It isn’t easy to make strategic decisions when you’re operating off of emotion instead of data. In this guest post, Tom O’Neill shares a forecasting model to help digital shop leaders guide regular discussions and gain valuable business insights.
Tom O’Neill is the CEO of Parallax, a platform designed to help consultancies grow profitably while building strong cultures and teams. Prior to Parallax, Tom was the CEO of the Nerdery, a digital consultancy providing custom software development. Tom is proud of growing Nerdery to near 500 Nerds and $70M in annual sales while building a reputation for a strong culture that attracted and retained some of the best talent in the country. Today, he enjoys sharing what he learned on his journey with owners and operators who are building passionate and engaged teams.
In 2008, my wife was pregnant with my oldest son Seamus when I came home from work to tell her that our executive team had agreed to cut our own pay for the foreseeable future. We did it in order to reduce expenses while keeping our team of engineers and designers employed during the financial crisis. She gave me “the look.” Anni has a distinct non-verbal expression that I’ve come to know (and deeply appreciate) over the years since. It’s the “you are f*cking crazy and I don’t know how we’re going to do this but I guess we’ll figure it out” look.
Seamus is almost twelve now and he has two brothers, Carrick and Cian. My last company, The Nerdery, survived the recession and grew from just a couple of dozen nerds to $70M in annual sales and almost 500 employees before I left two years ago and started Parallax. (Yes, Anni has given me “the look” a few times lately.)
I’ve heard from my good friend Carl, owner of the Bureau of Digital, that many of the great companies in the Bureau’s community are experiencing some uncertainty in their businesses right now. I thought I might be able to help by sharing one of the tactics we used back at The Nerdery to operate profitably, and consistently, through the ups and downs of business. This tactic was especially helpful for us to be confident that we would survive in the most difficult times. When I promised Anni that we’d be ok, she believed because I believed.
Forecasting Revenue & Profit
The concept is pretty simple: we built and maintained a simple financial model for our business and monitored it on a regular basis. This model helped us to forecast our revenue and profit as well as understand the variables at play. It was never perfect, but close enough and easy to maintain. Most importantly, it gave us the predictability we needed to make decisions strategically instead of reactively. We could look forward, and model “what if” scenarios to make informed decisions based on data, not emotion.
I spent a few evenings this week recreating a model similar to the one we used back in the day. I wanted to share it with the Bureau of Digital community in hopes that some of you might find value in it. I like making spreadsheets more than I like writing blog posts so I also recorded a little how-to video (below) rather than spending hours writing up how to use the spreadsheet. (For those of you who can’t stand to look at my ugly mug, I’ve also included some basic instructions in the first sheet of the Google document.)
I can’t stress enough that this model is not meant to be used as a finance tool to run your business. There are great tools like QuickBooks and amazing professional finance people for that.
Tom O’Neill, CEO of Parallax, outlines how to use the Revenue Forecast Model.
This model is meant to guide regular discussion and provide insight into the financial outlook of the business. The model alone is not what helped us lead with confidence at The Nerdery. Through the regular cadence of analysis and review, our senior leadership team developed a strong understanding of the key metrics in our business. More importantly, we lead with a shared perspective on what drove them. While our weekly leadership meetings certainly were tactical at times, when necessary we were able to act strategically with a common understanding of the business. We knew the big levers we could pull and the impact of decisions we were trying to make. The spreadsheet was not the secret to our success. It was the regular cadence of discussion guided by some structure to our financial outlook that made the difference.
If nothing else, I hope you can take a few nuggets from the concept and incorporate them into your business rhythms. If you need any help talking through that, or have any questions about managing a professional services business through times of uncertainty, please don’t hesitate to reach out to me at tom@getparallax.com or tommyo on Slack. I’d be happy to jump on a Google Hangout and talk shop.