Entrepreneurship is all about setting and accomplishing business goals. From when you make a goal to start a business to the decision to sell, running a business without goal setting is like driving a car with no steering wheel. You may end up someplace, but it probably won’t be where you wanted to go.
As important as goal setting is, it is also important to know what types of business goals to set. Not all goals are created equal. Setting unrealistic or vague goals can lead to frustration, burnout, and eventual failure. On the other hand, realistic goals offer a roadmap to success.
Having a set of realistic goals is a great way to move your business forward while accomplishing some victories along the way. In this article, we’ll show you how to set some realistic business goals and also offer some examples of those types of goals that you may consider setting for your business.
Why You Should Set Realistic Business Goals
While dreaming big is a good thing in business, it’s equally crucial to ground these dreams in reality. Setting realistic business goals might sound like settling for less than your full aspirations, but in reality, it’s a strategy designed for long-term success.
Realistic goals provide clarity and focus. When goals are attainable and based on concrete data, they offer a clear direction for you and the entire company. Everyone from top management to the front-line employees understands what is expected and can work cohesively together towards that goal.
Also, achieving realistic goals consistently builds confidence and momentum. Every time a goal is reached, it reinforces the belief in the company’s capabilities and strategies. This positive reinforcement can be great in building a culture of achievement and resilience. Consistently hitting targets will begin to build the belief that no goal is unattainable.
Conversely, constantly falling short because of overly ambitious goals can demoralize teams. Over time, people will become skeptical and doubt that the company can succeed. Beyond that, setting realistic goals helps in resource allocation. By setting realistic goals, you’ll be able to prioritize financial, human, and technological resources.
For new businesses and entrepreneurs, especially, realistic goals can help build momentum and full drive while avoiding massive failure early on. You shouldn’t limit yourself to realistic goals throughout your entire entrepreneurial journey. In fact, most successful entrepreneurs tend to dream big. However, just like a well-balanced diet, business leaders should also include a healthy mix of realistic goals that they can check off of their list.
In the next section, we’ll take a look at how to set some realistic business goals.
1. Evaluate Your Time Frame
One of the most common mistakes in goal-setting is being overly ambitious about the time it will take to achieve a goal. This usually happens during the planning phase when it is time to guess how long it will take to accomplish a goal. The problem is that humans are notoriously bad at making these types of predictions. There are several reasons why this could be.
One of them is something called the planning fallacy. This phrase was coined by psychologists Daniel Kahneman and Amos Tversky in 1977. This fallacy states that people tend to disregard historical data when making predictions.
Instead of forming estimates based on historical evidence, we focus solely on the upcoming task. According to Kahneman, author of the best-selling book ‘Thinking, Fast and Slow‘, we continue to make this mistake because we assume we won’t encounter complications. Additionally, we fail to consider how long it took to accomplish similar tasks or goals in the past.
Another reason why we tend to evaluate our time frame incorrectly is due to something called optimism bias. This bias is when our optimism leads us to believe that we won’t come across the same issues in the future that caused delays in the past.
It’s tempting to set aggressive deadlines, thinking that this will drive action and results. When evaluating your time frame, consider all the steps required to reach your goal. Break down the process into smaller tasks and estimate how long each one will take.
However, when doing this, revisit how long it took you to reach similar goals in the past. Also, factor in any past setbacks that occurred. Be prepared in case you experience them or similar obstacles en route to your long-term or short-term business goals.
2. Evaluate Your Financial Resources
Similar to your time frame, to realistically reach your goals you must also evaluate your financial resources. Money plays a pivotal role in achieving business goals. This is true whether you’re launching a new product, expanding into a new market, or simply aiming for increased sales. Evaluating your financial resources is crucial whether you’re setting financial business goals or any other type of goal.
Setting a goal without considering the necessary budget can lead to disappointing outcomes. While we would all love to see a 500% growth in our businesses, setting that goal without factoring in how much it is going to cost is a recipe for failure.
Start by mapping out all potential costs associated with your goal. This includes direct costs like manufacturing and marketing. Next, compare these costs to your available funds or projected revenue. If there’s a gap, you’ll need to adjust your goal.
You could also seek additional funding but as a new business, you have to be careful about racking up too much debt or giving away too much equity to investors. Another option is to find ways to reduce costs. Setting a goal that aligns with your financial resources ensures that you won’t stretch yourself too thin and can maintain sustainable growth.
3. Understand What You Hope to Accomplish
Vague aspirations like “increase sales” or “grow the business” aren’t enough. You need to be specific about what you want to achieve. If you aren’t clear on what you hope to accomplish, it will be impossible to communicate that to your team in a way they can buy into. It will also make it harder to stick to a plan with the destination being well-defined.
Are you wanting to increase sales? Well, by how much? And why? Is it to capture a larger market share? Or perhaps you’re trying to increase profitability. For example, if you run a startup that has not reached profitability, that may be your goal. The “why” behind this could be so that you don’t need to continue raising additional rounds of funding. Being profitable can take the burden off of yourself, founders, and employees knowing that when your company reaches profitability, it will become more stable and less reliant on debt.
By understanding the “why” behind your goal, you can set more precise targets, which in turn will make the path to achieving them clearer. Also, being specific about what you hope to accomplish allows you to track progress more effectively. Instead of simply aiming for “more sales,” targeting a 10% increase in sales over the next quarter provides a measurable objective.
4. Research Your Competitors
Another way to set realistic business goals is by taking a look at your competitors. Your competitors can give insights into market trends, customer preferences, and potential challenges or opportunities that you might not have considered. For example, have you noticed that your competitors released 3 new products this year compared to your 1? If your competition is the same size and has similar resources to your business, you can use their progress as a way to pull your goals forward.
Start identifying who your main competitors are and what they’re doing right. Also, take a look at what they’re doing wrong. If all your competitors are struggling in a particular area, it may be a sign that there are significant challenges in that space. This can inform your goal-setting process by helping you avoid the same mistakes when setting your business’s goals.
5. Look at Your Human Resources
Human resources refers to the people involved in running the business. For some entrepreneurs who run a business alone, this means being honest about their own ability and the ability of those freelancers, contractors, or any other person they pay to help them build their business.
To begin with, assess the current skills and expertise within your team. Understand your strengths and weaknesses as well as each member. Take a good look to see if you can identify where gaps might exist. Do you have experts in marketing capable of doing what you need to reach the goal? How about sales or operations? For example, if you’re aiming to launch a digital product but lack IT expertise, this could pose a significant roadblock.
From there, consider the number of people and their capacity. As a solopreneur, you may like running your business alone. However, to reach the next milestone of your business, you may need to bring on a partner or make your first full-time hire.
If you already have a team, you need to evaluate if you have enough staff to accomplish your goals. Factor in if a team member quits or goes out on maternity leave. Setting a goal to increase production threefold might sound ambitious, but if your staff is already stretched thin and someone is unavailable, it might be unattainable without hiring additional help. Also, understand that every individual has a limit to what they can handle effectively.
Examples of Realistic Business Goals
Increasing Website Traffic by 15% in Six Months
This goal is realistic because it’s specific, measurable, and time-bound. The importance of setting quantifiable objectives for online marketing can not be overstated. With the right strategies, this kind of growth goal is achievable for many businesses.
Achieving a 5% Reduction in Operational Costs Over the Next Fiscal Year
Many companies, including giants like GE and Toyota, have historically used lean management and Six Sigma principles to streamline operations and reduce waste. A 5% reduction when using methodologies like the ones mentioned, is a realistic aim for many organizations.
Improving Customer Retention Rates by 10% in a Year
According to a study by Bain & Company, a 5% increase in customer retention can increase profits by 25% to 95%. Given the strong correlation between improved retention and increased profitability, businesses often invest in loyalty programs and customer service initiatives to achieve such objectives.
Launching Three New Products in the Next 12 Months
Apple, for instance, typically introduces new products or updated versions of existing ones annually. Setting a goal to launch a specific number of new offerings within a year allows a company to channel its R&D and marketing resources efficiently.
Expanding Business Operations into a New City by the End of the Year
For physical businesses, expansion usually involves opening another location. While opening a second location in one year can be difficult, it is a realistic goal for retail and other successful brick-and-mortar businesses.
Reducing Employee Turnover by 8% Over the Next Two Years
Companies like Google, with their employee-centric policies, have historically managed to maintain lower turnover rates. Although turnover rates vary by industry, having a rate of 10% or lower is a good indication that you have a more stable team.
Increasing Average Order Value (AOV) by $5 in the Next Six Months
For e-commerce businesses, strategies like upselling, cross-selling, and bundling can boost the AOV. Amazon, for example, effectively uses similar strategies with its “Frequently bought together” recommendations. For other e-commerce businesses, an AOV increase of $5 is a goal achievable for businesses with a strategic e-commerce approach.
Setting realistic business goals is a balancing act. It requires careful consideration of various factors. By evaluating your time frame, understanding your financial resources, being clear on what you hope to accomplish, and researching competitors, you can set goals that are not only achievable but also propel your business forward.