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Q&A: Jeff Epstein on the Goldilocks Budget

Fairy tales and finance rarely mix. Yet Jeff Epstein of Bessemer Venture Partners clearly has found an exception.

Epstein, an operating partner at Bessemer and former CFO of Oracle, has honed a practice he calls the Goldilocks Budget, a probabilities-based approach that has helped scores of organizations vastly improve their budgeting process.

Recently, Epstein partnered with Adaptive Insights to produce a webinar and eBook that dives deeply into the benefits of the Goldilocks Budget. We caught up with Jeff a few days before the webinar to get his perspective on how Goldilocks can be a CFO’s trusted friend.

Check out the eBook, “The Goldilocks Budget: Getting to Just Right”

So Jeff, why Goldilocks?

Well, it’s a story familiar to just about everybody—and the concept of too hot, too cold, and just right is easy to grasp. So referencing the Goldilocks story provides a pretty simple framework for what is often viewed as a complex process. Beyond that, it is prescriptive in using probabilities to develop a logical approach to budgeting.

The reality is that most CFOs or finance leaders either face a too-hot or too-cold situation. For too-hot, they are pressured to be overly aggressive in budgeting, which can be all well and good up front but often leads to conflict and disappointment when the goals aren’t reached. Or conversely, they are locked in a conservative, too-cold pattern in which the budget includes no stretch goals and loses its potential as an aspirational document that can help drive growth. So executing an approach for a “just right” option relieves the pressure and has the power to get the CFO, the CEO, senior leaders, and the board of directors engaged in productive conversations.

What prompted you to begin focusing on perfecting the Goldilocks approach to budgeting?

It grew out of a personal experience. I was sitting in a board meeting listening to what often happens at board meetings—several directors couldn’t reach agreement on how aggressive the budget should be. I realized that most boards end up not reaching consensus because they don’t have a constructive and logical framework for discussing the budget throughout the process. So the idea of explicitly using a Goldilocks approach that includes the use of probabilities struck me as something that could break the gridlock and help boards and leaders focus on the best outcomes for their organizations.

What have you found to be the single most valuable benefit of this approach?

The potential to open the lines of communication between the board, the CEO, and the CFO to get to a better result. It goes back to establishing that constructive framework for budget development and discussions. With Goldilocks, you end up having a focused dialogue with the CEO, CFO, and board on how aggressive the budget should be and then relying on probabilities to model other potential outcomes. If you don’t have the conversation that Goldilocks Budgeting helps facilitate, there will be assumptions—and the assumptions could be wrong. When that happens, you open the door to resentment, mistrust, and potential conflict.

In your experience, how do CFOs react when learning about this approach?

The typical first reaction from a CFO is they love it. To many of them, this isn’t a completely foreign concept. They have always thought of this type of approach in the back of their mind but had trouble articulating it or were in a situation that discouraged any innovation. This gives it a name; it gives it a roadmap for execution, the tools for measurement, and a vehicle to communicate it. Because all of the pieces of the puzzle fit, CFOs can feel more comfortable in proposing this new approach.

So how do you think that benefits the CFO specifically?

First and foremost, it makes for a better approach for the organization, which in turn leads to better results—or at least better awareness and understanding of the results being produced. That’s important because it allows the CFO to move from a defensive position on the budget to a more advisory and strategic role of providing insight and expertise to the board. So you have CFOs being viewed more as strategic partners who can bring value in terms of growth and efficiencies as opposed to just keepers of the keys when it comes to the finances.

How does technology impact the ability to execute on the Goldilocks approach?

There is no doubt that some of the newer cloud-based solutions with robust forecasting and modeling capabilities can be a valuable engine for the Goldilocks Budget. And I think there are a few layers to those benefits.

First, the technology creates more efficiencies for finance teams, so they are not mired in spreadsheets and have more time to focus on strategic activities. Next, the forecasting, modeling, and planning capabilities of these software solutions turbocharge the benefits of using probabilities because it is now much easier to develop different budgeting scenarios and gauge the potential impact. And finally, there is the communication piece—the dynamic and interactive dashboards make it much easier and impactful to explain and provide context around budgeting so everyone around the table has a clear picture of what the team is trying to achieve. Add to that the fact you can consolidate the data from the entire organization into a single source of truth—which dramatically reduces debate over validity of the numbers—and you end up with a transformative approach to budgeting.

Want to learn how to get your budget “just right?” Read the eBook, The Goldilocks Budget: Getting to Just Right

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