Introduction
In an early-stage company or a startup, changes in plans and pivots are an unavoidable reality, and we never have enough time to do it all. We have to pick our battles, optimizing for what will get us off the runway. When plans frequently get updated over impromptu lunch meetings, it seems sensible to put formal roadmap planning into the “later” pile. But if you’re planning on taking an investment or selling in the next five years, especially in deals with private equity funds or other later-stage investors, this is a dangerous temptation.
In this edition of the RingStone Ready-for-Exit blog post series, we’ll look at why a simple spreadsheet won’t cut it – even for small, early-stage companies – and how you can reap some of the less obvious benefits of formal roadmap planning without heavy weight investments or processes.
Why Bother With Formal Roadmap Planning?
Reluctance to formalize your roadmap planning is completely understandable in a young or small company. You might worry you’ll waste valuable time planning things that don’t end up happening. You probably feel like you don’t have any extra time to evaluate and learn new tools – and you already know Excel. Your planning process itself is likely a bit of a shoot-from-the-hip affair, and getting bogged down in the process just feels like slowing things down for no good reason. And finally, you might have a nagging feeling that your current decision-making process is maybe not all that ideal, making you reluctant to document how it really happens. Better just to tell ourselves, “This is startup life, baby – we move too fast for heavy-weight planning tools!”
These are all valid concerns, and it’s certainly true that blindly copying big-company processes can be a kiss of death when you’re always watching your burn rate. But… here’s the kicker: if you’re building a startup with the plan of exiting, then you’re really building two products – for two very different customers. The first, of course, is the product you sell to your customers, whether a SaaS product, a tech-enabled service, or a flat-rate product. The second is the company you plan to sell down the road to an investor. Balancing the needs of these contrasting customers is one of the hardest parts of early-stage business. While informal roadmap planning might be fast, that informality also means you’re optimizing for the urgent needs of the current customers over the important needs of the future customers and investors.
Understanding the Later-Stage Investor
At RingStone, we regularly conduct diligence on companies at the inflection point of courting their first big-money, later-stage investor, and we coach companies getting ready for this in sell-side diligence engagements. Frequently, when we talk to an early-stage or smaller company, they’re transitioning from getting investment from early-stage venture capital funds (VC) to later-stage private equity funds (PE), but are woefully unprepared for the differences between them. While this is a big enough topic for its own blog post (and there will be one!), it’s worth a quick detour to cover now. In a nutshell (and this is, of course, an exaggeration of the dichotomy), VC funds expect one out of ten or twenty of their portfolio companies to blow up and the rest to eventually fold. They thus want you spending every second on the initiatives that increase the odds of going boom, and they’re comfortable running risks in the process – as are their investors. In contrast, PE funds, broadly speaking, are spending over $100M on a smaller number of companies and expect a healthy year-over-year growth followed by a profitable exit after a hold period of around five years. As a result, VC and PE funds have wildly different appetites and attitudes towards risk. To the late-stage investor, it’s not acceptable for any of their investments to tank – they need to know you have a real business.
At RingStone, our main job during diligence is sniffing out the risks that could seriously damage the investment. And one of the questions we get every time is “How is the roadmap, and can the team deliver on it?”
Demonstrating Trends
Absent a dated, documented roadmap planning system, a potential investor has no idea whether your latest pivot was the result of careful planning based on market feedback or a gut-feel decision
So, what does all this have to do with your roadmap planning tool? Well, if you’re making plans that change rapidly, storing them in a simple spreadsheet, and updating them on an informal cadence after quick meetings, how will you assuage those concerns? Now, you might respond that it makes no sense to spend time right now on heavy-weight tooled-up processes. And this is a valid concern. But these are not amateur investors – PE deal partners see a lot of companies. They don’t expect to see a startup planning a detailed roadmap 18 months out, with a process and tooling appropriate for a company with five times the staff and revenue. But they need to see evidence and they need to see trends. To the later-stage investor, there is a world of difference between light-weight, fast-moving processes done on purpose, with awareness of the pros and cons, and a lack of process born of ignorance, disorganization, or worse, reluctance to document how things really get done.
Spending time getting your roadmap process and plans into some kind of database-driven system provides all of this. It doesn’t need to be heavy, it doesn’t need to be excruciatingly detailed, and you don’t need to be using all the features of the system yet. What it does need to do is to demonstrate how you make decisions, what those decisions are, and whether you managed to execute them when you planned – or if you changed them, why. If by year five, a company is still pivoting and missing milestones as frequently as they were in year one, that's a problem. Your system needs to be able to demonstrate the difference between how you are now and how you were last year, two years ago, and five years ago. This trend line is the very best predictor for how you will be in five years, and that’s what they care about. And you can’t do that if you don’t start collecting that data now.
Your North Star
So what is this future state you're supposed to be tracking towards? What do they want to see? From our experience talking to hundreds of deal committees, they want to see you maturing towards:
Deliberate decision making: A more deliberate way of making decisions about the product and business direction, with a steadily growing time horizon
Diverse roadmap inputs: A more diverse set of inputs into the roadmap, with input from sales, support, market research, and R&D.
Accurate time management: Better ability to determine how long initiatives should take and to hit the milestones
Documented decisions: Better documentation on decisions that were made and their rationale, providing yardsticks against which you can measure progress
Now, if your company is still young or small, your records may show frequent course corrections. This is okay! But capturing them in a tool that documents decision-making and enables dated exports allows you to demonstrate why plans got changed and to show that this happens less and less frequently year after year. The rule of thumb is that if the investors need to guess, they’re going to err on the side of overestimating how much the uncertainty should be worth, and this cost comes directly out of your valuation. While it might feel like keeping your cards close is tactically advantageous, the odds in the deal will always favor the house.
Roadmap Planning Essentials
So, what do we need from this system of record? Ideally, you want a tool that you can grow with, but that is easy to get going on. At a minimum, you need to be capturing (and be able to provide evidence of):
Decision Tracking
Detailed records of decisions made, including dates and the basis for each decision.
Documentation of any inputs or processes followed, such as RICE, Boulders/Rocks/Pebbles, etc.
Roadmap Documentation
Your projected 3, 6, 12, and 18 month roadmap at any given time
Milestones and Adjustments
Scheduled milestone dates and actual completion dates
Documentation of any deliberate changes to milestone dates, including the rationale for those changes.
Cost and Time Estimates
Initial estimates of cost and time for roadmap items
Actual time and cost taken upon completion (these can be ballpark estimates in FTE months or similar a metric)
Resource Allocation
Planned resource allocation to deliver roadmap items
Actual resources used
And, of course, you need a way to get data out. But don’t let worrying about the prettiness of exports delay you getting data in. As long as your system is based on a database and has some kind of API, you can always figure that out later – but you can’t go back in time to start collecting earlier. If you’re already using a database-driven system and it’s working for you, that’s fine. Just make sure you’re storing everything we’ve looked at so you can get it back out later.
Immediate Benefits
The simple act of tracking how decisions are being made and what their inputs are
gets everyone thinking better and harder about those decisions
Of course, better roadmap planning also has immediate benefits for you and your current customers. The simple act of tracking how decisions are being made and what their inputs are gets everyone thinking better and harder about those decisions. Recording the basis for decisions keeps us thinking about our inputs to decisions:
Are we really getting enough information from support about how easy our product is to use?
Are we really finding out from sales what missing features are preventing new deals?
Are we really consulting our development team properly about what can be built quickly and what will be hard?
As your product and team grow, these questions become increasingly important, and dedicated roadmap planning constantly reminds us of them.
Choosing Your Tool
So you’re sold - what’s next? If you aren’t yet using a dedicated roadmap planning tool, we recommend taking a careful look around to find something that fits your budget, team size, and planning preferences.
Tools we frequently encounter during diligence include ProductPlan, ProductBoard, OnePlan, Miro, and Strategic Roadmaps (previously called Roadmunk). If you’re already using Jira for other planning, it would also be worth looking closely at Jira Product Discovery, Atlassian’s recent addition to the Jira family.
Conclusion
By enabling us to clearly demonstrate steadily increasing maturity, the investment in
roadmap planning will pay for itself many times over when we get to exit
While it can be tempting in the early years to delay formalizing your roadmap planning, there are compelling reasons not to wait, especially if you’re planning on taking investment or selling to later-stage investors. It's important to remember that in startup-land, we are always working for two customers: the ones who sign up on our sites and the investors who buy our startups. The bigger we get, the more the investors want to see positive and consistent historical trends that demonstrate the company is on the right track and will be an even better and more valuable asset in five more years. Getting our planning act in gear now is the very best way to do this. Roadmap planning doesn’t have to be heavyweight or expensive, and it helps us run our businesses better right now. By enabling us to clearly demonstrate steadily increasing maturity, the investment in roadmap planning will pay for itself many times over when we get to exit.
About The Author
Iain C.T. Duncan has spent the last 20 years working in the software industry as a CTO, developer, software architect, and consultant, building B2B and internal web applications at startups, agencies, and early-stage companies in Canada and the U.S.
At RingStone, Iain advises private equity firms globally, conducting technical due diligence for early and mid-stage companies. He has six years of experience in the diligence sector and has participated in hundreds of efforts as a practitioner, reviewer, and trainer. Before entering the diligence sector, he worked on software for e-commerce, association management, non-profit fundraising, genomics, and online education, among other industries.
An active open-source developer and researcher, Iain is currently completing an interdisciplinary PhD in Computer Science and Music at the University of Victoria, working on applications of Scheme Lisp to algorithmic music and music pedagogy. He is the author of the Scheme for Max open-source programming extension to the Max/MSP audio programming platform and is the founder and developer of the online music education startup SeriousMusicTraining.com. Contact Iain at iain.dunwhite@ringstonetech.com.
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