Agreeing to realistic goals is the first lesson a fledgling business should learn. Realistic goals should form the backbone of your company and are the most important part of your annual business plan. The most common goals for a business are revenue, profit, sales volume and growth goals. Failing to set realistic goals by being too conservative or ambitious can have disastrous results on your company. How should you plan realistic goals?
Conservative vs. Ambitious Goals
If you have the choice between conservative goals and ambitious ones, always initially choose the latter. For example, your company can either set a conservative revenue goals of $100,000 for the year with a profit margin target of 5% ($5,000) or a revenue target of $1,000,000 with a profit margin target of 25%. While the first choice might be the safer, more realistic one, take a moment to entertain the notion of the second, more ambitious plan. Taking an ambitious plan and trimming it down to more realistic proportions is far more productive than starting with a conservative plan and failing to push it to its true limits. To trim down the ambitiousgoals to realistic specifications, you should hold a meeting with all your departments to brainstorm and gauge the feasibility of your projected goals.
Numbers Aren’t Everything
After setting up realistic revenue and earnings targets, its important to remember that what theoretically works on paper can fail miserably when applied to a human workforce. Maybe you could achieve your high goals, if your employees worked twelve hours daily and you got everything right on the first try. But how realistic would that be? Your employees would likely revolt long before attaining your growth targets. Setting goals simply based on accounting without the concern for exhausting your workforce is simply poor management. If you need to stress your employees, offer them realistic compensation – in the form of profit sharing or additional stock options on achieving the set goals. If your workers are also convinced that achieving your goals would benefit the company (and themselves), they will be more inclined to help you make the final push towards your quarterly targets.
Consequences of Unrealistic Goals
We’ve all seen what happens to publicly traded companies when they fail to meet their prior forecasts. Investors sell in a panic and the shares get flattened – not good for your shareholders or your employees. Even if your company doesn’t trade on Wall Street, you will still likely have to report to private shareholders, who can be even more finicky than public ones.
The dot-com crash at the turn of the millennium is an example of the consequences of unrealistic goals. Internet companies were making money by simply selling stock, with wild and lavish promises of exponential future growth. Speculative investors excitedly poured money into these ventures in the final frontier of retail, which lasted for a few quarters. However, when investors realized that the emperor had no clothes, those companies crashed and burned, and a generation of paper millionaires went bankrupt overnight.
Be smart with your goals. Take ambitious targets and trim them down, and make sure that the workload is acceptable to your employees. Negotiate with employees with profit sharing and options to get them more motivated. Last but not least, never overstate your projections, lest your company become the next Pets.com.