The only reliable way to set good growth targets is to analyse your company‘s best potential to grow.
But startups often don‘t have the historical data and experience to come up with realistic estimates, so it‘s very tempting to look to what competitors or the industry as a whole have achieved. This is likely to make targets less relevant for your company, and at worst can make your startup fail because of the pressure to chase unrealistic goals. Thankfully there are much more reliable ways to come up with targets even without a long track record.
Looking at a direct competitor or your industry seems like the closest comparison to your business, but the most important factors determining a company‘s growth aren‘t mostly related to the sector it is in but to its set of unique strengths and resources - and a good measure of luck and timing. The growth metrics your competitor has achieved are explained by their people, expertise, cash pile and their goals. It‘s unrealistic to think they‘ll be similar enough, or replicable, in your business to use their goals as yours.
Relying on external benchmarks might prevent your team from recognising and using the unique strengths of your company.
Relying on these external benchmarks might prevent your team from recognising and using the unique strengths of your company. Even with a very similar product or service, every founder and team bring their own set of experiences, motivations and connections to the business. You might have a great network in your target industry, to influencers that can push your brand out, or to mentors that will drive you in the right direction. There are many different ways to successfully grow a company, some with a more long-term, some with more short-term ambitions - being authentic to what the team is best at will massively increase your chances for maintaining the kind of growth your company needs.
Basing your growth targets on other people‘s resources rather than your own, you‘ll put up the barriers to long-term growth before even launching the first campaign. While it‘s hugely motivating to set targets slightly outside your comfort zone, they need to be within reach with the kind of activities, campaigns or channels your team are knowledgeable about. Missing targets by too big a margin will cause frustration in the team but also with investors who‘ve set their expectations based on the targets pitched to them. Startups often fall into a trap where they‘re reliant on expensive advertising to keep up with the targets they‘d committed to, which is a tough position to get out of.
Why companies still use competitor benchmarks, and how to change tactics
- It‘s hard to set growth targets from scratch, without historical data, so competitor benchmarks seem most reliable. Instead, change your success metrics and base them on what fundamentally matters to your business. Get clear on your long-term vision for the business, what actually motivates you and your team, and figure out the scale required to do this. Based on this, the most important measure for growth is the progress you‘re making towards your goals. If you need some estimates for how well certain marketing campaigns or channels can work, look to other companies that have similar resources to yours, rather than the same industry.
- Startups in the same industry compete for investors almost more than for customers, and they‘ll support the fastest growing player. But trying to hit an investor‘s targets is usually a recipe for disaster. Instead, a good investor will be impressed by a startup‘s ability to recognise its unique strengths and resources, and the knowledge how to maximise that potential. How to show this? By making resilience the key metric for growth, and showing a clear journey to improve profitability and the knowledge of how to grow. Rather than just the topline growth figure which doesn‘t say much about the fundamentals.
- There‘s a risk of being outcompeted by faster growing players in the same space. However, this is relatively small compared to the risk of artificially boosting growth through unprofitable advertising or discounting to keep up with benchmarks. The vast majority of industries have space for several successful, profitable companies. The crucial thing is to be clearly differentiated from competitors, serving a very specific audience with a product that can compete on price or relevance for this group of customers. Relying on massive scale to be profitable is a worse strategy than controlling a niche and then adding new ones over time to expand.
The most reliable way to set realistic, ambitious, motivating targets is to rely on the factors that are internal to your business: your unique ability to acquire and retain customers, the scale that makes your company most profitable and the type of business your team is best at building. This reflection and analysis takes time, and often benefits from a mentor or advisor who‘s seen a lot of companies from different industries go through this journey. But it‘ll set a company on the right track to maintain its growth rate over the long-term which should be the goal.