Goal setting is the first step of any new business or project. Until you can clearly define a set of goals, further effort can easily be misdirected down unprofitable avenues. Once defined, any particular effort being contemplated can be tested for value by asking, "will this contribute to our goals?"
Goal setting is an important part, if not the most important part, of any project or review.
It is the process of setting a direction and an endpoint for any particular activity within your business.
One way to demonstrate the power and importance of goal setting is to imagine yourself driving in a car from Brisbane to Sydney at night. At any point in time, you can only see 200 to 300 meters ahead of you in the light from your headlights. However, given that you set out to go to Sydney, you have a goal or direction in mind. If you programmed Sydney into your on-board satellite navigation system, even if you went off the road to look at some scenery, get petrol, have a bite to eat, as soon as you start driving again your satellite navigation will take you back to the route of your destination. In other words once you have a project goal and destination in mind, even if you inevitably get sidetracked from the most efficient route to that goal, if you focus on your goal, it will continually bring you back onto a path that leads you to the goal.
Alternatively, if you just jumped in your car with a view to going for a drive without a firm destination in mind, you could end up anywhere!
Any set of goals should be SMART. This stands for the several components of a successful set of goals.
- Specific – target a specific area for improvement.
- Measurable – quantify or at least suggest an indicator of progress.
- Assignable – specify who will do it.
- Realistic – state what results can realistically be achieved, given available resources.
- Time-related – specify when the result(s) can be achieved.
Lets now expand on each of the elements of SMART so that we understand their purpose and how to take advantage of them.
For a goal to be practical, one must be very clear in its definition and what we are attempting to achieve.
By way of example, we could have a comparatively vague goal along the lines of "I want to be rich". This is a fairly useless goal because it doesn't define what "rich" is. A far better goal would be along the lines of "I want to earn $100,000". This is the “S” for Specific in SMART.
In the process of defining our goals so far we have also introduced the "M", Measurable, element of SMART by setting the goal to $100,000.
If this hadn't happened coincidentally, we should take the time to introduce a Measurability element to the goal; otherwise, how will we know that we have achieved it?
Measurability is important because we will be introducing the concept of "Metrics" that allow you to track your progress against your goals and when they are finally achieved. For more on Metrics, see the Metrics Recipe.
The "A", Assignable, element of SMART goal setting refers to who will do the work towards this goal. This might be an individual, such as yourself, or another single member of staff or it might be a team or an entire business.
Until such time as you define who will do the work, it will be one of those things that float around as something that it would be "nice" to get done, rather than having been put specifically onto the work plan of one or more individuals.
There is much more to Assignability than simply allocating it to one or more individuals. In Recipes in Profit Savvy, we talk about the impact of Multitasking. (See Multitasking Tool).
It may well be, that assigning several SMART goals to the same individuals at the same time means that they are forever picking one up, doing a bit to move it along, putting it down, picking up another one, doing a bit to move it along, putting it down, and so on.
These perils of Multitasking mean that your goals take considerably longer to do than if they were highly focused.
Therefore, as well as assigning a goal you may well allocate a priority so that the individuals with that goal are very clear on where it ranks in respect to other goals. You might hold back a goal until its predecessors have been completed (called “gating”).
Also to be considered when you are assigning goals is the availability of that person/s to take on more work.
In any business operation there will be just one or two people who are heavily overloaded with work, which means that the productivity of the entire group of people is limited to the time availability of this heavily overloaded person/s who become the "constraint" in your system. For ways of working with these people who are constraints in your system, see the Theory of Constraints (TOC).
Until such time as you can free these people up, your goals are unlikely to be achieved. Note that there will be constraints in every production system and it’s most often not the fault of the individuals but of poor work flow planning.
Now we come to the "R" or Realistic element of SMART goal setting.
There is no point in setting a goal which is either unrealistic either in reality or is considered to be unrealistic by the people who have to implement it.
If we told an individual that you want them to sell $1 million in product per month by this time next year when they presently sell $50,000 per month, they may be so overwhelmed by the prospect as to just give up!
One could still have a high realistic goal if the goal is subdivided into a number of sub goals or sub projects that are clearly "stacked" so that, as each are achieved, we are further along the goal of achieving $1 million in sales per month.
This goal is still not very well worded because we haven't specified by when do we want to earn the $100,000. This is where the "T", for Time related in the SMART system, comes into play.
The goal is clearer and better if you say "I want to earn $100,000 per month by this date next year".
When developing goals for any purpose, applying the SMART methodology is likely to mean that they are a set of workable goals, well prioritised and capable of being committed to by the individuals involved in implementing them.
To organize your thoughts in this way, you could start to write down goals with the letters SMART down the page and a description of them across the page.
See also Wikipedia
The highest set of goals that you should have for your business is what is often called a vision.
A vision is an overriding goal or goals that direct your entire business operation. Typically they might be related to a level of income that you want, a lifestyle that you'd like to have or whatever other goals that might give you satisfaction from operating your business. Until you have some idea of the vision for your business, you are simply going to work; you are not necessarily improving your life according to your particular vision.
A vision is necessarily a long term goal that will govern you business direction for several years. A short term vision runs the risk that you will seesaw backwards and forward and waste time, money and other resources unproductively.
A business Vision might cover at least two dimensions. What do you want by way of financial outcomes for yourselves and secondly, what is your customer-facing vision. A customer facing-vision should not have too many options or you will never be able to focus on all of them at once so limit it to one or two points.
Financially, your vision might be a successful exit withing 5 years earning you $1,000,000.
Your customer-facing Vision might be to "have the most popular Asian restaurant in Sydney". "most popular" allows you to focus on whatever it might be that makes it the most popular; price, food quality, service speed and so on.
To be successful, a Vision must satisfy the SMART criteria discussed above.
Any particular project that you undertake should have its own set of goals. For example, if you're building a house, clearly the goal is to erect and finish that house. If you have a project to improve your inventory system, that project would have goals relating to how much improvement you wish to achieve, what areas you're seeking to improve, what particular product lines are of most interest to you and so on.
Business Plan Context
There is a very useful discussion on Goal Setting in the context of a Business Plan by David Lavinsky in the book Start at the End: How companies can grow bigger and faster by reversing their Business Plan - Chapter 4 (see Resources below).
This book is likely to be a handy reference on Metrics and Business Plans in general - a great addition to your reference library.
The Amazing 80/20 rule (covered in The Amazing 80/20 Rule Tool) is all about focusing on the most important issues in order to get ahead as quickly as possible.
In that regard, the 80/20 Rule and Goal Setting are siblings and can be read together.
To see how well you have grasped this concept:
1. Write down a set of goals that encompass the vision for your business.
2. Create a project that you want to conduct and construct a set of SMART goals for it.
Links to other resources likely to improve the learning experience.
YouTube: There are a number of videos on these topics
Jim Collins is a highly respected writer in this field. A Google search will show his personal website, articles and books. There are interviews on Youtube.
Lavinsky, David ((2012) Start at the End: How companies can grow bigger and faster by reversing their Business Plan Wiley. This book pushes many buttons for us. Works for small business, starts with the destination goal in mind and is attuned to the 80/20 Rule. Good Chapters on Goal Setting and Metrics make it useful for that alone.