Imagine a world where you know who’s working on what, how much is coming in and how much you need to close. Where your nights and weekends are your own, and you don’t keep losing money because you’re awful at pricing or can’t seem to hone in on problems to fix them.
Rob Harr, Vice President of Sparkbox, lives in that world, alongside Jody Grunden, Managing Member of Summit CPA and Summit CPA’s clients. Over the years, Rob and Jody have tamed the dark arts of forecasting, putting their unique spin on things and also combining forces to help digital shops, large and small.
Forecasting may seem complex, confusing and largely unattainable. But with the right guidance, it’s within reach. Rob and Jody join us to share their perspectives on forecasting, understanding capacity and determining a systematic approach to operations and your finances.
Join Rob and Jody for a two-day Financial Metrics, Forecasting & Operations Workshop on November 4–5 in San Francisco.
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Carl Smith: Hey everybody, welcome back to The Bureau Briefing. With me today, I have got two people who are supposedly smart when it comes to one of the dark arts of running a creative services business, forecasting.
Carl Smith: So please welcome to The Bureau Briefing, Mr. Rob Harr, the Vice President at Sparkbox, and Mr. Jody Grunden, CEO and Co-Founder of Summit CPA. How's it going, fellas?
Jody Grunden: It's going well.
Rob Harr: Living the dream.
Carl Smith: Well it's good to have you both here. You're also both good friends, and you seem to tolerate one another, so this should be pretty fun.
Jody Grunden: That sounds about right.
Carl Smith: That does sound about right. So, let's kick it off and just understand a little bit more about forecasting, because I would put forecasting up there with pricing, and confusion over what it is, with the difference being people have to figure out pricing. Forecasting seems like something that they just look at dreamily, wondering if they could ever get there.
Carl Smith: So, Rob, when you define forecasting, when you think about it for Sparkbox, what is it?
Rob Harr: Yeah, and I think it's just the art and practice of trying to get good at predicting what work looks like into the future. For us, it's a really key part of how we run operations here at Sparkbox, and it allows us to do all kinds of cool things, figure out, you know, it has a component with pricing, it has a component with figuring out how much work we need, and, you know, what the financials look like into the future, so we can make good decisions with our cash today.
Carl Smith: When you focus on forecasting, you're looking at the workflow, right?
Rob Harr: Yeah, very much so.
Carl Smith: Okay. Now Jody, give your definition of forecasting, and, obviously, being a CFO, it's going to be more on the financial side.
Jody Grunden: Yeah, I mean, real similar to what Rob was saying, forecasting for us is we're creating that blueprint or that, you know, that roadmap of where we want to go and how we want to get there. So it's on the forecasting side, where on the financial statement side, where we're taking the information that what Rob was talking about and putting it into a financial plan, not just on the income side of it, but actually on the cash side of it, so we can kind of determine what our cash situation's going to be three months from now, six months from now, a year from now, what the debt situation's going to look like, do we really need to have that line of credit?
Jody Grunden: You know, all the different things that go into and keep us business owners up at night, we want to put that in perspective, so that when we're making those decisions, they're really, truly informed decisions.
Carl Smith: Jody, when you're doing your job for your clients, your clients are almost all in the services business, right?
Jody Grunden: Correct. Yeah, correct.
Carl Smith: Okay, and so, when you're helping them out, it's financial forecasting?
Jody Grunden: Correct. Yeah, so we're getting ... helping them put that blueprint together, again, so they can, you know, that they can ... they know where they're going, I guess, know how to get there.
Carl Smith: Now, you're both going to be putting on ... we've got a two-day workshop coming up on forecasting. It's interesting to me that we're going to be looking at it from the financial side, and we're going to be looking at it from the workflow side. So, Jody, when you're looking at the financial side, how does workflow play into it?
Jody Grunden: Well, it's really important, the reason being, is because once we actually put the game plan in place, you know, when we look and see, "Hey, on a capacity side, you know, how well is, you know, this company ... how much ... what can this company actually do? What's their capacity? What can they achieve if they do everything the right way, if they miss a little bit?" You know, that sort of thing.
Jody Grunden: So, once we decide, you know, "Hey, this is what we're going to agree upon as a group, you know, this is what we're going to look to achieve," then it goes to what Rob's going to talk about, which is, you know, how are we going to achieve it? You know, because that's kind of where the financial leaves and the implemation actually begins. So it's a, "Here's the roadmap," and then what Rob's going to talk about is, you know, how are we going to get to there?
Carl Smith: Then Rob, you're focused on how to make sure that you've staffed everything appropriately.
Rob Harr: Yeah. It's really ... it's that the staffing side, but it's also looking at and planning for capacity of what we need to do from a sales perspective, and how do we, you know, have good utilization across our staffing clan and the money that we're already going to pay for people? You know, it's one of those things we need to figure out exactly, like Jody said, you know, it's great to have what your capacity is, and know what your margin of error is and what your miss is. But then how do I have a feedback loop to know that I can actually achieve that and grade myself, and get good at predicting how much work we have, and how do we, you know, run our ... you know, run these studios, so that they can actually hit those financial results that we all want?
Carl Smith: Rob, how far out are you able to see, at Sparkbox, that you feel comfortable about? I don't want to say accurately, because you never know. But in terms of ... what do you feel comfortable that your vision is right now? Your view.
Rob Harr: Yeah, I mean, we've got projects that, you know, we've got commitments that run into 2020 right now, so, you know, that's ... we got some that ... commitments out about a year, and different degrees between that. But I feel pretty comfortable with the work that we've got, you know, signed or close to signed, that we're going to hit those numbers.
Rob Harr: You know, and we grade a couple different things, we grade, you know, a couple weeks out, we grade next week, and we grade ... try to look at and plan for what the next month or two looks like from a actual utilization standpoint.
Carl Smith: So when you say grade, when you're grading something out, what do you mean?
Rob Harr: Yeah. We actually try to, you know, make sure that, you know, the actuals and the forecasts work actually line up. It took, you know, it took forever kind of to ... for us to figure out, you know, what it looked like. One of the things ... We really kind of had this moment where things started working better, is when we actually were able to talk about, "Here, here's what we're asking individuals and teams to commit to, and here's what you actually were able to do."
Rob Harr: So not being able to ... not grading them on capacity, because capacity is a function of what [inaudible 00:06:14], and things lining up, and so many things outside our control. But once we have things in our control, how well are we doing meeting the commitments we're asking people to make?
Carl Smith: Jody, do you see a lot of your clients having a similar process to what Rob's doing? Or, when they get to you, are they just kind of like, "We're growing really fast and we don't know what's going on."
Jody Grunden: It's kind of a combination of both. We get clients that are in that maturity stage, where they've already kind of gone through the steps that Rob's talking about, and they just need somebody that just kind of overseeing things. But, then we also get a lot of clients that are in that growth stage, where they really ... you know, they're the best at what they do, but they really never had a finance class in their world, and you know, they never had ... they don't have anybody on the team that really knows anything outside of maybe just entering some bills and that sort of thing.
Jody Grunden: So, we get kind of a combination of both. But as Rob was mentioning, the key there is, like he had mentioned, you know, you've got to really kind of develop this forecast and everything based on the capacity of your team, and then sure it up based on what you have in the pipeline. Then what's under contract, making sure that utilizing those ... that team, you know, perfectly, or as perfect as you can get, so that you're not losing money in between, and then you can kind of support that forecast even better.
Carl Smith: What do you see as the biggest challenges for somebody in operations or that's running a shop to getting there? What are the things they have to achieve or overcome?
Jody Grunden: Well they've got to really get a good idea of where they actually truly stand, making sure their actual accounting books are clean and up to date, the information going into is good information. Whether they're tracking time or not, they want to make sure the time is being tracked appropriately. The garbage in, garbage out scenario happens a lot, where if they're not doing things the right way on the input side, then they're going to junk on the output side.
Jody Grunden: So, it's really important that they really, you know, pretty much, you know, bring everything to where they ... where it needs to be in a clean manner.
Carl Smith: Rob, you don't work with other shops so much to help them get going, you talk to people, you consult, you know, as a friend ... a friendly shop. But when you talk to people who are trying to figure out how they're going to forecast their workflow, what are those challenges and things they have to achieve to get going?
Rob Harr: Yeah, I mean, I think just right back to what Jody was saying, the single biggest challenge that most shops have that I talk to is being able to accurately measure what happened in the past. That's the single biggest hurdle to get over. If we can't say what happened yesterday, how are we going to use that data to predict what happens tomorrow? And how are we going to know that our forecasts are even accurate? I think that's the place where we all have to start.
Carl Smith: So how did you crack the code on that? I mean, there are a lot of people involved in the inner workings at Sparkbox, so how do you figure out getting that information from the individuals and into a usable format?
Rob Harr: Yeah, and I think for us, it was really just starting to write down and be really intentional with our operations process, to be ... to have a process, to have everyone included, to educate and say, "This is why this is important. This is how we're going to get to where we're going, this is what we're going to do on every single different day of the week so that we have good data."
Jody Grunden: I think also adding to that, I think the big thing is is that you don't punish people for accurately inputting their time, you use their time as more of an education thing. You know, "Hey, you know, the time ..." You know, because they're going to ... because people are going to obviously push back, and they're not going to start recording time accurately if it's a focal point. So you just have to make sure that everybody understands and educate, like Rob was saying, on why we're tracking time this way, and here's why, because a profitability. We're looking for profit margins, we're looking for different ways to improve on your ability.
Jody Grunden: You know, maybe when we uncover everything, we find out that John is ... takes thing ... you know, takes maybe twice as long as what Mary is taking. So, we're going to spend some maybe some really quality time on John to educate him and kind of bring him up to ... and improve his abilities, where we wouldn't have known that before.
Jody Grunden: So, there's a lot of great things, like Rob was saying, that, you know, by tracking time, can really help out the process. I think it's really, like I said, really, really, really, important to educate the team on why it's important, why you're doing it. Once that's done ... and then, of course, everybody's got to do it, and it's got to be measured, it's got to be monitored, it's got to be followed up on. If all that's done, I think you're going to come out with a very successful platform.
Rob Harr: Yeah, and I think it's ... you know, the way I've always thought about it is the way we protect our team is by saying, "Hey, if you're accurate, then we're not going to ... we're going to make sure we don't give you too much to do. We need this to help protect you and protect your evenings, or protect your weekends, so that we can have realistic expectations, we can serve our clients well." It's not a punishment thing, it's a thing where ... you know, in order to make this thing work like it should, and know where the money's being spent, we have to have good records and good data.
Jody Grunden: Oh, and the other thing is is that, you know, maybe we're really, really, crappy on the ability to price our products. You know, maybe every time we come into a flat fee project, for instance, we, you know, we overpromise and we can't get the time allotted in there, or if we're hourly, we keep writing things off.
Jody Grunden: So, it allows us, not only do that, but also helps us, really, to price different projects a lot easier, you know, to where they're actually 100% profitable, or close to 100% profitable.
Carl Smith: Or, just better than they are.
Jody Grunden: Yeah, yeah, exactly, exactly. Yeah, for sure, for sure.
Rob Harr: You know, data is a great flashlight, it can [inaudible 00:12:03] all kinds of problems. The thing that ... That whole thing makes me think of the last couple, you know, studios that I was working with to talk about forecasting, actually spent a bunch of time with to help build some of the discipline and, you know, operations part in. You know, about a couple weeks in they said, "Well, this is really hard and this sucks." I was like, "Yeah, yeah, exactly. This is the hardest thing you're ever going to do, because this is going to expose all of your problems, and you're going to see all those things bubble to the top, and it's going to suck, and you're going to have hard conversations, and it probably will be the most valuable thing you've ever gone through, if you get through it. Don't give up."
Carl Smith: It's forecasting counseling, is what you're doing [inaudible 00:12:48]
Rob Harr: Yeah, it really is.
Carl Smith: Therapist.
Rob Harr: Yeah, it really is. I mean, yeah, exactly. It's going to hurt, and it's going to ... like every ... humans want to believe they're really good at predicting the future, until we actually show them data and say, "No, this is where we're at, and this isn't just you thing, this is all of us, this is a team effort." It takes a team to build a good forecast.
Carl Smith: But can't we just pad the stats, because we know how we're wrong every time, Rob?
Rob Harr: No, it doesn't work that way.
Carl Smith: Now you tell me. Now you tell me. Back to the getting the team on board, that's obviously a big part on your model, Rob, on the workflow model. Jody, I'm sure you've got, not just operations, but you've got ... the team itself has to start tracking that time, even if you're value-based, so you can understand what it took.
Carl Smith: At the recent owner camp in [inaudible 00:13:40], one of the owners mentioned, who also heads up operations, that the shift for them was when they told everyone, "By tracking your time, you're holding us accountable, we're not holding you accountable. This is the way that we'll know the job we did." Which is very much what you were both saying, but I just thought saying it that way, "This is how you hold us accountable," kind of gave the individual producers the power to make sure, like you're saying Rob, to protect their nights and weekends.
Rob Harr: Yeah, I think the single biggest thing that we learned is once we had some comfort ... and we started with a small group, you know, when we started getting good at this and the pain, because, you know, you don't want to bring anybody ... everybody into the pain all at once. But once we started with a small group with the project managers, once we rolled this out to the team, it took it to a new level, because all of a sudden, there was no better group of people who were able to look at a forecast and be like, "Wait a second, this is what you expect out of me? Well, you didn't think about these things."
Rob Harr: All of a sudden, everybody was starting to help put input in and saying like, "Hey, this is the expectation, why aren't we accounting for these things?" That gave us a chance to get in front of it from a project management perspective, and an ops perspective, to either unblock them, or to make those forecasts even better.
Carl Smith: Right, because every process has hidden parts that nobody sees that somebody just does, right?
Rob Harr: Yeah.
Carl Smith: This kind of to your point, kind of shines a light on it.
Rob Harr: Yeah, it's going to shine a light on all the good and the bad, and there's a lot of bad.
Carl Smith: Jody, what do you find are the things that somebody wasn't paying attention to? Once they start having to capture the financial side, do they find little things that they're spending money on, or that they're not anticipating every time?
Jody Grunden: Oh, for sure. Yeah, the big thing they find out is all the internal time that they don't even think about, because internal time really doesn't cost any money, right? Well, that's obviously wrong, internal time costs a ton of money. When you kind of put it in perspective on, "Hey, how much is that RND project actually costing you? And, you know, ability to bill, as well as just overall cost." It's pretty mind boggling for them.
Jody Grunden: Then the other thing is just rolling off of a different accounts. You know, they forget about, you know, "Hey, the time it takes to ... for me to roll off one big account that you've been working on for three months to another account, maybe, you know, a week, maybe a few days." But it just kind of brings those little things in perspective on, you know, "Wow, maybe I need to start using my time as a manager to make sure that the team rolls off one into another. Maybe the RND's only used when we don't have, you know, things in the pipeline to fill it up, as opposed to taking away from, you know, time when we're really busy."
Jody Grunden: You know, all the different, you know, things that you really don't think about, because again, you know, time is time, and people don't think about it as money. When we bring that perspective, it's a big eye-opener for them.
Rob Harr: Yeah, and I think the other big unlock, not only is to know what those costs are, Jody, but it's ... a thing that we've learned is, if we can accurately forecast and know when people are going to be free ... because service shops are going to have ... you know, they're cyclical things, nothing's ever going to line up perfectly.
Rob Harr: But, you know, one of the things that we were able to do was utilize that in between time to actually accomplish valuable things for ourselves. It was a huge, huge win to just have shovel-ready projects and shovel-ready tasks where you could be like, "Hey, you people ... you three people, you've got two weeks before the next project starts. We know when it's going to start, I can't move it up, but just go accomplish this, because this is important, this is a priority for us as a company."
Jody Grunden: You know, and to add to that, kind of piggyback off of that, it's a great opportunity for that, you know, that job that, you know, maybe for a nonprofit that you really like a lot, but you really ... it's not going to be profitable for you. Well, it's a good filler time too, you know? You know you're going to be down for two weeks, you know, why not have them do this filler job to ... you know, for Goodwill, you know, to ... you know, that sort of thing.
Jody Grunden: It's a good timing for it, where as you might have said ... told that person or that church, or whatever you might be working with that, you know, "Hey, there's no way we can do that." Well, you can if you plan it properly.
Rob Harr: Yeah, no, I completely agree. I love the idea. We talk about two kinds of projects, slack projects, which we can tell clients that, "Hey, I can't commit to exactly when this is going to done, we'll do it in the holes, and, you know, we can charge less." Because anytime you average a non zero number, it's better for the company.
Jody Grunden: Exactly, exactly.
Rob Harr: You know, the second type of projects we do, are we look at investment projects. Projects that we know we're not going to make our full rate, but they have some other kind of upside to them. They don't cost us anything, because, you know, the utilization is there. You know, it's ... I constantly am thinking, you know, "I have an inventory of hours that expires every day at midnight, anything that goes unsold or unused evaporates from my inventory forever." So anytime that I can use those to do something productive, either for us, or either for any kind of upside, we win.
Carl Smith: The thing I'm picking up from both of you, is that the big shift is you now have control to do things on purpose.
Rob Harr: Oh, intentionality.
Jody Grunden: Yeah, we call them informed decisions, you know, making informed decisions, for sure.
Carl Smith: So that allows, not only you, but the team, to kind of get rid of the unexpected. It'll still show up, there's going to be a project that gets canceled or put on hold unexpectedly, that sort of thing. But, you've got these filler projects, you've got other things, it just means that people can relax a little.
Rob Harr: You get rid of the surprises, and that's the single biggest win with all of this, is the predictability and knowing what's ... you know, having some surety of what's going to happen. You know, you're right, things are always going to happen, things outside of your control, but, if, you know, a large percentage of your work is predictable, and you know what's going to happen, then those little bumps don't surprise you. You can account for them, and you can actually be ready for them.
Rob Harr: You know, even if things don't unexpectedly happen, we've had cases where we've, you know, gone into a slow quarter, had a slow month. But we can see it coming, we can actually adjust in time to make it not be a surprise and be awful.
Carl Smith: Hey, wouldn't September be a great vacation month, everybody? Who's looking to take a vacay? Yeah.
Carl Smith: So, the first of the workshops is going to be in August in New York. Rob, who should come to your workshop? What should they be, in terms of the role, in terms of the company.
Rob Harr: Yeah, owners and operators. Anybody who wants to talk about and learn about a, you know, systematic way to approach operations that result in good forecasting work.
Carl Smith: Great, and Jody? What should people come-
Jody Grunden: Yeah, same thing, owners and operators. You know, we're going to dive into the numbers and really kind of show where the company should be based on the capacity that they have. We'll go through a bunch of examples, and how to look for different, you know, issues as they come up, or how to handle different situations. We'll go over rates and all that kind of good stuff.
Jody Grunden: So definitely owners and operators are going to benefit tremendously from it.
Carl Smith: All right, great. Well, we're going to be at Harvest, so I want to do a little shout out to Danny and his team up there, thanking them for giving us the space for the workshop. For everybody, we will put in the show notes the link so you can find the workshop, and we hope we see you there.
Carl Smith: Jody and Rob, thank you so much for your time today, gentlemen.
Jody Grunden: Thank you guys.
Rob Harr: Thanks, Carl.
Carl Smith: All right, we'll talk to everybody next week. All the best.