Deciding on your company‘s goals for growth might be one of the most impactful and at the same time undervalued tasks, especially for young companies or those looking for a step-change in their performance.
"Our bottom-up approach to target setting combines business and market fundamentals with emotional awareness to create better results."
Choosing the right process for setting growth targets can make the difference between success and failure of the entire business. Unfortunately we see many startups setting themselves up for problems in the future by using the wrong factors for setting growth targets. Our bottom-up approach combines business and market characteristics with emotional awareness to create better results. This is one of the foundations of using Slow Growth thinking, leading to long-term sustainable growth.
Your chances for succeeding increase massively when deciding on the right set of goals, in the right way. They should be SMART - specific, measurable, attainable, relevant and time-bound. You should also be open to adjusting them as you gain experience and data. The right goals will drive motivation and clearly communicate expectations to everyone involved. In the context of startups and growth companies this becomes especially important, considering there’s not enough or no previous performance data. Your assumptions will play a much bigger role.
Goal setting is a highly emotional process for such companies. For a founder or a leader looking to take their business to the next level, the growth goals they set are very closely connected with some of their most fundamental personality traits, such as their professional and financial ambition, attitude to risk, and their degree of optimism. Being aware of these emotional factors and how they might impact the goal setting is a crucial step in the process. Taking the time for self-reflection, or working with a coach or mentor could make a huge difference here.
Growth problems often start with inappropriate goal setting
There are two main ways startups put themselves in trouble before they even start their growth journeys:
Firstly, they don‘t set growth targets that are specific, that express a long term goal and meaningful monthly targets leading up to it. This is usually because there‘s too much uncertainty around their assumptions and not enough past performance data, so it seems pointless or too difficult to define specific targets. This is completely understandable, we’ve been in that situation ourselves many times. However, it’s crucial to take the time and set well-defined targets. The important task will be to identify the right metrics to set your goals for, and the right factors to determine your assumptions. You should set targets that are relatively detailed for a 12-24 month period, and aspirational for the next 5 year period. Knowing the right factors to base your targets on makes this process a lot clearer, which we’ll go into now.
Secondly, many startups do set long and short term targets, but they use the wrong factors. It can happen very quickly, especially in the stressful environments of startups, to focus too heavily on external factors and ignore the nature of the business and the founding team. This can cause major problems further down the line, such as taking on the wrong investors, continuing unprofitable paid advertising to hit top-line targets, damaging your brand because your product can’t keep up, and losing team members due to stress. All of these can bring your business down, but can be avoided by using the right approach to target setting.
Awareness of the wrong and right factors for setting your growth targets will enable you to create meaningful plans and increase your chances of success:
- Investor expectations. In particular, venture capital funds are often structured in a way that requires exceptionally high returns from very few of their portfolio companies. Not every business has the potential for this kind of scale, even though it could be incredibly successful and profitable on a slightly smaller scale. If your business has the scale potential that fits their expectations, these investors can be highly valuable for your business but your target setting can’t be based on their requirements for returns.
- Empty successes like the goal to capture a certain percentage of a market, be the ‘biggest player’ in a certain industry, number of followers, or new customer acquisition if your unit economics aren’t positive. Focusing on these will lead to making unsustainable growth decisions.
- Emotional drivers that haven’t been reflected on, which have a subconscious impact on decisions. For example, a founder might have a personal desire to serve as many customers as possible and might neglect the necessity of getting to that point gradually and in a sustainable way. Or, a founder’s tendency towards impulsiveness might lead to undervaluing the planning process.
- Competitor performance or industry benchmarks. It’s tempting to try to outcompete the main competitors, or aim to exceed industry standards. But this distracts from making the most of your business’ strengths and assets, which are different for every company. And most industries can have a number of highly successful players so there’s no requirement to outperform your competitors.
- Your company’s unique ability to acquire customers. How difficult or easy will it be to acquire new customers in this particular industry or sector? How competitive is it? What’s the potential for virality; will your customers and the press talk about your brand? And, do you have any competitive advantage inside your business (e.g. business contacts, endorsements from celebrities or big brands, patents, founders’ expertise in marketing or brand building)?
- The number of customers you can serve well and profitably. It’s deadly for most businesses to grow too quickly for your product or service to keep up with demand, hence causing customers to leave and damage your brand. You likely won’t come back from that. How well does your offering scale? How will the marginal cost change? What is your access to materials and/or talent?
- The minimum scale required short-term to continue operating. Even if you can acquire new customers profitably, the total revenue of the business might not pay for your fixed costs, such as key salaries or minimum orders of materials. Knowing the minimum scale will give you something to work towards. However, this needs to kept as low as possible, as otherwise it will increase your risk of pushing for unprofitable, unsustainable growth. This would make your company unviable regardless of whether you meet your minimum scale.
- The kind of business the founding team will be best at building. Founders’ ambitions, motivations and attitudes need to match the targets for them to be realistic to achieve. There are many ways to build companies - some people are great at building and motivating large teams, some more product-oriented and others thrive in public positions. Whether large or small, externally or revenue funded, these decisions should be based on both personality traits and the business fundamentals, rather than just one or the other.
These factors will inform the assumptions for your growth targets, and at this point you can bring in your ambitions. No matter how big they are, you’ll have the confidence of having gone through the right process of setting your targets. Nothing’s for certain, but this will give your company a significantly higher chance to achieve sustainable growth.