STARTUPS PULSE - Beyond Budgeting Framework Overview

Supio, an AI-powered legal analysis platform, lands $60M Lately's new gamified app helps people arrive on time Ali Partovi's Neo: Revolutionizing Talent Discovery Through Mentorship and Innovation Beyond Budgeting Framework Overview #startups, #entrepreneurship, #BeyondBudgeting, #innovation, #AI, #mentorship, #gamification

Episode Transcript

(00:00):
Welcome to Innovation Pulse, your quick, no-nonsense update covering the latest in startups and

(00:10):
entrepreneurship news.
Supio raises 60 million for AI-driven legal solutions.
Lately helps those with ADHD manage time.
Neo uncovers exceptional talent through mentorship and selective investments.
After this, we'll dive deep into the innovative management approach of beyond budgeting.

(00:30):
Stay tuned.
Supio is a startup that leverages AI to automate data collection and analysis for legal teams,
particularly focusing on personal injury law.
Recently, Supio secured $60 million in funding led by Sapphire Ventures, bringing their total

(00:50):
to $91 million.
This investment will fuel their growth, hiring and market expansion strategies, including
expanding their Seattle headquarters and opening a new office.
Co-founded by Jerry Jo and his childhood friend after leaving Avalara, Supio addresses the
labor-intensive task of manually reviewing documents such as medical records and police

(01:15):
reports, offering a platform that integrates with law firms' existing systems to enhance
case management.
Their AI-powered solution provides deep insights into complex, unstructured data while employing
human verification to minimize AI-related errors.
Supio's unique offering supports over 114 case types, with plans to expand further in

(01:40):
collaboration with customers.
This innovative approach has resulted in a four-fold increase in annual recurring revenue,
doubling their customer base, which includes firms like Hughes & Coleman and Whitley Law.
Join us as we step into the gamified world of ADHD time management.

(02:03):
Lately is a new app designed to assist individuals with ADHD in managing time effectively, specifically
targeting punctuality.
Available on the App Store, Lately notifies users when it's time to leave for a trip,
offering reminders at intervals of 30, 10 and 5 minutes before departure.
It leverages live activities on iPhone and Apple Watch to present a countdown timer,

(02:28):
ensuring constant awareness of departure times.
The app features a gamified point reward system with four difficulty levels, incentivizing
timely arrivals by awarding points for being early or on time and deducting points for
tardiness.
Users can unlock virtual characters as achievement badges, providing a motivational sense of

(02:51):
progress.
Created by indie developer Eric McKinnis, Lately addresses common ADHD challenges like time
blindness and poor time estimation, offering a practical solution that other similar apps
lack.
While it currently caters to driving and walking, future updates aim to include public transport

(03:13):
options.
The app is free with a premium subscription available for additional features.
Lately's unique reward-based approach provides value by making time management engaging and
supportive for those struggling with ADHD.
NEO is a venture firm founded by Ali Partovi that aims to revolutionize talent discovery

(03:38):
by focusing on exceptional individuals rather than specific themes or teams.
Partovi, known for his early investments in companies like Facebook and Airbnb, uses a
unique approach at NEO by evaluating potential through technical assessments and deeper conversations.
NEO's strategy involves identifying promising talent, often while they're still in college,

(04:03):
and nurturing them through mentorship and its NEO Scholars Program, which provides a
grant to students without taking equity.
This approach has led to NEO supporting startups like Anisphere, Kalshi, Cognition, Pika Labs,
and Chai Discovery, showcasing the firm's success in identifying future superstars.

(04:27):
Partovi prioritizes technical ability, entrepreneurial spirit, willingness to challenge norms, and
magnetism in potential founders.
With its great increasing demand, NEO maintains a selective approach, focusing on quality over scale.
As reflected in their fund management and capital commitments, NEO's early funds have shown

(04:49):
strong performance, with investments like Anisphere significantly boosting their value.
And now, pivot our discussion towards the main entrepreneurship topic.
Welcome to another episode of Innovation Pulse, where we explore cutting-edge ideas

(05:12):
reshaping how businesses operate.
I'm Donna, joined as always by my brilliant co-host.
Thanks for that generous introduction, Donna.
I'm Yakov Lasker, and today we're diving into something that might sound a bit dry at first,
but actually represents a pretty radical rethinking of how organizations plan and operate.
We're talking about Beyond Budgeting.

(05:35):
So we're what? Just throwing budgets out the window?
That sounds either terrifying or liberating, depending on who you ask.
That's exactly it.
In the early 2000s, management experts Jeremy Hope and Robin Fraser actually argued that
budgeting, as most corporations practice it, should be abolished, because it supports a command

(05:57):
and control culture, and makes organizations too rigid to respond to market changes.
Wow, that's a bold claim.
I mean, budgeting is such a fundamental practice.
But I guess that's why it's called Beyond Budgeting, not No Budgeting, right?
Spot on.
It's about going beyond the limitations of traditional annual budgets.
Bearte Boguesnes, who's been a leader in this movement, calls traditional budgeting a dictatorship

(06:23):
that constrains companies with micromanagement, inflexible calendar cycles,
and an unhealthy obsession with hitting predetermined numbers.
So it's not just about how we budget, but about the whole management philosophy.
Lay it on me.
What does Beyond Budgeting actually look like in practice?
At its core, it's built around 12 principles, 6 for leadership and 6 for management processes.

(06:48):
The leadership principles focus on decentralization,
purpose over short-term targets, values over rigid rules, transparency, autonomy, team organization,
and customer focus.
And the management principles?
Those are about creating adaptive processes, organizing around business rhythms rather than the calendar year,

(07:09):
setting relative goals rather than fixed targets, making planning lean and frequent,
allocating resources dynamically, evaluating performance holistically,
and rewarding shared success based on relative performance.
That's a lot to unpack. Let me see if I understand.
Instead of saying, Department X gets exactly $1 million this year, no more, no less,

(07:32):
you're saying, we'll allocate resources where they create the most value when they're needed?
Exactly, and instead of setting a target like increase sales by 5% this year,
you might set a relative target like grow faster than our competitors,
or improve on last year's performance.
That makes sense. Traditional budgeting always seemed a bit arbitrary to me.

(07:54):
Like, why exactly one year? Markets don't operate on a January 2 December cycle.
Right. That's one of the key differences.
Traditional budgets lock in plans for a full year, which can make organizations incredibly slow to adapt.
Beyond budgeting promotes continuous planning, targets, forecasts,
and resource allocations get updated throughout the year as conditions change.

(08:19):
I can definitely see the appeal there.
What are some of the other big differences?
Another major one is what Bugsness calls the three-headed monster problem.
Traditional budgets try to serve multiple conflicting purposes at once.
They're simultaneously a target for performance, a forecast of expected results, and a spending limit.

(08:41):
Oh, I see the conflict. If I'm a manager, I want easy targets so I look good,
but pessimistic forecasts so I don't disappoint, and I want a generous spending limit.
No wonder that creates problems.
Exactly. Beyond budgeting explicitly separates these three purposes into different processes.
Companies like Equinor, formerly known as Statoil, set ambitious relative targets,

(09:06):
produce unbiased forecasts on a rolling basis, and allocate resources through ongoing business reviews.
So what are the actual benefits companies have seen from implementing this approach?
Boston Consulting Group did a study in 2020 and found some impressive results.
Among companies that adopted Beyond Budgeting, 59% saw increased sales,

(09:28):
56% achieved significant cost savings in the budgeting process itself,
and 41% freed up resources that had previously been tied up under budget constraints.
That sounds promising. Are there any particularly good success stories?
Svenska Handelsbanken in Sweden is probably the poster child.
They've been operating without traditional budgets since the 1970s, way before Beyond Budgeting was even a term.

(09:55):
The 1970s? That's incredible. How do they make it work?
They have a highly decentralized structure where branches operate with significant autonomy.
Performance is measured relative to peers. Branches compare their ratios to industry averages.
And they eliminated individual bonuses in favour of a collective profit sharing system

(10:17):
that rewards employees when the bank outperforms the industry.
And how has that worked out for them?
They've consistently been one of the most cost effective and customer satisfying banks in Europe for decades.
It's pretty remarkable.
Any other examples? Maybe something a bit more recent?
Sure. Equinor, the Norwegian energy company I mentioned earlier, start lamenting Beyond Budgeting around 2005.

(10:42):
They introduced a framework called Ambition to Action that replaced fixed targets with relative metrics,
adopted rolling forecasts, and moved to dynamic resource allocation.
And what about companies that are more familiar to our listeners?
Netflix has an expense policy that's completely aligned with Beyond Budgeting philosophy.
Their entire policy is basically just act in Netflix's best interest.

(11:08):
Wait, seriously? That's it?
That's it.
They trust their employees to make good decisions rather than constraining them with detailed rules.
And of course, there's accountability. If someone abuses that trust, it becomes visible quickly and is dealt with.
But they don't build an entire control system around preventing rare abuses.

(11:29):
That's fascinating. But I have to ask, this all sounds great in theory, but there must be challenges too, right?
Absolutely. One obvious concern is the fear of losing control.
Without an annual budget capping expenditures, some worry that costs could balloon.
Beyond Budgeting advocates respond that other controls fill the gap.

(11:51):
Target ratios, KPI dashboards, and rapid feedback loops.
I imagine there's also a lot of resistance to change. Budgeting is deeply ingrained in how most companies operate.
You've hit on a major challenge. Many executives have built their careers around traditional budgeting practices.
One study noted that the problems of budgeting practice seem to be widely accepted, but the solutions to the problems are not.

(12:17):
Relatively few organizations have fully embraced Beyond Budgeting, and some that tried have fallen back to traditional methods.
Is it really an all-or-nothing proposition?
Not necessarily. Many organizations adopt certain principles or practices without removing budgets entirely.
Some proceed in stages, first implementing rolling forecasts and relative targets, and only later phasing out the formal budget.

(12:44):
What about specific industries? Does this approach work better in some contexts than others?
Great question. The suitability varies by organization type and environment.
For highly regulated industries or public sector entities that require detailed budgets for compliance, it's harder to abandon budgets entirely.

(13:05):
Similarly, smaller organizations or those in stable markets might find a simple budget sufficient.
So it's not a one-size-fits-all solution.
Exactly. Each organization needs to assess whether its culture, business model, and stakeholders can accommodate this approach.
Some opt for more incremental improvements. What is sometimes called better budgeting rather than the radical step of completely scrapping budgets?

(13:33):
This all sounds like a significant cultural shift. It's not just about changing finance processes, but about trust, transparency, and empowerment.
That's precisely right. Beyond Budgeting is as much a leadership philosophy as it is a planning technique.
It's about creating an environment where people are motivated to do their best work, not just to hit an arbitrary target.

(13:57):
Let me play devil's advocate for a moment. What about performance evaluation and rewards?
Without clear budget targets, how do you know who's doing well?
That's a common concern. Beyond Budgeting often uses more complex criteria like peer-relative performance or a mix of financial and non-financial goals.
Companies have created innovative reward systems like team-based profit sharing that pays out when the company outperforms competitors.

(14:25):
But calibrating these systems can be tricky and requires careful communication.
So what you're saying is, it's complicated but potentially worth it.
I think that sums it up well. The Beyond Budgeting Institute frames the model as a set of guiding principles rather than a strict prescription.
Success requires thoughtful change management, strong alignment with company values, and a willingness to experiment and learn.

(14:52):
For listeners who are intrigued and want to learn more, any resources you'd recommend?
Definitely start with Beyond Budgeting, How Managers Can Break Free from the Annual Performance Trap by Jeremy Hope and Robin Fraser.
They co-founded the Beyond Budgeting Roundtable and provide the foundational arguments and early case studies.

(15:13):
And for someone looking for more practical guidance?
Check out Implementing Beyond Budgeting, Unlocking the Performance Potential by Bjarta Bogsnes.
He led the implementation at Equinor and offers hands-on experience and guidance on how to make the transition.
So, to sum up this fascinating discussion, Beyond Budgeting isn't about abandoning control or planning,

(15:35):
but about finding more flexible, empowering ways to achieve organizational goals in today's fast-changing environment.
Exactly. As business uncertainty and complexity continue to increase, the Beyond Budgeting framework offers a compelling alternative.
Achieving performance through agility, trust, and continuous learning, rather than reliance on a static annual plan.

(15:59):
Well, that gives our listeners plenty to think about.
Maybe you're sitting there wondering if your organization could benefit from some of these principles.
Even if you're not ready to toss out your budget entirely, there might be elements worth exploring.
And if you've had experiences with Beyond Budgeting or similar approaches in your organization, we'd love to hear about them.

(16:20):
Drop us a comment or reach out on social media.
Thanks for joining us for another episode of Innovation Pulse. I'm Dana.
And I'm Jakob Lasker. Until next time, keep innovating.
We've explored how Supio is transforming legal processes with AI, how lately aids those with ADHD in managing time,

(16:44):
and how NEO supports innovation through quality-focused mentorship.
Meanwhile, Beyond Budgeting offers a flexible alternative to traditional budgeting, promoting adaptability, and improved performance.
Don't forget to like, subscribe, and share this episode with your friends and colleagues,
so they can also stay updated on the latest news and gain powerful insights.

(17:10):
Stay tuned for more updates.
Thank you.