Where Should I Set the Bar for My Annual Goals?

It’s January and that means it’s time to start on a new set of annual goals! Some of you may
have already set your goals, while others are using the next few weeks to plan for what’s ahead.

It’s at this time that I often hear executives, business owners and high-achievers struggling with
where to place the bar for the coming year. They don’t want to set a goal that’s too low and
allows teams to coast and they don’t want to set a goal that’s too high and ends up demoralizing
performers.

The questions they are asking themselves might sound familiar. I know I’ve had similar
conversations around executive conference tables:

None of these are unreasonable questions. They are all logical. They are even data-driven.
They would lead to what feels like well-thought-out, defensible, aggressive-but-achievable

Traditional Annual Goal Setting Is Broken

The problem is that there is no perfect spot to place each of the targets in Traditional Goals. Why?

Admit it, these numbers are made up. They are nice round numbers – increase by 25%,
cut by 5%, add 3 percentage points. When you look back at last year, the increase in
sales wasn’t 30% YOY, it was 32.5%.

And, even though you KNOW that the 25% target would just be a conceptual number –
you also KNOW that you’d be pushing the sales team hard if they were only at 24% in
mid-December. You’d also be celebrating if the team ended the year at 26%. Though, in
the grand scheme of things – we’re talking about a 2pt swing that’s likely not significant
enough to the business to warrant the roller coaster of stress and potential bad decisions
it could cause.

Just take a second to consider the absurdity. We’ve all done it. We have based this
important process on a number we’ve literally made up.

They miss opportunities.

If you focus on growing sales by 25%, are you missing opportunities to triple them?
Maybe!

Placing the focus on an outcome like this will drive behaviors to make THIS outcome
happen

The sales team will look for opportunities to drive 25% more sales. Maybe that means
that they try to get one new client in each of the major verticals the company services.
But, what if they could have spent the same amount of time, effort, and resources to
break into a new vertical that increased their sales by 40% this year – or only 10% this
year but double next year

The operations managers will go hunting for places to get that 5% savings. That likely
means that they’ll look to shave costs across the board. They’ll save a little here and a
little there and, bam! 5% falls to the bottom line. But, what if they are missing a chance to
boost profit margins by suggesting a major shift in production that keeps costs level, but
increases revenue-earning output?

The marketing and customer service teams will work to get 3 more points on the
customer satisfaction board. They’ll likely create campaigns targeted at the survey you
use to measure satisfaction and will push and pull levers to get the exact right number of
happy customers to fill it out. But, what if they could have launched an initiative to help
customers meet a specific need – and spent all year focusing on that one thing with
customers, collecting their feedback, and really listening to them? What if that turned into
valuable data for product development, sales, and marketing AND had the added effect
of boosting customer satisfaction ratings and increasing the amount of positive signal
about your brand on social media?

They have hidden sacrifices.

I’ll say it again: placing the focus on these types of outcomes will drive behaviors to
make THESE outcomes happen. And, it will do so at the cost of all others.

The focus on increasing sales could lead to a lack of follow-up on existing accounts.
While the sales team is driving new business and customer service is spending time
hand-holding the new clients, existing clients are left in the cold and start to drop off.

The mandate to cut costs hampers everyone’s ability to grow. Each decision to act has
to be measured against resource constraints. How will the teams hit their goals to
maintain or increase their performance over last year when they have the same budget?
How well will leaders work together when they feel that they are fighting against one
another for resources?

The focus on increasing the customer satisfaction score could actually lead to lower
quality customer service. While it sounds like the goal is to increase satisfaction, and it
seems logical that would mean that quality would have to go up – it’s not the case. The
goal is to move that number by 3 points. The teams can do that with some creative
tactics to engage with customers who are already satisfied and ignore those who aren’t.
They can provide a lower quality of service, make more customers less satisfied, and still
hit this number.

Will the sales target or the cost reduction help executives make the best decision for the
company when they are faced with decisions or challenges? Or, will they be motivated to
look out for themselves and their team? Will the CMO spend over budget if it helps drive
the leads the sales team needs to deliver above target? Or will she hang onto those
dollars and give up a significant volume of revenue because she wants her team to
bonus by meeting all of their targets including keeping the budget 5% lower YOY?

Hitting numbers like these often comes with these types of hidden costs that you don’t
see until it’s too late.

They are not truly motivating.

Sure, we all want to do better – and setting a number that teams can work to achieve
feels like a tool for motivation… but outside of your executive, sales, and finance teams,
few people care about the numbers.

Will a goal of increasing sales get customer service members to offer more caring
support, will it motivate developers to look for problems to solve, will it help the
accounting team feel like they are contributing to something greater themselves?

This might not seem like a big deal – but I promise you it is. The job market has been
tough for the last few years. Companies have had their pick of employees and haven’t
had to pay that much or work that hard to attract or retain employees. But, this is just a
trend. It wasn’t that long ago (remember 2021 and 2022?) when it was hard to find
anyone to fill the vacancies

When you have to compete with other organizations to fill roles and if you actually want
to attract and retain top-tier talent in any job market, you have to give people something
to believe in. The people that you want on your team need more than a paycheck – heck
some of them will even take a lower paycheck and work twice as hard if they believe in
WHY you do what you do.

Finally – You’ll hit the numbers anyway.

If you focus on the right areas, you’re going to achieve the metrics. You’ll have the
numerical proof that you can measure over time to show that you are making progress.
You will have the ability to watch those metrics along the way to see if you’re on track

But, they won’t be the focus. They’ll simply be an indicator to help you make decisions
throughout the year

Start with WHY Not WHAT

So, how do you set the right annual goals? The question isn’t: what should my goals be? It’s:
where should I start the goal setting process?

Goal setting starts at the top with the founder’s purpose and the company’s mission. It starts with WHY.

WHY The Company Exists

The Founder’s WHY should cascade down into the Company’s WHY. In cases where the
founder is gone or the company is so far removed from the origin story – a new WHY can
emerge from the stories of the existing organization and its culture.

Even if you haven’t gone through a WHY Discovery for yourself or organization, you’ve likely
developed a mission statement that holds pieces of a WHY: a contribution and an impact

If you have a mission statement, take a look and be sure that it describes a specific contribution
and creates value beyond the bottom line. Mission statements are often aspirational or empty,
flowery statements.

Read your mission statement – is it unique to you? Does it describe anything in particular? Does
it describe what you’re doing, or just what you think people want to hear? Does it boil down to
more than “We come together to make money and make the world a better place.”?

Now WHAT?

The focus when creating your Annual Organizational Goals should be on the process (don’t worry – the numbers and the specific goals will emerge!) of delivering progress.

This is an opportunity for the leadership team to review where you are relative to your mission –
and determine how you’re going to make further progress this year

1. Determine your baseline – where are you today relative to your stated mission?
2. Review current performance – how have you done lately?
3. Measure distance to mission – what’s left to do?
4. Envision what’s next – what steps can you take in the next 2-3 years?
5. Sketch the possibilities – what do the steps look like?
6. Analyze, align, & prioritize – decide what you’ll do, what you’ll save for next year, and what gets the highest priority
7. Setup schedules, reports, & comms – determine how you’ll stay in touch and measure progress throughout the year

Once you have completed this process – the actions your teams will need to take, the goals
they’ll need to hit, and the milestones you can measure will become clear.

Show Me an Example

Let’s look at an example using the same Traditional Annual Goals from above which were:

• 25% increase in sales
• 5% decrease in operating expenses
• 3 percentage point increase in customer satisfaction rating

For this example, let’s use the following for a company that provides Finance and Accounting
solutions for small businesses:

• Founder’s WHY: To create the conditions where people feel safe and secure so that they can be free to think and act creatively
• Company’s WHY: To reduce stress and friction so that people can create amazing things.
• Company’s Purpose: To deliver financial products and services to small businesses
• Company’s Mission: To remove the barriers and stress typically associated with accounting and finance for small businesses so that owners and their teams can focus on creating innovative products and services for the world.

In the last few years, the company has outlined several areas to focus on to move closer to their to stated mission of removing barriers and stress, including:

• Completely replace manual-heavy, traditional invoicing systems for service-based businesses with a new breed of solutions that combines automated processes and hands-free services.
• Include tax accounting, auditing, and filing services in the standard service package -making it an all-in-one solution

Last year, the company made significant strides in these areas by:

• Releasing a new version of their invoicing module with integrations for popular scheduling, time tracking, expense reporting, and PO platforms, and AI that “remembers” customer activity and attempts to pre-fill the next invoice to save time. This added a small increase to operating costs, but paid off with new customers, adding to the increase in YOY revenue.
• Hiring and training a staff of accounting assistants and training AI agents, allowing each certified accountant on staff to manage four times the clients they could on their own. This had a big impact on costs and did little to drive new revenue last year.

As the executive team looks at the possibilities in front of them this year, they decide on 4-5 goals for their teams to focus on for the year, including these two top priorities:

• Build on the success of the invoicing module to enter new markets – becoming a market leader in at least one new market that’s a size at or above the company’s existing markets
• Pilot an all-in-one solution service package that offers clients a full range of bookkeeping, tax, and reporting services at or near the cost of the existing standard package.

The leaders will take these away to develop the plans to meet these goals.

• Sales and Marketing will come back with a plan to test their way into three different markets – one per quarter for the first three quarters of the year. They’ll include more than one market because they don’t want to put all their eggs in one basket
• Operations will work with Production and Product Management to develop bundled product and service packages.
• Marketing and Customer Service will develop a series of listening campaigns to collect feedback from clients in the new markets and from clients using the new bundled services. They’ll send surveys, ask questions when clients are on the phone, and employ tools to pick up mentions of the solutions on social media.

The Numbers DO Matter

The numbers are still in play.

• Sales and Marketing will be successful when they gain that foothold in one of the markets. Based on the size of the market (at or above the size of the average existing markets), gaining that success will add 25% to last year’s revenue numbers. 25% YOY revenue growth will be a milestone for showing that the goal reached its intended success. But, if they are better than that, or doing well in the other markets – will they stop? Or will they ask for more resources to support the growth and continue to capture the opportunity?
• Operations will be successful when they find untapped potential in the service delivery processes. In order to get the price of the bundles lower, they’ll need to find places where more parts of the process can be automated and where parts of the process are currently duplicated or redundant. Getting to the target price point will require them to cut 5% in costs from the process (ie, 5% in operating costs).
• Marketing and Customer Service will be able to provide valuable feedback. Note that success for them might be reporting a decrease in customer satisfaction. That information is far more valuable to the company than the team’s ability to artificially boost the number to meet a metric-based goal.

The numbers still matter. But, they aren’t the goal – they are the indicator that you are making progress toward your goal.

Bonus: Decision-Making Filter

When your goal-setting process starts with WHY, not only do your teams develop the right
initiatives, but they are also able to make decisions that are aligned with the organization’s
mission and keep initiatives across the board aligned and on track.

Here’s an example using the scenario above: Let’s say that the Operations team figured out
they could reduce costs at one point in the process, but it would require the client to take on a complicated process of transferring data to send a file once a week.

Does the Operations team investigate this route? Do they talk to the Product team about
mapping out a workflow to add the process to the client dashboard?

No

It’s not the right direction. A new process every week = friction. Complicated data transfer = stress. It’s not aligned with the company’s WHY of removing stress and friction.

As another example, let’s say that as the Sales team is working to break into new markets, they gain the attention of an enterprise-level organization in one of the markets. It’s a big, established corporation that’s been producing reliable consumer goods for decades – they are well-known and the contract would be massive. This enterprise-level organization asks the company to come in and pitch them.

Does the Sales team bite? Do they ask Marketing to put together a killer deck? Do they ask
Production to show a custom pod of agents dedicated to the client’s account?

No.

The company’s purpose and mission are tied to small businesses, not enterprise-level
organizations. The company’s WHY, built on the founder’s WHY, is about fostering creativity – to make people feel secure so that they can create amazing things. A large, established corporation that’s built its brand around reliability in consumer goods isn’t on the cutting edge. This isn’t the kind of work that the people in this company are passionate about supporting.

Saying “yes” to the enterprise-level client would take the focus away from the goals for several teams – and that would be just to pitch the client. Winning the contract would take even more teams and focus away from the goals – dedicating it to servicing this new client that will have needs and demands outside the company’s typical scope. One client that would contribute an outsized proportion of the company’s revenue.

If you don’t know what to say “no” to, everything is on the table. Your teams won’t know where to focus their efforts and resources, and there are hidden costs they accept because everything looks like an opportunity.

With a clearly articulated set of goals based on the company’s mission, WHY, and – in the cases where it can be – the founder’s mission, everyone in the organization knows WHAT to do. They have a decision making filter handy at all times that allows them to quickly make the right choice to keep the company on the right track.

Setting Goals with Purpose and Clarity

Ready to start setting goals for yourself, your team, and your organization that start with
purpose and lead to greater clarity from top to bottom? Let’s have a discussion.