Finding the right balance between ambitious goals and unattainable growth targets is crucial to getting the best out of staff. Failure to reach a goal can damage motivation, yet targets are an incredibly powerful motivator. So, how should you approach setting them?
It’s important to both base targets on historic performance and market conditions and have a sense of what stakeholders want from the business. This means considering the market limitations too.
Be the Business spoke to a number of business leaders about how they approach the process and strike a balance between the ambitious and unattainable.
Why have growth targets?
Humans find targets incredibly motivating. It’s easy to find yourself visualising the finish line or breaking an activity into achievable blocks – whether you’re on a hike or learning a language. The same is true in business.
“To keep people inspired and motivated, they want to feel part of a growing business,” said Alice Weightman, CEO of Hanson Search and The Work Crowd. “Every business needs a sense of purpose and a vision of where they want to go. That has to be linked with revenue.”
Ambitious targets help motivate staff but carry a greater risk of damaging motivation if they’re missed. Weightman uses stretch goals to help deal with this issue.
“You want to set a level you’re aiming for collectively. If everyone hits their target, that’s what you achieve. In the reality of a sales environment, not everyone is going to achieve that. You want to say ‘this is what we’re capable of achieving’, but from a budgeting point of view be realistic,” said Weightman.
The 37-person company grew by 20 per cent last year, compared to a target of 35 per cent.
Basing growth targets on company performance
Businesses with detailed sales data can develop accurate growth targets based on customer behaviour. Key to this is knowing customer acquisition and retention costs.
Ecommerce flower business Bloom & Wild, which employs 55 people, leverages its purchasing and marketing data.
“We’ve always tried to have our forecast grounded in reality, rather than just putting huge numbers in our plans with no justification,” said CEO Aron Gelbard. “One of the things that investors have responded positively to is the fact that we’ve broadly been on check with our plans.”
Bloom & Wild splits customers into two groups. Repeat customers are analysed in cohorts with retention costs and purchasing habits based on the acquisition date. Marketing activity is evaluated by channel and campaign to provide an accurate picture of acquisition cost.
Growth targets for order volume, revenue and marketing costs are revised every six months for a 3-4 year period based on this analysis and the available funding (the five-year-old company has taken on several rounds of equity funding).
Business-to-business (B2B) companies can take a similar approach to planning sales resources. Hanson Search’s leadership team sets a three-year vision of where the business is heading, including what they want to be known for, revenue targets and the key markets they want to develop.
“We work backwards from there” explained Weightman. “If you are planning on 30 per cent growth, what staff do you need to do that and how do you track performance? What’s realistic? How many staff equate to that? How much revenue is each person responsible for and in what market?”
Peer benchmarking services provide another route to setting ambitious, but attainable, growth targets. Many sectors have tools available that allow you to compare your business with others in the industry.
Ambitious PR director Mel Clarke describes the balance between ambitious and attainable as the million dollar question for small businesses. The five year-old company has been growing rapidly, but the directors have only been full-time for three years. This means they lack the trading data that more established companies leverage.
Clarke uses the average growth rates for businesses of a similar size published in industry title PR Week, which releases an annual survey of the top 150 agencies in the UK. While this provides a benchmark, situations specific to the business need to be taken into account.
“You have to look at those other factors. Bringing in another director last year has given us more resource to grow. Is there suddenly a load of funding in a particular sector that will create opportunities? For example, the growth of digital services has been a really big area for us,” said Clarke.
Knowing what kind of business you want to build
Companies need to grow to remain competitive, but growing too fast can create management issues and financial strain. Norwegian professor Georg von Krogh looked at out how Fortune 500 companies approached the problem.
“Executives must balance a company’s need to grow with its ability to manage the growth. The growth corridor is the path companies can take toward smart growth, between their ‘minimum growth’ and ‘maximum growth’ rates,” Krogh wrote in the late 2000s.
Financial, managerial and market limits create a ceiling for maximum healthy growth rates. These need to be considered when setting growth targets, according to Krogh.
It’s important to understand what type of business you’re trying to build too. Rapid growth brings risks and can create additional personal pressure.
Ambitious PR founding directors came from large agencies and were used to aggressive growth targets. The experience created a more nuanced view of what they want to achieve.
The company set a turnover growth target of 20 per cent for this year based on industry benchmarking, business specific factors like taking on an additional director and the importance of balancing the needs of existing clients with business development.
“It’s not about needing to increase revenue by a certain amount at all costs,” said Clarke. “We want to work with clients that share our values and our ambitions, that will work with us in partnership. We want to build a business that we enjoy working in and so do the people that work there. That has to be considered when you’re setting targets.”
Ambition is a cornerstone of business success and staff motivation. Considering sales resources, peer benchmarking and previous performance helps ensure that those targets are grounded and attainable.