You’ve just been hired as CFO of the Gatsby Corp., a new company in the high-tech computer business. Shortly after your arrival you were amazed to find that he firm does virtually no planning. An extensive business plan was put together when it was started with venture capital eight years ago, and revised when another round of funding was needed four years later. Other than on those occasions, no planning seems to have been done at all.
The firm was founded by its entrepreneur president, Harvey Gatsby, based on a new technical product he’d invented. Initial demand for the gadget was overwhelming and the firm grew rapidly if chaotically until about a year ago, when competitive devices started to affect its business. The following conditions exist today.
• Sales of the original product are beginning to decline.
• The organization seems to have a number of people and departments whose function and value aren’t clear.
• The engineering department is pursuing several new developments that have commercial possibilities, but progress has been haphazard and no one seems to have thought through how any money will be made from the ideas.
• Additional funding is required to get any new products that might be developed to market. Harvey has suggested that you dust off the old business plan for another run at investors.
You feel that the company is in real danger, and that the source of the problem is that management hasn’t done any real forward planning in years. In your opinion the first step toward recovery is to install a competent planning system. Write a memo to Harvey outlining your concerns and suggestions. Include:
a. The problem—why the happy chaos of the past may be about to come to an end, and what that may mean.
b. How management’s approach has to change if the firm is to survive. In other words, it will have to do a good deal of forward thinking and structured planning.
c. A statement of how planning systems differ between small and larger companies.
d. The benefits Gatsby can expect to realize by planning in a careful, structured way.
e. The need for a well-defined financial plan.