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Start your budgets with cuts, not increases
Confluent CFO Rohan Sivaram says that even a 10% cut is a “huge win”
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Most budget requests are framed in the same fashion. The team spent $100 this year, the business is growing, so the team needs that same $100 next year, plus a little extra.
Rohan Sivaram, CFO of the data streaming concern Confluent (now part of IBM), urges founders to put a stop to this kind of “incremental thinking” (while conceding that he’s sometimes guilty of it himself).
His recommended fix is a process he calls hybrid zero-based budgeting.
Before anyone at the firm asks for a new dollar of spending, their team leader decides what they’re going to stop doing to free up some cash for this new priority. Only after a decision is made about where to cut will new spending gain approval.
Sivaram laid out this thinking and strategy on a June episode of CJ Gustafson’s “Run the Numbers” podcast.
He started with a classic “zero-based budget.” This means starting a fresh budget from scratch, a literal blank sheet of paper, rather than carrying over any expectations from previous budgets or spending patterns. Every activity, person, process, or system that’s required to operate or grow the company is considered individually, and the organization is rebuilt from the ground up...
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