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One of the most dangerous traps of a startup is that there is always a never-ending list of “things to do”. You can stay very busy checking off items on your to-do list, only to find out at some point that you are not at all close to building a sustainable business. You need to set SMART goals that establish milestones along the path to success.
Your Goals Should be SMART
Let’s start off by talking about what we mean by goals. There are two popular frameworks for goal setting: OKRs (One Key Result) and SMART Goals. I will come back to OKRs in a future post. In your earliest days, your focus should be on creating SMART Goals. SMART is an acronym that stands for:
- Specific: Your goal is direct, detailed and meaningful (Who, What, When, Where, Why)
- Measurable: Your goal is quantifiable to track progress or success
- Attainable: Your goal is realistic, and you have the tools and/or resources to attain it
- Relevant: Your goal aligns with your company mission
- Time Bound: Your goal has a deadline
An example of a SMART goal is “Achieving 300 orders per week by the end of March”.
This goal is very Specific. It’s focused on order volume, so it’s clearly Measurable. If you are in the business of selling something, then a goal based on orders per week will be Relevant. And by setting a deadline for achieving this order volume at the end of March, the goal is Time Bound.
Often the most challenging assessment to make in setting a SMART goal is trying to determine if it’s Attainable. If you set the bar too low, you won’t be making the kind of progress your startup needs to build sustainable, forward momentum. If you consistently set the bar too high on your SMART goals, you’ll quickly learn to ignore the goals because you never seem to be able to reach them. Setting attainable SMART goals is ultimately more art than science, but your SMART goals should connect to a long-term plan that builds a scalable, profitable business that generates positive cash flow.
Your goal of “Build a billion dollar company”, while aspirational, is not a SMART goal.
Focus on the KPIs That Identify Product-Market Fit
No matter where you are in the life cycle of building your company, you should always have goals that are focused on ensuring you have found, and are maintaining, product-market fit. Product-market fit is identified by clear proof of accelerating, organic growth and demand for your product or service.
To ensure your goals are truly Measurable, you need to focus on the right KPI’s (Key Performance Indicators) to track. KPIs that are focused on product-market fit include:
- Product engagement: do users try your product once, bounce out and never come back? Or do they dig in, use it for longer periods of time, and come back over and over again?
- Average Order Value / Deal Size: Do you have a target for the size of a customer order? Or if you’re a services business, do you have a target deal size? Setting these expectations in advance can let you know if you can reach your sales goals based upon the number of orders or deals you win.
- Customer Churn / Renewal Rate: Great companies are built on the foundation of returning customers. If you’re churning and burning customers who don’t love your product or service, and you constantly have to spend money to acquire new customers, you’ll burn through cash as you chase higher levels of growth.
- Organic Growth, Customer Acquisition Costs (CAC), and Customer Lifetime Value (LTV): This subject area can get very complicated, but understanding what it costs to acquire a customer, and what that customer is worth, is the key to understanding your path to sales growth.
- Win Rate / Conversion Rate: Measuring the performance of your sales and marketing channels can help you unlock more efficient paths to customer acquisition, and also help you spot problems with product-market fit very early on.
Map The Customer Journey to Find Your KPIs
If you’re struggling to pick the right KPIs, map out your customer journey, from initial interaction down to sales that generate cash. Here’s an example of a visual representation of a new customer journey.
KPI’s from this customer journey could include Total Orders, Average Order Value, Conversion Rate, Total Customers, Orders per Customer, Total Orders. Note that I avoided Visitors or Prospects. These are Vanity Metrics, and they are to be avoided!
Focusing on Vanity Metrics Will Kill Your Company!
As you choose the KPIs for your SMART Goals, avoid vanity metrics. These are metrics that can make you feel good, but are entirely disconnected from your sales and cash flow. Examples of vanity metrics include:
- Gross Sales: if you are in a business with high discounts (sales & promotions) and high product return rates, the difference between gross and net sales can be as high as 50%.
- Total Number of Downloads / Registered Accounts: Active users and paying customers is very different from downloads and registrations.
- New Customers: Focusing on new customers, without focusing on customer retention and order size, can quickly lead to you bailing water out of a leaking boat, and spending money to chase a large new customer goal that doesn’t return cash to your bank account.
- Pageviews or Social Media Followers: While both data points can be useful to track, most companies should not use either metric as a KPI against a SMART Goal. With rare exceptions, neither goal translates directly to sales, as they are too high up in the sales funnel to track directly to conversion rate.
Goals Not Tactics
It’s important that you do not confuse goals with tactics. For example, “Achieving 300 orders per week by the end of March” is a goal. “Launch my website” is a tactic that might be an integral step to reaching that 300 orders per week. But it’s not a SMART goal.
The main reason you don’t want to set goals around tactics is that you may ultimately learn that the specific tactic isn’t the best approach to growing your business.
For example, you may start out by thinking that the fastest way to drive order volume is to build a website, only to realize that a) you don’t have the capital to build the website you need right now and b) your path to your initial sales is through a different channel such as direct sales, a social platform such as Instagram, or a small network of third-party resellers. If you set the goal on the key drivers of your business and the KPIs of product-market fit, and you’ll have the flexibility to then choose the tactics that can best help you reach that goal.
Don’t Set Too Many SMART Goals
In the earliest stages of your startup, 3-5 SMART goals focused on product-market fit can keep you focused on the right KPIs to ensure your startup finds traction. As your company grows, you’ll build various pillars of growth that different members of your team will own, and they may have their own SMART goals that ladder up to the overall success of the company.
But in the beginning, don’t over-complicate things. 3-5 SMART goals is plenty if you take the time to pick the right goals.
1 Month, 1 Quarter, 1 Year
Finally, you should set goals in 1 month, 1 quarter and 1 year time frames. You want to have a one-year view of what you are trying to accomplish. But a year is a long time, and it’s impossible to steer your startup day to day against annual goals.
In setting quarterly SMART goals, you can adjust your tactics quarter-to-quarter to hone in on what’s working, while discarding approaches that are falling short.
Breaking your quarterly goals into monthly SMART goals then ensures that you are constantly measuring your progress, testing into new paths to hit your goals, and reacting quickly when you find something is working or failing to connect with potential customers.
Your monthly SMART goals should connect to your quarterly goals. Your quarterly goals should connect to your annual goals. As your monthly goals shift, either higher or lower based upon your performance, your quarterly and annual goals will be impacted. In this way, you always have an accurate record of your progress and a roadmap to where you’re headed.
Goals Focus You on the Destination, Not the Path
Goals represent milestones along the way to your ultimate destination, a growing, scalable, profitable company. As you approach each goal, you have the opportunity to adjust. To make changes to your tactics to keep your startup on track. Don’t get so attached to your tactics that you can’t adjust when things aren’t working out.
That’s the point of goal setting. That’s why it’s the first step in building your Pivot to Profitability Assessment framework.