategic discussions. And ultimately it will come down to trade-offs. You can do anything, but not everything.
The model is valuable. But the conversations are more valuable.
With this process you force the business to make smart choices. You need the C-Suite (+1 or 2 levels down if necessary) to sit in a room and agree they are individually & collectively ‘married’ to the LRP assumptions and output.
I call this the ‘wedding vows’ moment.
And if the C-Suite can’t agree as a unit, you MUST force the CEO to play judge and make the tough calls. And then communicate them clearly. No fluffy edges.
The first year of your LRP will become your budget and annual operating plan soon enough. You cannot carry any ambiguity from the LRP into the budget.
Investments in the LRP
The most contentious part of an LRP is in deciding where to invest. And investment decisions are often the most sensitive part of your model. As there is a circularity between investment decisions and the outputs they generate:
“Give me another 10 heads, and I can grow sales by another 20%”
“Increase my capex budget by $10m, and I can reduce labor costs by 0.5 points of sales”
“Increase R&D spend by two percentage points and I’ll give you a breakthrough product inside 18 months”
As we learned last week, some investments will have more measurable outputs than others. And CFOs and finance teams will gravitate to the most measurable investments.
But we also learned the real breakthroughs in equity value come from ‘moving the value line up’. But these investments are harder to measure on an investment by investment basis.
So it’s important that the most creative, or dare I say ‘risky’, investments get evaluated properly during the LRP.
The LRP is when 90% of the triage decisions on investment opportunities will be made. Maybe not at an individual project level, but at least in terms of allocating the different buckets of capital.
For example, if you can afford to invest in lower prices or higher R&D (but not both), this is where you’ll decide which to do. And what you expect the effect to be. Even if you haven’t decided exactly what the R&D projects will be.
These are strategic unit economic decisions.
Having an LRP model that captures the effect of different investments and being able to easily toggle different scenarios is vital.
This will mean several iterations. So your model needs to be good enough to flex quickly. There are relatively few data points needed for an LRP (hundreds / low thousands vs. maybe millions in a budget). So a simple model is better.
For more detail on how to construct an LRP model, please read the posts from last year on long range planning and budgeting.
Setting the guardrails for the year ahead (and beyond)
Ultimately, the role of the LRP is to take a business strategy and put some numbers to it. Set some guardrails.
Execution is far harder than strategy. But good execution is so much easier when the strategy is clear.
Step 1 of great execution is building the right guardrails into the LRP process.
And once you have a solid set of LRP assumptions, year 1 of those assumptions can quickly become the base for the top-down budget.
From here, execution is so much easier. The value comes from the conversations amongst the senior team to reach that place of clarity.
Alignment doesn’t happen by accident.
Not only do you have a well-tested strategy, with an aligned financial model. You also have a C-Suite of leaders who know exactly what they need to do to execute their part of the plan.
Now for the hard part: delivering it! But we’ll save that for another time.
And with that, we wrap up this series on strategy from the CFO seat.
Something a bit different next week!

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Travis from Paris, France asked:
What would be your game plan as a newly appointed CFO of a massively cash-burning scale-up with a challenging path to profitability (because of lower-than-expected revenue growth and a high fixed costs base)? Would you apply the turnaround framework or approach the problem differently?

Hi Travis.
The short answer is: probably, yes.
But first, ask yourself this first:
Massively cash burning. Slowing revenue growth. High fixed costs.
Sounds like CFO kryptonite.
The first question is: do you actually have a business? Is there a viable business model with proven unit economics and an attractive addressable market?
If so, it’s more of a scale-up conundrum. If you can fund the scale-up capital, great. If not, then you need to find a scale-up plan you can fund. Either way, if you keep fixed costs as lean as possible you have a better shot.
If you don’t have proven unit economics, then it’s a far more existential question. Do you actually have a business?
3 years ago when the days were long and money was cheap, scale-ups with soggy unit economics had more time and room to solve themselves. Those days are behind us, though, Travis.
Back to your original question… you should be relentlessly seeking cash self-sufficiency for your business. It’s the only way you control your own future. Thinking about it like a turnaround (and using the frameworks) is one way to get there.
Good luck with it.
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And Finally
Next week we’ve got another special edition.
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Stay crispy,
The Secret CFO
Disclaimer: I am not your accountant, investment advisor, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. And certainly is not investment advice. Running the finances for a company is serious business, and you should take the proper advice you need.

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