To Stretch Or To Sandbag

When it comes to planning and goal-setting, perhaps the most basic and often vexing question is where to set the bar.

One school of thought is to set lofty goals that force teams and people to stretch beyond their comfort zones, and achieve the unexpected, or the previously unobtainable.

The other school of thought is to set easily attainable goals, or to “sandbag”, under the “expectation management” theory of under-promise and over-deliver.

As a serial entrepreneur, private and public tech company CEO, and institutional venture investor, I have developed a firm viewpoint on this:  it’s “sandbag”!!!

The “why”, however, is just as important as the answer, as you must take active steps to get all the benefits of the latter sandbagging course.  Here are the key reasons why it’s usually the best approach:

Team Motivation 

People who are drawn to startups are over-achievers by nature. There is no benefit to setting goals that can’t be achieved just to get over-achievers to perform even better – there is no need for extra motivation.  And when the plan is too outrageous people either ignore it, or question the quality of the company’s leadership.

Managing Burn

By definition, the expense and thus burn rate of the annual plan budget is set to whatever the revenue and other goals are.  If revenue is set at an unachievable rate, and expenses (mostly hiring) are set to match, the company is going to end up with too high of a burn-rate.  That means running out of capital, and all of the problems that come with coming up short, even when the company may have otherwise performed well on the top line relative to peers and the market

The Plan Matters

Investors base much of their judgment (and perception) on how the company performs against plan.  Wall Street certainly does.  Even when Company A delivers more revenue and growth than Company B, if Company A missed its plan, and Company B beat their plan, Company B is perceived to have performed better than Company A.  The sooner you start developing the discipline of meeting/beating plan, the better.

Investor Confidence 

Capital is the lifeblood of any growth business.  Growth businesses almost always consume more cash than they create in the short-term, meaning new capital must be brought in to fuel the growth engine.  Nothing builds investor “cred” and confidence like always beating your plan. A public company that I invested when they were a private start-up beat their plan EVERY single quarter.  For two dozen quarters in a row!  That gets peoples’ attention, including Wall Street bankers and public market investors.  It says management knows how to plan, and then executes on their plan.

Winners v. Losers

Related to #3, I’m always taken aback, when a company that a) more than doubles revenues, b) grows faster than any of its peers, but c) misses its plan, is seen as a failure or under-performing.  It’s purely psychological, but its real, nonetheless.  Perception is reality.   Beating plan makes everyone feel like they are winners, versus losers.  Conversely, consistently missing plan will only demoralize the team and erode their confidence, even when everyone knows it was a stretch goal and the actual result was great. Beating the plan is a self-re-enforcing psychology that creates and strengthens confidence and energy in a company.  And as anyone who has played team sports knows, confidence is both contagious and results in better performance across the whole team.

CAVEAT

The plan must be legitimate. Creating a plan that loses market-share, or falls below the performance levels of competitors and peers, is equally bad. Accomplishing a goal that you didn’t have to work hard for can be anticlimactic at best, thus somewhat demoralizing and de-energizing, while forgoing the value creation you might otherwise have achieved.  Accomplishing a plan that results in falling behind (or even further behind) in the marketplace, is a slow, if somewhat less painful, death.

Like many management skills and techniques, planning and goal-setting is part science, part art.  Knowing where to set the bar is a function of understanding what the marketplace will give you, what competitors/peers are doing, and what your team is capable of achieving. Set goals high enough that investors and the market perceive you as achievers and leaders, yet low enough that you don’t spoil that perception by missing them.  Good luck!

Read the original blog post in Forbes here.