What Is The Best Way to Set A Goal For Your Business? It Depends.
Understand your audience and the impact
When I worked on Wall Street, one component of my job was to measure if a company’s financial goals were realistic. I was an Equity Research Analyst. We closely followed the revenue and earnings guidance that companies would give. We would then do our own analysis. We would compare our projections to company guidance. Then we would determine if we thought their goals were high, low, or right on the money.
For us, the best companies were the ones that “Underpromised and Overdelivered.” There was nothing worse — for us or a company stock price — than when a company failed to meet its predicted goals. It caused a tumble in the stock price. It also meant that confidence wavered in the management team‘s ability to plan and execute. Did the management team not understand their own market? Or the steps needed to bring a product to certain revenue levels? We could never understand why companies would set such lofty goals. If they lowered expectations, there were greater rewards once they beat those expectations. The stock price would go up. They would be heralded as wise managers. Everyone would win.
Fast forward to my first job after Wall Street, at one of the biggest pharma companies in the world. One summer, I was in charge of creating revenue goals for a portfolio of 9 products that brought in about $1B per year. I did it the exact same way I had done it on Wall Street. I looked at historical activity, at market trends, and searched for realistic assumptions. I worked hard on the numbers. In the end, I felt proud that I had created revenue goals for the year that seemed achievable.
Then I presented these goals to the team. The head of our division was a sales guy by training, and our division had thousands of sales people in it. He took one look at my numbers. He was pissed.
You know what he wanted to know? How are we ever going to motivate a sales force with such modest numbers? Sales guys love a contest. If you tell a sales guy he will win a trip to Hawaii if he sells $10,000 of product, he will sell $10,000 of product. Not $11,000. He will reach $10,000 and stop. He asked me to increase my numbers immediately.
Based on what? I asked.
Based on what we can achieve, he said.
I scratched my head at that one. I’m a finance person. How am I supposed to model confidence?
But, he had a point.
Up until that experience, it never occured to me that goal setting is not a one-size-fits all task. I assumed that all audiences respond the same to all goals.
But, that is not the case. Investors might reward goals that “Underpromise and Overdeliver,” but sales people are motivated by goals that “Reach for the Stars.”
This perspective can apply to every business.
First of all, it is important for every company to have goals. This is true whether you are a tech startup, an etsy shop, or a service provider.
Those goals should have two components:
they should be measurable, and
they should have a time component.
I like financial goals because they are easily measurable (but that is for another time).
The way these goals are developed, and how a leader messages them to the team, needs to be custom fit to its audience.
So, as you are developing goals for your business, think about these factors:
What is the audience for this goal?
Say you own an Etsy shop, and your goal is to sell 3 macrame plant hangers per week. Missing your goal only impacts you as an individual. So, it might be worth setting a high bar and seeing if you can reach it.
If you have investors, or are seeking investors, the implications are very different. You walk a very fine line. You want to show investors the ultimate potential for your company. But investors always do their own work. If your goals are too high, it can spook investors. They could have concerns about your understanding of the market and your place in it.
What will happen if you don’t achieve the goal in the time allotted?
If your team does not reach its goal, what happens? Does it mean everyone needs to buckle down and move the timeline out, but the results will be the same? Or will the window close on the opportunity?
There can be cultural impacts to missing a goal as well. At the outset, a very high goal can feel motivating to the team. But, when the deadline is reached and the goal is not, sometimes a missed goal can end up with a paralyzing effect. The goal feels so far away that they will never get there. So why bother? You don’t want your team to feel punished. Not when you knew they were unlikely to achieve it in the first place.
What are the steps to achieve this goal?
As I talked about here, its great to have an lofty idea. But take the time to figure out the steps it will take to reach this goal. Does the timeline you set for your goal align with all the steps required? Do you have the manpower right now? If not, when will you? Even a “Reach for the Stars” goal should be achievable, if everything falls into place.
If the goal is not do-able even in a best case scenario, it isn’t a fit. When you make a plan, you can use the steps along the way to create incremental goals. Those steps will ultimately bring you to the big, hairy goal.
The bottom line is that your company’s goals need to be a motivator, not a punishment. But what is a carrot to one audience is a stick to another. Take the time to finesse your company’s goals so they they align with the culture and capabilities of your team. They also need to be in tune with the appropriate audience. Mismanaged goal setting can inadvertently send the wrong message or discourage your team.