If business plans are marvelous works of fiction — and they most often are — then the specific financial goals that they are tied to are fairy tales.
Don’t take this wrong. I am a strong advocate of building a business that meets your aspirations. You need to consciously engineer your financial and non-financial priorities into your business model. But when I start reading plans with specific multiples of EBITDA tied to an exit event a few years out I cringe.
Even VCs know that only 10% of plans they fund (which can be as few at 1% of plans they receive) will probably meet the goals stated in the business plans for their portfolio companies. And yet, almost every entrepreneur seems to think their plan will hit its numbers and reach their specific goal.
I think more of us should take the approach of goal setting that Ami Kassar has set for his business MultiFunding. From his blog:
I often get asked the question “Ami, what is your goal for MultiFunding ?” People want to know “how big” I want the company to be, who do I think will “buy it” one day, is this a “lifestyle business”, or do I “want to take it public one day.” My answer is that our goal for the first year was to survive, which we did. My goal for the second year is to be able to keep the company growing at a pace where we can maintain excellent customer service, and to be able to make a good living while I do it.
Business models evolve as we learn from the market where our business really needs to be and what it can really achieve. You’ll be a lot happier as an entrepreneur if you set realistic goals, especially for the early stages of the business.
Once you get traction, then you can start to set more specific goals that reflect a growing knowledge about the market and your customers. And you can more realistically temper these potential goals with your non-financial goals including those shaped by the time you want for your family, friends and community.
Good insight. But without a vision or mind goal of future growth, can it really grow to a point to get traction? This is a bit like “let’s see what happens and we’ll just do whatever seems right at the moment.”, which seems to speak against what goal setting is all about.
I agree with what Harry wrote above. It is necessary to have goals that are more concrete than simply, “We need to survive.” What does it take to survive? How do you define excellent customer service? Having vague goals that are open to interpretation are often an invitation for failure.