Tl;dr - Annual planning, budgeting and forecasting are normally pretty straightforward. We essentially run a linear projection of recent successes/challenges into the future. With that baseline, we take last year's plan and tweak it. Adjust it a bit up or down. Submit the spreadsheet. And go back to work. Normally, that works. But not always. Recognizing when it won't is a skill and a leadership responsibility, and then using another tool from the toolkit is warranted. That's what Zero-Based budgeting does, and it's time for us to take that approach to our revenue growth activities.
A Zero Based Approach to Revenue Growth Will Help Industrial Manufacturers Thrive in Turbulent Markets
If you've been active in industrial business for 20 or 30 years you've certainly seen cycles. Some, like the halcyon days of selling during COVID were good news. Some like the wrenching GFC were very bad news. But they were cycles, and while they may have felt enormous at the time, looking back the supporting trend line is clear. And cycles reverted to trend.
Because the trend has been sustained, our natural biases (particularly normalcy and recency bias) tell us that it will continue. We anticipate the cyclical perturbations, but we don't really fret about the cycles; instead we deal with them when they occur.
That means that our annual planning process is pretty simple. We take last year's plan/budget/forecast and we project it into this year with some tweaks. The foundation for the plan is last year's - and that generally works because of the trend. Top line results grow by 3-5% (just based on inflation), and expenses rise roughly the same.
But....if you've studied wave theory, read The Fourth Turning is Here, or even studied some history, you know that sometimes cycles give way to secular changes. In other words, a profound reordering of what we take to be axiomatic. That changes the trend, and our projections and assumptions become fundamentally wrong.
So when significant secular changes occur, often we must adjust our planning process. Zero-based budgeting is an example of how we do that. Rather than start with last year's budget and tweak it, instead we start with a completely empty spreadsheet - or perhaps with only the left column populated by the chart of accounts. And we start from scratch, testing and challenging assumptions and building a budget based on current realities rather than last year's assumptions.
It's clear that norms are being broken globally in early 2025. That may be terrifying or satisfying, depending on your perspective. That doesn't matter for the purpose of this discussion.
AI, immigrant labor, tariffs, currency valuation, global alliances, political alignment of blue and white-collar workers, a change from falling interest rates, and deglobalization of manufacturing are all disrupting the trends that have guided business for the last 30 years.
That means we're now facing secular changes rather than cyclical ones. This has implications across industrial manufacturing businesses. There's enormous uncertainty. Owners, board directors, and leaders should work diligently to accumulate different informed opinions and plan for various scenarios.
This should include supply chain, target markets, talent management, return on equity and more. And it must include revenue growth functions.
I believe it's time for Zero-Based Revenue Growth Planning.
What Do We Know for Sure That Just Ain't So?
- Cold calling (door knocking) doesn't work, especially in industrial sales.
- Our buyers have to get at least three quotes.
- Inbound/digital/content marketing is the key to market growth.
- Our sales reps need to prospect for active projects.
- AI isn't going to impact our industry.
- Our biggest competitor is ABC company. (One that sells essentially the same product or service as you.)
These are things I commonly hear.
And they're wrong.
More importantly, at least several are the exact inverse of reality.
For instance, SparkToro research has found that over the last 18-24 months Google search activity has changed dramatically. For the last decade most searches have resulted in an organic link click. There were a small number of paid ad clicks, and always some searches were rerun with different queries. Suddenly, however, only 28% of all searches result in an organic link click.
The entire premise of inbound marketing is in jeopardy. (Does this mean no more content? No. But it does mean that we need to back up and take a Zero-Based approach to any spend on SEO, agency, and content creation spend.)
6Sense research has found that once a complex buying journey is underway, the specs only change 16% of the time. And Pavilion/TrusRadius research finds that about 70% of the time, vendors on a short list were known to buyers before they started a project, and also about 70% of the time the company at the top of the short list gets the order. What's worse, when reps bully their way into the process before buyers are planning to open it up to discussions with reps, they drive their chance of winning to nearly zero.
That means that for most companies (unless their brand is strong enough to put them at the top of every short list, and their category defining solutions basically write the spec) the typical prospecting model will uncover pipeline projects, but not consistently grow revenue.
Therefore we need a Zero-Based look at our sales activities and strategies. For instance, we need to train sales people to create projects and to work with marketing to build trust and awareness.
Read my analysis of the profound secular changes that are having a massive impact on industrial sales and manufacturing marketing.
We Must Make Some Educated Guesses
This isn't going to be easy.
First, it's hard enough to actually observe what's changing. There's legitimate debate about what's driving these changes, and therefore also legitimate disagreement about how to react/prepare/respond.
Second, the people in most companies that are the "experts" are well-marinated in their own perspective. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it."
Take the typical digital marketing expert in most companies. (S)he has spent the majority of a 15-year career being told that "Our buyers don't use the internet like in other industries", refining tactics and best practices based on companies that have defined this approach, and harvesting data that clearly demonstrates the efficacy of the approach.
In that context, the collapse of website traffic and keyword rankings over the last 12-18 months is likely seen as an indication that they need a bigger budget, and need to create more content - rather than the secular change that is unwinding much of what they "know" to be true.
And nobody knows. We're living through changes that will be clearer in ten years in retrospect, but we have to grow our businesses today. We need to make some informed (but imperfect and speculative decisions.) And yes, we can hedge our bets.
This is the Role of Leadership
Managers tweak.
Leaders make important, future of the company, gut check type decisions.
Now is that time.
Industrial manufacturers must recognize the massive secular changes occurring in how companies research and make complex buying decisions. And they must significantly change the way they marketing and sell.
