As a company adds business functions, a leader must create a way to encourage each person to embrace and achieve specific goals. For example, to scale a startup, the CEO may seek to increase its revenues in a given year from $25 million to $50 million.
While it's easier to assign part of the desired revenue growth to each sales person, it's harder to set specific goals that people in product development, human resources, and customer service ought to strive to meet.
On March 5, Harvard Business School professor Tom Eisenmann, Faculty co-chair of the HBS Rock Center for Entrepreneurship, told me he thought this topic from my new book, Scaling Your Startup: Mastering the Four Stages From Idea to $10 Billion, was "important and not widely understood by aspiring entrepreneurs."
Successful CEOs establish and apply rigorous processes that hold all people accountable for contributing to the startup's growth goals. Such processes assure that each person is willing to strive toward their goals and how that will help the startup achieve its revenue growth target.
To hold people accountable, I wrote in my book that CEOs must overcome three challenges:
- Balance impact and control. Not all functions can directly affect revenue growth. For example, sales people are usually accountable for quarterly revenue goals, but how should the CEO measure the activities of marketing, engineering, and other functions? Can these metrics encourage functions to contribute to corporate goals in ways that are meaningful and that they can control?
- Achieve buy in. Each function should be confident that it can meet specific targets - and doing that requires agreement between the CEO and the functions about the variables to be tracked as well as the value of those variables that the functions will be expected to meet.
- Experiment and learn from uncertainty. These first two challenges must be overcome without really knowing which metrics will drive the right behavior and the desired outcomes. The best hope for CEOs is that over time they will learn what works and what distracts people.
A startup that holds people accountable well is San Mateo, Calif.-based business intelligence software supplier, Arcadia Data. With over 2,500 customers, its revenues increased 500 percent in 2018 and in October 2018 its raised $15 million -- bringing its total valuation to $27 million.
Arcadia Data has a rigorous process for planning and evaluating its business. The company sets detailed goals for the coming 12 months for its business functions. As CEO Sushil Thomas told me in a September 2018 interview, "We plan revenue and headcount in sales, marketing and engineering in our four channels: inbound, outbound, partners, and up-selling to existing customers."
The plans are based on benchmarks from previous years. Arcadia Data uses analysis of its average revenue per deal to estimate the number of deals it needs to meet its forecast -- which is used to set departmental objectives. "We track all the data on dashboards, analyze it compared to our budget, and know if things are going according to plan," he said.
Here are seven steps you should follow to hold people accountable.
Form a corporate accountability team.
You should start by assembling a team of key functional executives -- consisting of the heads of sales, engineering, marketing, service, finance and human resources.
Agree on team mission.
Next, agree on the team's purpose -- something like "to create and improve processes to hold people accountable for achieving the company's goals."
Identify key corporate objectives.
Suggest three to five corporate objectives -- such as specific revenue growth goals, new product initiatives, and plans to expand into new countries.
Work with functions to create key performance indicators.
The hardest part is getting the heads of the functions to propose key performance indicators that are linked to the corporate objectives.
For example, sales should bring in more new customers; marketing should generate qualified sales leads, customer service should help boost the company's net promoter score, customer renewal and revenue per customer; and engineering should hit its product roadmap objectives.
Build planning and reporting systems.
Once everyone agrees on what to measure, you have to build and operate systems to track how well people are meeting the goals.
Meet monthly to assess results.
Each month, functions should meet with their teams to compare actual performance to plan, assess gaps between results and expectations, and agree on tactics to close these performance gaps.
Evaluate and improve accountability process.
Every six months, the corporate accountability team should assess how well the process is working and make it better.
It's a truism of business that what gets measured gets done. That's just as important for scaling companies as it is for giant publicly-traded ones. Follow these seven steps and yout startup will scale more effectively.