This is create the next from ProCFO Partners, where every week we explore strategies and ideas for financial management and growth to help today's businesses but their financial picture in context.

I'm Chris Bintliff. I'm here with Nelson Tepfer and Haleh Fardi from ProCFO Partners. And today we're talking about the key questions are the things that we should be thinking about, as we set goals inside of a company? How are many companies setting the wrong or the unrealistic or the inappropriate goal? What are some things that you think are some guidance that you can give us that help us to sort of the three checkboxes are the things we should really be itemizing to think? Is this the goal that you should be setting? How do I set a goal in my company,

but let's Park COVID for now. And let's talk about how goals were set before. And I have goals that were set before that's just the founder and the CEO had a number in mind $10 million, right? So they would set a goal $10 million, I'm going to work backwards, I'm going to divide it by five, I'm going to grow by 20%. And I'm going to hit that number.

I see that a lot. I see that a lot reverse engineering a number, okay?

Yes, reverse engineering a number, and not even the how the how is left for the team. But that's his number. And there are a number and they're going to get to it. The other way is they take last year's numbers and they say, to the salespeople, 25% growth, to operations on their real budget 10% growth, 15% growth. Again, not looking at the market conditions, staffing changes, you know, competitors, anything like that, we're just going to grow by 10% and 15%. Those are the two old ways of doing it. Right? all bets are off. First of all, they're not the right ways to do it anyway. Right? Maybe a framework. But now with COVID those numbers are just that just doesn't work.

Why is it the wrong way to do it? Why is that? So some some arguments are willing We got to create a stretch goal. Yeah, it shouldn't be easy. It's a goal. If it was a goal, we wouldn't, we wouldn't, we wouldn't be making it a goal. So everybody's got to work hard. You got to pull up your boots, you got to get going, why are those sort of arbitrary goals ineffective?

They're arbitrary. Now, I'm not saying it's wrong to say I have a $10 million number in mind. But what we've found is that number is so arbitrary that the minute they hit it, they want it to be 20. They want it to be 30. It's just something to shoot for. Right? And 10% of last year is definitely wrong. Because if you're talking about a stretch goal, you could really be shooting low. If you have momentum, if you have a strong sales pipeline, if you have a couple hired a couple of sales people that are just dynamite to say I just want to go with 10% over last year, is really hurting yourself. Because you're not looking at all the factors involved and what you can achieve or should reach for the following year.

So Nelson, what should I be thinking about when I'm thinking about a goal if I Don't want to just throw a number at a dartboard or throw darts at a number on a on a dartboard. What? What are the sort of qualifications or criteria that you think make up a goal that I should really be seriously considering?

Some of it comes from taking a step back, instead of just saying where you are in this business, and therefore, this is where you should be. It's perhaps looking more at what your objectives are. You as a business owner, you as a CEO, you as a father, you as a mother, you What is your actual objective? Some of it comes down to them stepping back and say, Okay, if this is what your actual objective is, and we have these questions and conversation for clients very often, and it's always interesting how the conversations usually end up more either number based at best, very often, they're just concept based. What's your goal? What's your objective, we want to grow. We want to make more money, we want greater brand awareness is a very typical responses of what we see from our perspective. And this is where we need to reshape and step and step into the conversation is how do we make those objectives they measure Target. So Nelson, as you're starting to ask some of those kind of inquisitive questions, where do you want to be? And some of these are stationed outside of the business as a as a human being as a parent as a business owner and things like that? Do you find them that the more specific? Do we try to get to a more specific answer a more granular, specific way of thinking about those things to help us shape that number goal, something that is less conceptual and more practical? We find that to be a very useful exercise, yes. And doesn't need to be one. It can be obviously different objectives. They can absolutely can be competing objectives. So it comes to actually implementing then you get into different conversation. But it starts with identifying what your objectives are. So for instance, we had one company we were working with, so it was probably about 15 billion in revenue, and we asked them what is it what is their goal? What is their who they want to grow? Okay, great, that sounds good. And then they start getting into throwing numbers out randomly, which is where Holly was mentioning this was random, random throwing out numbers. So We sat down and figured out what does growth mean, we actually were able to work to a target to say, we want to add 5 million in top line revenue within three years. There you go. That's a very specific objective with a very specific, measurable target. It's not just Oh, sure we did this last year. Let's do this next year type of goals and objectives setting. And now we can reverse engineer the numbers now we can start to work backwards from the goal into something specific. And that's actually what we stepped into doing. You know, my next question was, okay, great. Do we have the operational throughput the handle, if you do, have the sales staff even bring that in? But that led into the strategy, part of the conversation is how do we actually implement those goals and objectives.

And I have another example sitting on working with a company they're doing $25 million, a little segment on the revenue 12 years in business hired and they're doing the 10% growth. The founder and the CEO. This is an interior design company, it's just tired. He's achieved the goals, bought the houses, and after a few months of doing getting there, I started in April. So now it's time for goals and we just go Couldn't get it right. It was just done tired. And I had a at that time a paperweight on my desk that said, what would you attempt if you knew you would not fail? And And what happened is he said, you know what I wanted to be a rock star. So he's an interior design. And he's a rock star in the city that in Newport Beach in the city that we were at. And we realized, Oh, is that really what you want? Yes. So we made him our Rockstar licensing deals, books. His banners were movie size banners and all the design centers. He was a rock star and his area and we were able to open up another revenue stream and get into licensing and really expanded boy out of interior design on furniture.

That's fascinating. So you shifted, not only did you kind of shift business model, but in listening to his kind of subtext, you found ways to amplify that okay. Well, if you want to be a rock star, let's let's see what that would look like from your business perspective. Again, these are not things I would expect my financial operator shirt operations to help me start to, to envision. But what what I hear you saying is when we understand your goal, we can start to open up the methods are the avenues that are going to be required for us to reach it, even if those are unexpected.

It's still the business plan. He was still in an era designer manufacturing furniture, right? But he now had also licensing deals with lighting and with pictures and with the wall as he also had a it was it's still financial. It was just another revenue stream. It's still tied to numbers. Yeah, set a goal for it. Right. It was incremental revenue increase from another channel, those are all financial life.

Perhaps also, more importantly, if you can't set up your financial operations correctly, until you know what is supposed to be supporting. You know, me obviously there's a lot of day to day that needs to happen. But if you're talking about changing the way or the how, or what the company is doing it, you need to set up make sure your financial operations are set up to support that, which is why we very often will start when our conversations is what this area is because what are we actually trying to get to? But then we can go into Okay, what what needs to happen in the rest of the company to support them?

Do you have advice about or insights or guidance? Should I have one goal? And everybody get going? Let's all get to this goal should have four goals. Should every business unit have three goals? How should I be shaping my vision so that I'm focused but also not leaving out opportunities?

I'm bad conversations very often as business owner dependent. I mean, there are some things obviously which are better to do than others to have different things. But there are some business owners who if you ask them what their goals objectives are literally list of 15 different things. And there are some will tell you one, and one and only one. And because for them, everything else is encapsulated in that one for instance, a business owner Who's now nearing retirement figuring out what to do with the business? What's his goal? He has a book on his wall. I want to be on a boat. That's his goal. Now, what does that actually mean to the rest of the company? Sure, we need to get it to a certain size we need to plan the exit when you do everything like that. But for him that every will that is encapsulated in one word, I want to be in a boat,

Masha, Masha share with you

the screen. Hey everybody, Chris here interrupting quickly to explain that Haleh has started sharing her screen and on it is the FGC Goals and Strategies Flywheel, which is kind of framework that ProCFO Partners uses to help articulate visually, the relationship that different financial functions have with each other. So, in our conversation today, we've been talking a lot about the objective or the purpose of setting goals and on this flywheel. You can see those in relationship where objective is near purpose and kind of it's meant to articulate that it's driving purpose and after purpose is measurable targets and after that, Innovation and then strategic map. And so the idea is there's almost a sequence that once you've identified your objective for your purpose, then you're ready to move on to measurable targets, create the innovations necessary to hit those targets, draw strategic map to help you work backwards, etc. You can learn a lot more about this if you find the video for this podcast at YouTube, just search for pro CFO partners, or head over to pro CFO partners calm and you can see this flywheel laid out visually and it will make more sense as you listen to the podcast. Alright, back to the show.

So as you can see in the goals and strategies flywheel when we're talking about goals and strategies in depth with our clients, we're looking at the opportunity purpose is it needs to be aligned to the founders personal purpose otherwise it doesn't mean anything. Right. Legacy business growth people pay as many people are creating as many jobs as possible somewhere along the line. It is not sustainable. If it's not aligned with their personal purpose in academia, risk we're talking about right risk we're talking about if you're not familiar with your marketplace if something external happens if so those are all part of the goals and strategies flywheel as we're working with our clients,

when you move from the purpose to measurable targets. Tell me more about that.

I mean, it's, we see objective and purpose looking at it as it's not quite the same thing, obviously. But it's coming up with what are we actually striving towards? And what's driving you towards it is where I look at the objective and the purpose I the measurable targets is how do we take that and make it something that you can actually measure measurably achieve? So this goes back to Campbell of objective and purpose? Sure. We'll go back to the guy on the boat. He wants to be on a boat. That's his both, but at this point as well, you know, at this point, he wants to exit the business. He's had enough of this one over here. So it comes down to what is he actually What is he trying to do now. Both from from both Have these perspectives? What is his purpose right now he's tired, he's ready. He wants to be done with a business for the most part. But at the same time, his objective is he wants to get this up to a certain valuation. So you can find out what an exit means whether that's succession, or actual sale, he's looking at both. So when it comes to translating that into something measurable, it's okay great. Do we have this retrieving these numbers, so this looks the cleanest for whatever we're planning on doing with it, that becomes a measurable part of achieving that objective and actually getting to that purpose.

For valuation purposes, you may need a top line number and you may need an event All right. But for succession, you may need that bigger EBIT. Even though the volume, the revenue is lower, because he wants to cash out, right. So that's how the targets come into place. We set targets and we work on it. And it goes back to our previous conversation. If we have an objective and we have a purpose and we have a goal. How do we manage it

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most companies are in my experience stuck in objective and purpose and then they throw a number.

Either that or they just throw a number. Great. We want to know 10% this year we want to grow we had 7 million last year we want to be 8 million this year. Okay? And that's a nice number. You know, where's that coming from? Why I mean that that doesn't necessarily go in there. But Some of it comes decayed, this is achievable. This is our growth target, and this is how we want to get there. But the they then they miss the next step of actually, okay, what is your plan to actually doing it, work with one company, they literally want to double this year? And I said, Okay, I understand that. First of all, we get into the how and why What's he trying to build? We go through that wonderful. How would we actually double? What does that look like? If it means the double is? Do you have the people to handle it? Do you have the marketplace to do go to Africa, you have a customer segments that you can actually sell some more of is do you have the offerings that actually sell to the customers. And once we actually came up with this, we said, Great, we're going to extend this offering to this type, you know, instead of offering a B would never offer ABC and D instead of customer X, Y and Z. We're also going to do you know t u, v w as well. And this is how we're going to do it in this geographic area. And this is what we're going to actually go ahead and do even during COVID I don't think they're going to quite double but they're probably going to grow by 60 to 70%. And then did you go to the organization say okay, team, here's what it looks like. Here's how it That's exactly right. Because then you have to bring them into the conversation. Okay. This is what we're striving to or so great you three people who are responsible for this. This is what we need to do, or how do you think we can actually do this and have them get involved in the conversation is actually doing it because the only way this works is if you execute setting targets as nice as little Electronic Arts and wellness, you can actually do it.

This is the organizational execution that you're talking about. Yeah.

don't enroll them. It's very interesting. If they if they're not engaged, and you don't enroll them and you give them a number, a numeric target. The answer is I'll do the best I can. Yeah, yeah. or push back? Well,

that's true. Which watercooler push back, where'd that number come from? Oh, sure. Yeah. So it was we I literally had a conversation yesterday with a client, where I'm sitting with the manager, well, one of the managers of the company and he's complaining about this person, we're obviously having conversations letting go now that didn't go what we want the organization to but moving forward, and stuff like that. And I told him great, you know, if this is why you want to do it, don't bring me a six month plan, where you're going to onboard Hagen to train them what their responsibilities feel to different people, you're gonna be doing it. Because this is what we want to get you. We want you to know, we're out wanting to go as you want to triple within this period of time, which again is a very aggressive goal, but this is a target we were trying to say is okay, there are at this point right now they're going to triple within five years, in all likelihood, they're very, very high growth industry, very high growth company, and have tremendous opportunity and runway into space. So I said, Okay, in order to do that, and you're saying, this is an issue, you're having come back with a plan how you're gonna do.

There's another thing too, Chris, sometimes they've done a million and a half dollars, they don't know how they don't know the components. So when you say to another 1.7 million, or do I mean do another 20%. That number seems so big, when they say see that they already did it by selling this much of this, this much of this, this much of that on how many numbers it was and how much they did. suddenly it becomes executable, and that's where you go to organisational execution. So all you have to do is sell to more of each of these and you hit your number, and you already have this much in your pipeline. Right? Then it's then that water cooler talk doesn't go away then that water the vendor accountable and that water cooler talk By the way, they help build those numbers. Where do you think your numbers came from? And you have that dialogue with them? And you say, did you know that? They're seeing financial information? And they're like, Oh, yeah, that's how we did it. And so they start thinking, how could we sell to more of each item? How could we find three more distributors? How could we, when they see the information, that pushback goes away, because now they have a roadmap. And if they're part of developing it, then they're completely enrolled and engaged. So I can go back to the interior designer who was quite a dynamic guy and was already recognized in the industry. We couldn't just randomly making my rock star right. But how we communicated that was the team got involved in supporting the licensing and the choices of the vendors to work with knowing that we would have a broader impact and knowing that we would be better known on our advertising But the so it was still his personal goal, but it was aligned to the business goal. Right. And to answer your question, of course, there were multiple goals there. It was licensing deals, it was over four channels, right? It was how many people we would make compensation plans around that. Because we wanted to support a certain one of the channels more than the other, the margins were better. So of course, within that goal of licensing, we had a number around flooring. Right? So two different goals. Let's have a licensing goal. Let's have 50% of it come from x channel.

Nelson. Haleh, thanks so much for sharing some time with us today talking about goals and strategies. And we can start to have a broader vision of what some of these goals can be so that everybody can be moving in the right direction. Thanks so much for your for your expertise today.

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