Of late, I’ve been having lots of conversations with founders about setting goals. It’s a really important topic for many founders, because it’s the way that management teams align incentives and focus an organization on a few important areas. It’s their focus that enables startups to move quickly, one of their key competitive advantages in the market. But, what is the optimal way of setting goals? I first learned about goal setting at Google, which employs the OKR (Objective and Key Result) that Andy Grove developed at Intel. He wrote about it in a book called High Output Management. At its core, an OKR is a description of the goal with a quantitative metric of success. Angus Davis, founder of Swipely, added an important element to the way his company sets OKRs: each goal has to be aligned with the major goal of the business.
Often, this type of quarterly goal setting engenders fears of linear thinking and linear progression, which is why many companies encourage their employees to aim to achieve only about 70% of their goals, and many managers at Google, demand that their employees each quarter create a moonshot goal. The likelihood of success of this aspiration is quite low, but if successful, it can meaningfully alter the trajectory of the company.
But, there are other frameworks for setting goals. I was chatting with a head of human resources at a fast-growing startup, and he described three different kinds of goals: absolute goals, relative goals, and sustainment goals. Absolute goals are things like revenue, users, employees – numbers that in a fast-growing company are monotonically increasing. Relative goals are things like market share or app rankings. Startup can aim to be in the top 10 mobile apps in a category for example. Sustainment goals are things like 99.999% uptime or 90% customer satisfaction.
This executive favored a mix across the three for every individual, because it can be challenging to be motivated exclusively by sustainment goals, for example.
Reading through some organizational behavior research, I came across another way of thinking about goals. Elliott and McGregor, two researchers known in the field, categorize goals in three different buckets. Mastery, performance approach, and performance avoidance. Mastery goals are things like becoming fluent in Spanish or in Ruby. They are unique in that the measurement of success is intrinsic, it is up to the individual to compete with themselves to achieve maximum success.
Performance approach goals are the most common. Close $1 million new business this year. Generate 1000 new leads this month. Hire six more engineers. Performance approach goals require extrinsic validation, in the form of compensation or bonuses or similar. They work well.
The last category according to behavioral research is performance avoidance goals, which asks people to demonstrate that they are not incompetent. Studies of repeatedly shown that these are detrimental and ineffective.
And then, there is a host of research on the negative aspects of goals. This Harvard paper outlines all the pitfalls of goal setting: narrow mindedness, learning inhibition, and calibration among others. For example, the Pinto, Ford’s disastrous compact car of the 70s, was a byproduct of focusing on shipping fast, and not paying attention to safety.
I had wanted to find some consistent framework for setting goals. But like pricing, there doesn’t seem to be an optimal mechanism of goal setting. The research is still all over the place, and different companies employ different techniques to achieve great success. Ultimately, logic and clear thinking are probably the best tools for setting goals, and motivating an organization properly.