Why Stretch Goals are a Bad Idea
Goals trump resolutions in my New Year's list every year. This time of year, I like to ask company leaders what their goals are for the coming year. Very often, the answer is usually something like, "Our budget is $10 million in sales, but our stretch goal is $11.5 million."
More than likely, that "stretch goal" is not really a goal at all, it's just a number that is bigger than what they have a real plan to achieve.
I'm not the first to say that a goal without a plan is just a dream. In the case of stretch goals, that statement couldn't be more true.
A few uncomfortable truths about stretch goals:
1) Your budget for the year was most likely already a stretch. Most entrepreneurs are pathologically optimistic by nature. That's a good thing. Without that optimism, most would never have opened their doors in the first place. Unfortunately, when it comes to budgeting and forecasting, that optimism sloshes around with a lot of spillage.
2) Your people know the budget is the real number. Based upon past experiences with the cost budget and the individual incentive compensation, it is probably pretty clear to your team that the budget is the number in which you have confidence. That other number is a "if we get lucky and everything breaks our way" number. This means they don't feel that they have much influence on its attainment.
3) Few believe you will be satisfied with either number. It's a little bit of a sickness with entrepreneurs, (I'm confessing my own sickness when I say this). We just are never really satisfied, regardless of the level of attainment. There is always something that the company could have done better, a deal we could have landed, an opportunity that we feel was missed. This isn't necessarily negativity; it can simply be a characteristic of someone who is driven.
What to do:
1) The revenue goal is the revenue goal. Set one revenue goal and stick to it. Of course there can be components to it, based on lines of service, products or regions. However, each of these need to be set clearly and plans developed to support them. Do not set stretch goals. Set goals that stretch people.
2) Be real. I'm serious. I saw a company set a 65 percent increase in sales from one year to the next without any history of growth beyond 13 percent before and only half of the order backlog necessary. If you cannot provide justification for how you will attain the goal and a detailed plan with clear assumptions, then you will lose the confidence of your people.
3) Let compensation provide incentive to exceed. There are years in which you blow away goals. Effort, market circumstances, an amazing deal, and other factors can create some real excitement. Make certain that the compensation is structured in such a way that superior achievement is rewarded, not capped.
4) Praise all attainments of goals without caveat. Any compliment that comes with a caveat isn't truly a compliment. I once sat in on an end-of-year meeting in which a CEO praised the company for hitting 103.5 percent of its goal. Immediately, he then went on to list all of the things that didn't happen and how the number could have been higher had it not been for all the mistakes. The celebration felt like a reprimand.
Set goals, make plans, stick to them. I know it sounds simple...to say. It's not always as simple to do.