Thinking back to when I was a founder/CEO, I remember lots of transitions, both big and small: moving into our first office space, launching an early website, making our first non-founder hires, signing up early design partners, closing funding, early revenue hitting the bank account,  adding our 100th employee, etc. However, there is one milestone that often gets overlooked  and can help founders build the right foundation as they scale their business in the early years — creating an annual operating plan.  As an early-stage investor I see many founders struggle through the growing pains of annual planning but the best teams embrace the challenge. 

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As founders transition from the pre-seed stage to seed/series A and begin generating early revenue, adopting the discipline of building an annual operating plan with key business goals is critical. This is a hard shift for many founders who are used to fighting hair-on-fire issues every day. They may not yet have taken a step back to think about a full year, and may legitimately feel like they don't have enough predictability yet to confidently make annual forecasts. 

In the early days of building a business, everything feels urgent, and it’s easy to get lost in the daily fires. Annual planning forces you to step back, set priorities, and create a roadmap — without it, you’re just reacting, not growing. The hardest part is balancing flexibility with focus, but the most helpful thing is knowing where you’re going before the chaos of execution begins
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— Mike Massaro, CEO of Flywire (Public fintech unicorn)

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While it’s common for early-stage founders to operate reactively — focusing on daily tasks and short-term goals — the shift to a proactive, structured approach is necessary. It creates a roadmap that aligns teams, drives accountability, and ensures measurable progress toward strategic objectives. 

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The discipline of annual planning should be seen as a learning process — you are not aiming for perfection. Instead, the annual plan is a tool for reflecting on how you set goals and getting your entire team aligned on what you want to achieve in the upcoming year. 

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Here’s why building an AOP is so important, even for early-stage companies:

1. Shifting your mentality as a founder:
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The annual operating plan isn’t just a tool for your board or investors; it’s crucial for founders themselves. It forces you to take a step back and assess what’s truly important for your business, such as critical investments, revenue targets, and cost drivers. By setting annual financial goals and working backward to build a quarterly plan, you establish a framework for making smarter, more informed decisions.

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Many early-stage founders set overly optimistic revenue goals without a concrete plan. For example, a common goal is: “We need $1M+ ARR for the next round of funding.” However, when you dig deeper, the rationale behind that number is often unclear. This is where building a revenue and budget plan comes into play: it helps you create a bottoms-up analysis to test the feasibility of your goals, determine resource needs, and make adjustments based on available cash flow and time. 

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An effective annual operating plan for startups should include:

1. Revenue projections (by month and quarter)
2. Expense/cash flow plan
3. Key Performance Indicators by quarter (KPIs)
4. Product milestones and roadmap 
5. Hiring plan + Incentive Compensation Plans (including equity allocation)

2. Accepting variability and uncertainty

Knowing how to predict your sales cycle, revenue model, deployment timelines, software development timelines, etc. all is easiest after steady state operating. But doing it before the company has really done anything is incredibly difficult and then doing that as a first time founder is even harder. With that said, going through the process is what is valuable and taking time to learn where your business developed in comparison to your early assumptions makes you stronger in the future. 
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— Josh Summers, 2x founder and CEO of Enfi, Inc

In the early stages, you’re bound to face variability in how things unfold.This is normal, and in fact, predictable. Markets evolve, product development takes longer than expected, and customer acquisition may not go as planned. However, variability doesn’t diminish the importance of planning. The key is to continuously assess why certain financial goals were missed, whether it’s revenue or unanticipated cost increases. This is a valuable feedback loop for making data-driven adjustments to the plan and recalibrating as needed.

3.  Creating team alignment and accountability:

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When you bring your senior team into the planning process, an annual operating plan serves as a powerful tool for aligning everyone around the company’s core goals. It also helps drive accountability across the organization. A board-approved plan is an effective way to ensure these goals are meaningful, realistic, and aligned with the company’s strategic vision. Even if things change, the exercise of building a plan and working toward it will provide focus, direction, and alignment across the team. 

4 Getting constructive feedback and advice from your board

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One of the most important jobs of a founder/CEO is building alignment with investors and the board. A well-crafted annual plan gives both investors and board members a deeper understanding of your business’s goals, challenges, and path forward. Regular discussions around the plan not only foster stronger relationships but also allow your board to provide more constructive, targeted advice. A good board deck always includes a discussion of the financial plan, along with review of the other key elements of your annual operating plan. 

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As a CEO, one effective way to manage expectations with your board is to be transparent about potential risks or uncertainties around hitting specific quarterly goals. Instead of blindly promising results, you can say something like, “Our operating plan targets $X revenue this quarter, but I’m feeling less confident about achieving that due to Y factors.” This honesty helps build trust with your board and allows for more productive conversations on how to tackle challenges. Remember, boards don’t like surprises, but a good board appreciates candid discussions of challenges and takes the opportunity to work through the critical questions to address the issues at hand. 

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‍Lars Albright is a 3X founder of enterprise software companies. He sold his last two companies to Apple and MasterCard, respectively. His last startup, SessionM, was a pioneer in customer engagement and loyalty for leading Fortune 500 brands. As a partner at Unusual Ventures, Lars leads investments across fintech and vertical SaaS. To hear more about his third startup, SessionM, check out the Startup Field Guide podcast on Apple and Spotify.