“There is no intellectual merit in holding conventional ideas but there is sometimes wisdom in doing so.” – Michael Masterson
Have You Given Your Business “Stretch Goals” for 2020?
“Double your revenues with one sales technique!”
“Triple your profits by optimizing your customer list as the insiders do!”
“10X the size of your business in one year by coming to my seminar!”
These sorts of promises are ubiquitous these days, but I’m not sure how they developed or where they come from. My best guess is that the crazy valuations given to a handful of high-tech companies that went public in the first 10 years of the century had something to do with it. The combination of genuinely innovative technology, marketing hyperbole, and financial prestidigitation created a view of how businesses become more valuable that seems (at least to old-timers like me) downright nutty.
There was a time in my career when I was young and innocent when I might have tried to persuade my employees that we could double our sales in one year. I do know that when the company had passed the hundred-million-dollar mark, I was asking our profit center managers to create ambitious annual goals. I was operating under the understanding that setting “stretch” goals would encourage everyone to think more creatively, work harder, and spend frugally.
That never happened. What happened was that the day those stretch goals were presented everyone was happy. I was happy. The other shareholders were happy. The managers presenting the goals were happy. Even the local liquor store manager was happy to supply us with the champagne we used to toast to the coming year.
But despite our best efforts, we never came close to achieving those goals.
Stretch goals feel good. And the logic behind them – that they will encourage everyone to stretch their efforts – feels good too. But it’s specious.
When the problem became apparent to me, I called my managers together and told them that I didn’t want them to set stretch goals anymore. In fact, I didn’t want them to set goals at all.
What I wanted, I said, was for them to give me projections. “I want to see what revenues and profits will look like in 12 months if we continue doing everything we are doing now and experiencing the same response rates as we are experiencing now,” I said. “I want to see the probable future, not another highly unlikely possibility.”
The rules were strict. If a particular marketing campaign was getting a 1.5% response rate in December, they could not project that it would be getting a 2% response rate the following year simply because they “planned” to strengthen it. Unless they had a proven test with a response rate of 2.5% or better, the best they could put down on the spreadsheet they were giving to me was 1.25%… because response rates always go down.
No one was particularly excited about this, but they did it. And the projections they came up with were very useful.
By basing their goals for the year on current reality rather than future hopes, we were able to see very clearly the challenges that lay before us. This made it much easier to see where we needed new products, where we needed to terminate weak products, what sort of marketing campaigns were on the rise, and which were losing steam.
In other words, we were able, for the first time, to understand what we really had to do to increase revenues and profits.
As a result, almost all of our profit centers started growing steadily, almost always exceeding projections and growing the business as a whole.
But even then, even in our best year, we never grew by more than 50%. Most of the time the growth rate was 20% to 30%. And guess what? You can grow awfully quickly with gains like that.
Why do projections work better than stretch goals?
I’ve given you the first answer already. It’s because when you look at reality-based projections, it becomes instantly clear what will and what won’t work in terms of increasing revenues and squeezing out higher profits.
The other answer is that the energy you waste thinking about how much fun it will be to be three or five or 10 times bigger can be invested in thinking realistically about the bump you are likely to get from the innovations you are introducing. And that will almost certainly force you to realize that you are going to have to work harder and think more creatively than you have in the past.
In other words, projections, dismal as they may be to look at once a year, are very effective in getting everyone to stretch more – i.e., to accomplish what stretch goals promise to give you but won’t deliver.