When setting goals, how big should they be?
Should they be Big Hairy Goals, that really stretch us beyond our limit, and motivate us to perform above our best, reach our real potential, in order to build our business to the point of greatness?
Or should they be more modest, fulfilling the “A” in SMART – being Achievable, stretching us to a point, but only to a point, and thereby preventing major disappointment?
When listed companies set their goals, the whole investment community is watching them. The goals become public property, and expectations are high. When these expectations are not met, there is not just disappointment – there is anger, anger taken out in action on the markets.
The most recent example of this is Domino’s Pizza. Their results for the past financial year were pretty impressive. They recorded an increase in earnings of 28% above the previous year, and an increase in net profit of 25%. You would have thought that the board of directors, and the shareholders, would have been delighted with those increases. But the share price plunged 18.8%, wiping about $850m off the market value of Domino’s.
The reason for this major sell-off was simple – management had set a very public Big Hairy Goal of an increase in both earnings and net profit of 32.5%. And it didn’t achieve the goal. The BHG set high expectations, and when they were not met, the market was merciless.
Other major companies have had the same issues. Nike set a goal of reaching sales of $50bn by 2020, but is finding the going tough. The competition has upped the ante, a new competitor entered the market, and the environment is not so good. Nestle, the massive Swiss company, is revising its goal for organic sales downwards. Lululemon, similarly, is having to reduce its 2020 target to take account of reality.
For these companies, the reason for making their goals more realistic, and achievable, is simple. Failure to reach these Big Hairy Goals is punished heavily on the market. But what does that mean for you? Your business is not quoted on the ASX, and the shareholders are all usually involved in the goal setting process. So does it matter if your goals are not met? Does it matter if you set Big Hairy Goals to stretch and motivate yourselves, even if you know they are not really realistic?
Perhaps it does. Goals that are manifestly not achievable are not taken seriously. Throughout the trading period, when milestones are not met, there can always be the thought that it doesn’t matter – the goal was never achievable in the first place. That can prevent you from really examining the situation to see what changes can, and should, to be made.
Perhaps it is better to have a goal that, while it is a stretch, you really believe is achievable. Then you will really strive with all your might, and will, all along the way, be asking yourself what you must do to reach you goal.
Perhaps it pays to be SMART, by making your goals less Big and Hairy, and more Achievable.
If you need any help with setting your goals, don’t hesitate to get in contact us.