Setting Goals With Your Board
You board is a group of people, like an extended team. As such, agreeing on what you are doing is really important. Communicating regularly and transparently is also important. Your goal is for the board not to dip in and tell you how to achieve things, but for that, they have to trust that you know what you are doing, so achieving your goals and communicating well are crucial.
The first thing you need to do with your board is to agree on the north star for the company. Basically, how do we know if we are doing well. That might be something like the number of active learners using your platform every month and how that grows. Then within that, what are a couple of other metrics we can watch that keep us honest, so we don’t figure out how to optimize the north star but ruin the company.
For example, an awful lot of people will say you are doing great if you grow 20% month over month, but if you are doing that by spending a crap-load on customer acquisition and driving down your LTV/CAC or driving up your churn, then that 20% is going to fade out soon enough. So think hard about your northstar and supporting metrics. You really can’t have more than 3–5 total metrics for you, your board, and your team to focus on. It’s just a human thing, like remembering a phone number, we just can’t keep them in our heads beyond that. And for your key metrics to work, they have to be in the front of everyone’s heads with every decision they make.
Internally, you should be looking at your key metrics by cohort, where a cohort might be all of the users that signed up in a given week vs. future weeks. Here’s a good piece on how to do this. The key with cohorts is that they will pick up the trend in your key metrics much more quickly. ‘Whoops, we had a big dip in 7 day retention last week, what happened?’ You can definitely use cohorts with your board, but frankly, these are folks who might be spending 5% of their time paying attention to your business, so be careful about the amount of information you are throwing at them. Your best board member is not necessarily the best with numbers, but likely the best at helping you think of the ramifications, so distilling and simplifying is part of your job.
Proposing and deciding on these metrics and associated goals will probably take a full board meeting. Here’s a buzzword bingo piece on the common ones, but I prefer ones that relate directly to the way customers experience your product and how that relates to revenue. For example, a SuperHuman score as I’ve been calling it, is probably a valid key metric well into Series B.
Depending on the stage of your company, these 3–5 metrics may change more often than annually, but do your best to prevent this. It’s just too hard for everyone to take them seriously if they change. It’s likely that there will be something slightly better that your figure out, but try not to change the key metrics more than annually.
Once you’ve got key metrics, you need to set the goals. How much are you going to move that metric? For example, your LTV/CAC is current at 3 and you want to move it to 4.5 (by focusing on PMF!) in 12 months. This is the key part where you need to think about your forecasting abilities. To summarize Tetlock in SuperForecasting, a superforecaster takes a lot of data in to make their decision about the forecast and is very aware of how confident they are in the answer. If you haven’t read Thinking Fast and Slow, it is highly relevant to this type of prediction as well. If you ‘go with your gut’ as a first-time entrepreneur, you will be wrong almost always. So it is much better to find what Tetlock calls an outside view, a proxy either within the company or outside of how difficult that problem might be to solve. So for example, if it took you nine months to get your onboarding right, saying that you can solve your churn problems this quarter is probably really wrong.
Once you have a metric and timeframe to propose completely clear in your head, double the time, or cut the improvement in half. Truly. You will really suck at this for a few years, yet it is the single most important trust-building exercise between you and your board. So if you think you can go from $100k to $1m in revenue in one year, cut it back to $500k-$600k and then exceed that target. In addition to trust-building, it constrains the resources you have to make that happen, which almost always turns out to be a good thing.
A good example of goal setting using the LTV/CAC metric above is that if you have no idea how you are going to move your ratio to 4.5, you are setting yourself up for failure. If the ratio has been moving up and to the right and you think you understand why, dig in to make sure you are right about that. Otherwise, you need to start experimenting to try to raise that metric. Founders, especially technical founders, tend to be wildly over-optimistic about the time frame and amount they can move key metrics.
To get a better estimate, you have to dig much deeper into the plan. For example, experienced founders know that about 20% of your experiments will work, so if you are trying to move something significantly like this you better have not one but 3–5 experiments running to try to move this metric (hopefully one being better PMF :) Break those experiments down with the team to figure out what they will take to prove out, whether you have the right people on board to do it, how long you will know if they work, and how long it will take to double down if it does work. Do this for every experiment :) In other words, before signing up for a set of goals with your board and team, do your homework. Think about it a lot, day and night, read a lot, talk to every advisor, go through it in detail. Then if you don’t get there, it wasn’t because you didn’t take it seriously. That will count for partial credit.
When you set these goals, you have to look at them from the board’s point of view. The question they will ask is “OK, if RealGreatCo achieves these three things in the next twelve months, can they raise their next round of financing?” Better yet, “if they achieve 70% of their goals, will they be able to raise?” or “will achieving these goals get them close to cash flow positive?” Just realize that goals are not an academic exercise, the better you align your goals with the realities of funding a startup, the smoother your ride will be. I know that not every investor spends 100% of their time worrying about the next 12 months, but frankly it’s right at the edge of your prediction limit anyway, so better to focus on key things you can do this year that move the ball. Every once in a while you need to build another product, go after an adjacent space, or something tough, but for the health of your startup, that’s hopefully the 20% case, not the 80% case.
The single most important thing to remember with respect to your board is that when you set and achieve your goals, you build trust. With that trust, you get more autonomy to try the crazier experiments you want to try. This dynamic is important, the board is kind of like your conscience. ‘Don’t do that John, because you aren’t even getting the basic stuff right.’ Or, ‘That seems crazy, but you have the basics nailed, so take a shot.’
Treat goals as the foundation of your relationship with your board. In my experience, if you are thoughtful about setting goals and then exceeding them consistently, you have a lot of flexibility with your board.