This post is part of our series about pragmatic goal-tracking.
In a previous article we described the 4 stages of goal-tracking:
- No shared goals: the team is mostly output-driven and reactive
- We want goals: the team is looking for better ways to scale and start to experiment with goals defined by leadership
- We set goals: the team is experienced with goal-setting and you see bottom-up suggestions derived from the vision established at the top
- We track goals: the organization is fully outcome-driven with autonomous teams. People can make hard calls themselves based on their ability to deliver impact.
It's tempting to jump straight into stage 4, but that will put significant strain on your organization. Instead, it would be better to adopt a gradual approach where you shift bits of your culture over time.
In this post we'll start from the beginning and see how you can get to stage 2 in three steps: create a shared vision, make sure you can measure success, and put goals at the center.
Step 1. Create a shared vision
You can't be outcome-driven unless you have a clear understanding of what you're trying to achieve. And it won't be enough to share a few paragraphs in an email. You'll need to make sure the vision is shared and understood, even if there are disagreements on some aspects.
We have a simple framework that can help you answer the following questions:
- What is your purpose?
- What is your focus for the next 12 months?
It can take weeks or months to get people to agree on things so I recommend timeboxing the vision exercise. Spend no more than a week on your first draft and start showing it around - the feedback you'll get from your prospects, customers and advisors will help you refine your message faster than if you bang heads with your team.
Don't let your vision get dusty. You will need to refer back to it often to make sure that people keep it in mind when they make decisions. It can be as simple as having a single slide at the start of your monthly meetings. And no need to continually quiz your company on it, just flash it as a reminder before you dive into the current state of affairs.
Step 2. Make sure you can measure success
The next step is to make sure you have the means to track impact. Setting a goal to increase signups is useless if your team can't figure out how many people try your product every week. You'll need to instrument each step of your customer journey to understand how people are finding your product, using it, and also abandoning it.
A good place to start is to look at Dave McClure's Startup Metrics for Pirates, often referred to as the AARRR funnel. It provides a framework to understand your conversion funnel and the AARRR acronym stands for:
- Acquisition: How do people find you? How many leads do you get every month?
- Activation: How many visitors and leads sign up for your product?
- Retention: How many users stick around and come back every day, week or month?
- Referral: Do people recommend your product to others? Do they invite their friends or teammates?
- Revenues: How many users end up paying? What's your average revenue per user?
You'll need a combination of tools to track the different parts of your funnel. Peter Reinhardt, CEO of Segment, has written an excellent list that you can pick and choose from.
If I had just 3 services to recommend it would be:
- Mixpanel as it can help you track most of the AARRR funnel via events
- A tool like Wootric to send Net Promoter Score (NPS) surveys and get a proxy metric for referral potential.
- Something like Chartmogul to analyze your revenues
You can get much more sophisticated after, but these 3 tools should help you understand your key performance indicators (KPIs). If you need something more concrete than the AARRR funnel, Otto Ruettinger from Atlassian has a good set of KPIs that could apply to your business:
- Customer Acquisition Cost (CAC): Amount that you need to spend to get one new customer - usually linked to how much money you spend on ads.
- Activation Rate: Percentage of customers that clicked Try and performed an action in your product.
- Monthly Active Users (MAUs): Number of users that have been active in the last month.
- Monthly Recurring Revenues (MRR): For subscription businesses, amount of revenues that you charge customers each month.
- Churn: Percentage of active users (or income) that are leaving your product.
- Lifetime Customer Value (LTV): How much money on average does a customer spend with your company from the day they sign up, to the day they leave.
Don't put too many KPIs on your dashboard. It will become harder for your team to make sense of it. They should be simple health metrics that help you understand quickly if your business is in good or bad shape.
Step 3. Put goals, not projects, at the center
Having a shared vision and key metrics that you can track will put you in an excellent position to address the important cultural shift required to get to stage 2.
In stage 1 a lot of the focus is put on getting projects done on time and counting deliverables (releases, tasks completed, bugs). To get to stage 2 you will need to shift the emphasis on getting the right outcomes. What matters now is your ability to deliver the impact that you expected. Projects, tasks and deliverables are still important, but they are means to get to that end.
That's a lot of words but what does it mean in practice?
Set quarterly company goals
Once you understand the baseline of your KPIs, you can start setting goals to move them in a way that fits your current priorities for the year. It will probably be easier to keep a top-down approach where leadership defines 3-5 goals for the quarter on top of the usual sales and customer targets.
Why top-down? Because the first predictions are likely to be wrong and you're just started building your impact muscle. Asking for significant contributions from the team at this stage will generate confusion and frustration. You will also have different priorities depending on the stage of your company and the type of product you're building, so make sure that leadership has a solid grasp of what good KPIs and goals look like before expanding that responsibility.
For instance, if you've just launched your startup, you probably want to focus on retention first. Your goals will be around increasing your retention rate and possibly getting a high NPS. You could argue that raising the number of monthly active users should be there as well, but that's dangerous as it could result in getting more people through the door to compensate for a low retention rate.
(1) 10,000 leads x 1% retention = 100 users
(2) 1,000 leads x 10% retention = 100 users
Both formulas give you the same number of users in the end, but only one approach resulted in a better product.
Think carefully about the metrics that you pick because side effects are real.
Your projects must have success metrics
Now that you have your company goals, you need to make sure that all* projects on the roadmap are related to one or more of your company goals. It should also be possible to describe what the expected impact is. No need to be super precise - you can use t-shirt sizes to provide a rough idea.
I'm putting an asterisk on all* projects because sometimes you'll have tackle initiatives that won't directly move the needle. Tech debt, security, platform work are examples of such things where metrics can be hard to define. That's when your vision document will come handy to understand how the proposals fit in. Building a billing system gets the thumbs up if you're at the monetization phase. But refactoring your product to support internationalization might get a thumb down if expanding to non-English speaking markets is not a priority.
Being aligned is more important than being right
The first targets and estimations you'll make will be wrong. Don't panic if it feels like you're way off-track at the beginning. The primary purpose of having goals is to help the team understands what to focus on.
It's more important that everyone knows that the current priority is retention rather than debating if 37% or 42% is the right target. The same thing will happen when you start reporting progress. You might see some volatility while you calibrate your system. That's okay as long as the variance is not too strong - once again, being aligned and sharing a basic understanding of whether a goal is green, red or yellow is far more important than nitpicking actual values.
It's okay to be off-track
Finally, the team should feel safe reporting bad news early. If an initiative is at-risk or if a goal is getting off-track it's crucial that people feel like they can communicate their concerns without being blamed for the message.
Being outcome-driven is about becoming more agile as a business and being able to find solutions together. Having a goal at-risk is an opportunity to rally and understand together what went wrong. Was the target too ambitious? Did we have the right hypotheses and projects to deliver impact? Did something go wrong in our execution? The answer is almost never tied to a single individual. Figure things out as a team and you'll build the trust and agility necessary to move to stage 3.
Getting to stage 2 is probably the hardest transition of all because this is where the big switch output-driven -> outcome-driven happens.
In the next post we'll see how you move from stage 2 to stage 3 where you can have more sophisticated goals defined by teams instead of leadership. That's a smoother transition to make once you have a firm basis.
Add your feedback and questions in the comments, and you can also find me on Twitter
Subscribe to Tability
Get the latest posts delivered right to your inbox