Goal Setting is powerful. And I’m a big fan of setting goals… but…
… goal setting can have plenty of unintended consequences.
Like the back of bottle containing powerful chemicals – perhaps for clearing a blocked drain – they should contain the warning ‘use with caution’ and ‘discard when passed the use by date’.
A classic goal for first-time entrepreneurs – who are building their first business – is to sell the business for a set amount – say ?5million – in 3 years time.
This goal has both good outcomes and some nasty consequences – so let’s have a look at each.
This goal can be shared with a team. Typically it is used to encourage shareholder partners or sometimes suppliers to buy into the business plan and ambition.
If you have no credibility as an entrepreneur – say you have just left full time employment and not previously had a profit & loss responsibility within your ex-company – then this goal is a clear sign of your intentions.
As a result, it can help to make people take you seriously.
However, the people most likely to take you seriously are equally inexperienced partners, freelancers or suppliers.
There is a danger here of the blind leading the blind.
More experienced freelancers or suppliers will want to wait until you can pay for their services in full (or at least in part) or can demonstrate the ability to deliver the growth required to achieve a substantial valuation within a couple of years.
Therefore, the real galvanising effect will be limited.
If however, your business has achieved growth and decides to take on new equity partners to fund further growth – then again, you may be tempted to set a ‘sell for ?x million in y years’. And this may be necessary to get agreement on investment. Still, at this stage, you will have a clear track record, assets against which the investments are being made and some logic behind your projections (hopefully).
Still, inexperienced entrepreneurs are under the false impression that business angels and investors want to hear this at the early stage.
Now, inexperienced investors may be impressed by these claims, but more experienced investors – who may also have greater knowledge and business wisdom to bring to your business plan – will be less impressed if your business lacks a track record.
However, let’s say that you do have a business which has delivered growth and that your claim to sell for a large amount is credible. Is this still a good goal?
Let me explain what happened when my partners and I set this goal and what went wrong…
By 2004 we had built an online publishing business delivering 400k of revenue per year by publishing property books, analysis and information. In order to grow the business we took on a property partner and set a big goal.
The original goal of the business was to sell for 5m in 2004 – and as we had missed that goal, we set a bigger goal to sell for ?20m.
The new partner meant that we built a full set of shareholder agreements that tied all the shareholders to the business until we had achieved our goal.
And, if any partner left before the goal was achieved, then that partner would forfeit nearly all of his shares. It was called a ‘bad leaver’ clause.
The result of that goal becoming hardwired in our business was that we set ourselves up to succeed spectacularly – or fail spectacularly.
In the end, it failed spectacularly. Even despite the fact that we received an informal offer for the business of 12million in 2007, the business closed in August 2009.
The trouble was that the goal which galvanised the team in the first place became the ultimate and sole focus of the business.
As soon as the possibility of achieving that goal began to fade, so the business took a dive. The partners to the business felt trapped and unable to leave because of the shareholder agreement.
The result was that the business – which still had some considerable value – was not led by motivated or driven individuals.
We were not motivated by a desire to make a difference or to deliver a better service, no, all that was left was the money. That was the sole reason to carry on and equally what made us feel trapped. Working for just money is so far away from the pure entrepreneurial spirit in which we had begun, that we felt like we’d built ourselves a corporate prison.
We had locked ourselves in, with the result that the business self destructed.
Okay, so that was the mistake – what would we do differently next time?
Change the goal!
We learned the power of goals – for both good and bad.
So, how do we set a goal that allows the business to grow?
Simple, set a revenue per employee goal - because this goal is about creating a sustainable strong business that is low stress to manage and as a result is a lot more fun for the shareholder/ business partners. Don’t set a fixed value goal.
And, in a strong and stable business the partner exhaustion is much reduced and the desire to escape the business – whilst being trapped by the shareholder agreement – is reduced too. Lastly, partners are not trying to run to a fixed date deadline that isn’t really in their control.
A stable high revenue per employee business means that if revenues reduce, headcount reduces too at the same pace.
It allows some partners to leave the business – because the business is not fixated about a specific goal by a specific deadline – and therefore increase the strength of the business rather than diminish it (as the revenue per employee ratio will increase when a partner leaves).
It also means that partners would be paid market rate for their work – and not a reduced rate on the basis of an anticipated capital sale in a few years.
This ratio will also ensure that the business does not overload with senior executives before the business can afford them.
An alternative view on this is don’t have partners…
If you don’t have partners then you can change your business goal whenever you wish.
And that is the point about goals – their benefit is that they are powerful and unchanging – except when they have served their purpose and need to be discarded.
Think then, of business goals as a target to aim at – but ultimately, you probably will discard that target -once it has served its purpose. And, you must be absolutely certain that you retain the ability to discard any goal that no longer serves the business.
So, let’s do a health check, does your business have any goals that have passed their sell by date?