Goal-setting is hard.
It’s common for startups to have annual cycles of OK, let’s try OKRs again! It will work this time for sure!
The ecosystem and the associated jargon of company goal-setting would even make a statistician blush:
North Star Metric (NSM)
Top Line Metric (TLM)
One Metric That Matters (OMTM)
I will focus on NSM and OKR in this article, as I’m most familiar with implementing them.
Basics
Your company has a mission, and an accompanying vision.
Mission: What you are doing right know. A definition of your company.
Vision: Where you want to be. A desired future state.
Your (assumingly for-profit) company also has an implicit goal of, you know, making money. This capitalist tendency—you take it for granted. Your company doesn’t need to explicitly tell you Hey employee, we want to make more money (i.e. grow). Even when employees roll their eyes when senior leadership keeps talking about company mission + vision, the make more monies part is readily accepted.
In contrast, senior leadership should encapsulate how to go from mission (now) to vision (future) using a framework so that every employee can align on what really matters. One such framework is OKR, which consists of objectives and key results. From the author:
Objectives are the “what.” They describe the path forward, the place you want to be.
Key Results are the “how.” They provide the roadmap for accomplishing your Objectives.
Objectives are
Meaningful: top priority, clear direction
Audacious: significant change, not BaU
Inspiring: easy to remember, empowering
Key results are
Specific & time-bound: what needs to happen & when
Aggressive yet realistic: aspirational but not unrealistic
Measurable & verifiable: clear success criteria
It is common to have a 3x3 company-wide OKRs, where you have 3 objectives with 3 key results each. From there, you have two options:
Explicit alignment: you ‘inherit’ a key result of one your boss’ objectives
Directional alignment: you use company-wide OKRs as a guide to align your function
Within the company-wide objectives, there is one first-amongst-equals. This is your top priority, highest focus. NSM is that highest-level objective.
Why not Revenue as a NSM?
Everyone cares about revenue. Everyone should capture, log, and monitor their revenue as accurately as possible—although you’d be surprised how many n
-year-old startups do not (cannot) do this.
But, the definition of a North Star metric is
the single metric that best captures the core value that your product delivers to customers.
and
To uncover your North Star Metric, you must understand the value your most loyal customers get from using your product.
The primary goals of introducing a NSM are reducing admin, simplifying meetings, and aligning teams around a singular goal (i.e. growth). You should be able to point at your NSM and that’s all your people need to make sure that they are correctly oriented.
There you have it—NSM is a metric that a company uses as a focus for their growth. You don’t need to explicitly make revenue your NSM; it is already there. NSM is what you are offering to your customers, in exchange for taking their money—your value proposition.
This is the definitional issue, which some might put aside as semantics. What about more tangible cons? There are several:
Increased revenue != efficient growth. You can be growing, but at what cost? A company can say they increased revenue by
X
times inY
months. It’s impossible to pass judgment on those numbers without knowing more about the costs and efficiency.Increased revenue != product fit. Similar to above, the fact that you are seeing more revenue doesn’t necessarily mean you are exploiting a true gap in the market. This is the all-too-familiar story of extraordinary marketing success coupled with a mediocre product.
Revenue above all > long-term thinking. Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes. If you make your employees fixate on generating more revenue, they will do so by any means necessary. This will lead to short-term wins at the cost of long-term viability.
Revenue is simply uninspiring as a primary motivator. Even though this is the most human-oriented factor, I believe it to be the most important. Consider the following two cases:
Your company is hiring for middle and/or senior management. Amongst other things, the recruiter tells the candidate
We care about [insert revenue variant]. This is our absolute #1 focus.
You are a middle manager, you gather your team(s) to achieve alignment with the high-level company objectives. You tell them
We care about [insert revenue variant]. This is our absolute #1 focus.
Not the most inspiring pitch, is it? Instead, if you remove one step from revenue and identify your core value proposition, and instead try to recruit candidates and motivate employees by championing that, that is more interesting, human, worthwhile.
You can even add specificity to the list as an added bonus. When I hear a company has revenue as a NSM—and for disclaimer, all the companies I worked for more or less had revenue as a NSM—I think what a missed opportunity; it would be more informative if instead they shared their core value proposition with me. I already know they want to make more money. Everyone does!
TL;DR: Use your NSM to tell something useful (informative, guiding) to your existing and future employees.