#11: Important Lessons on Target Setting

In today’s newsletter, I’m going to share a few lessons I learned about setting the right targets for your Customer Success Teams.

The right targets can drive people to perform at a higher gear, thrusting the business forward. So I’m hoping that these lessons I learned over the last decade will help your business accelerate. 

🎯 What metrics should become targets?

Defining what should become a target is one of the most critical business decisions. As the great Drucker once said 'What gets measured, gets managed'. When you set a target, and attach this target to people's performance reviews, compensation and other forms of recognition, the entire business will optimise towards achieving it.

Which is why you need to be VERY careful with what you make into a target. 

In a previous organisation, we designed a new Activation Score. We were proud of it and sure that it was the right recipe that would drive value to customers. But we struggled with the initial buy-in and just couldn't move the needle in this metric.

So we decided to roll out a target and incentive programme attached to the Activation Score. Within 1 quarter the numbers were through the roof. YAY!

But shortly after, we started seeing that the health and retention results that we saw during the pilot phase, weren't being replicated with this cohort. When we investigated it, we learned partners were going into customer portals, and performing the activation actions for them, without enabling customers to continue using those features.

Partners were getting paid but the Activation Score became useless and no longer a good predictor of future success. NOT what you want from a target. 

The lessons here are:

1. Not every metric makes a great incentive metric.
2. You need a metric to be reliable before you roll it out as a target.
3. Make sure you have a compelling reason to be incentivising around a metric. Invest a ton of time getting buy-in first, get people to believe it's the right thing to measure.
4. Design policies and systematic approaches to catch gaming behaviour early. 

🙋🏻‍♀️ How do I set the right targets?

Finding the right space between achievable and challenging is key for those setting targets. That requires you to look at the following data sources: 

• Historical Performance: Look at the past 12-24 months of data relating to the metric you are rolling out. If it's a new metric, consider rolling it as a soft metric and only introduce a target after 12 months. What has been achieved in the past? Has it been consistent? What's the trend with this metric? Is there seasonality or other factors affecting it? Historical data will set your benchmark. 
• Leading Indicators of Performance: A future look into what is likely to influence this metric will give you a good understanding of what projections should look like. So if you are lookign at NRR for example, what are the product usage metrics that lead to higher NRR, where are they trending now, can you see any potential opportunities or challenges that might influence NRR in the next 12 months coming from this data? Leading Indicators will tell you what natural improvement or dips you can expect. 
• Business Plan/Goal: This is the art of the target setting, figuring out what  level of performance needs to be unlocked in order to achieve the business vision. For example, if you have a NRR goal of 150% in 5 years, then where do you need to be today with retention, upgrades etc to get there?

🤒 What happens when I set targets too high?

Some business always set unrealistic targets.

It's part of their culture. They aim for the stars to land on the moon. That's not necessarily a bad thing to do at a high level. However, when you translate that into individual targets and tie people's promotions and compensation schemes to it, that approach is a sure way to piss everyone off. 

I led a few teams in the past that were given unrealistic targets by senior leadership. As a manager, I was able to rally the team behind those metrics for a quarter or two. But upon realising that despite their best efforts they were not able to achieve the target, people got de-motivated.

I ended up losing my highest performers. The A Players that wanted to be recognised for their work, accelerate their careers and make money, fled within the first 6 months. They saw the writting on the wall and were too aware of their market value to hang around and throw a year away. 

The people who were less driven stayed. Some burned out from trying. Others got completely desingaged and didn't care anymore. Personally, after trying to influence this for so long unsuccessfully, I too left. 

The lesson here is: If your targets are too high you will lose your top performers and your numbers will plummet. The opposite of what you are trying to achieve.

🔻 What happens when I set targets too low?

The opposite action is also problematic. When you set targets too low, then it's too easy to get to the number and it is no longer motivating for your team. People can get complacent, stop trying new things and disregard any constructive feedback. 

I worked closely with a team that had a very low target for their market. They cleaned up every month and got all the high-performer awards. But it was clear that some individuals on that team got complacent and stopped doing even the basics of their role, making it hard to collaborate cross-functionally. When I shared the feedback with one them, I heard "must be working for us, look at our numbers".

That type of attitude is toxic. The moment the economy turns or targets are right-sized, the team is critically behind in the basics, and not set up for future success. 

The lesson here is: Low targets create a low-caliber team. You will never be excellent with mediocre goals.

 TL;DR

1. Find a reliable metric and build robust incentive programs.
2. Balance historical performance, leading indicators and business aspirations.
3. Don't set targets too high that you will lose your best people. Don't set them too low that you will create a low-caliber culture.

A long one, but I bet you will get a lot from it!

See you next Friday.