You might be familiar with the SMART goal setting strategy. SMART goals are Specific, Measurable, Attainable, Realistic and Timebound. This is a great place to start when trying to set your business goals.
It’s often easy to come up with the specifics, measurement, and timeframe. Usually, our business goals are annual and revolve around growth –revenue or people or both. However, what sometimes gets difficult is gauging whether they are attainable and realistic.
What’s Attainable and Realistic
Determining what’s attainable and realistic is both an art and science.
The science portion comes from know where you are as a firm—your baselines as outlined in this article and this article. It also comes from knowing your current markets and how they are trending as well as new markets you want to enter.
The art comes in trying to predict how those markets are going to behave and how successful your firm will be in those markets. That prediction can be made with good guesstimates or just a wild guess by a Principal—I have seen both!
Business Goal Setting Approaches
Each A/E/C firm has a slightly different way they measure growth. Different ways to measure growth can include increasing the number of people, total revenue, profitability, utilization or stock price. Some do a combination of all three.
The first step to your business goal setting is to identify what growth measurements you are going to track. Then, you should go back to look at the baselines for those metrics. You will need to know where you are at today for those metrics before you set the new goal.
There are a few ways that I have experienced setting annual business goals. I explain each briefly below. I do want to point out that there isn’t a one-way approach to this. You might use a combination of several of these approaches.
This is probably the most used approach when setting annual business goals. In this approach, you decide what percentage your firm wants to grow by. Then you would apply that to your growth metrics. For example, if your growth metric is total revenue, your goal would be to grow your total revenue by 15% (or whatever number you decide). The same could be applied to other metrics (15% increase in employees, 15% increase profitability, etc.).
The art of this becomes what percentage increase you want to grow by. This percentage growth can be developed by the following methods.
- Using historical data. An example would be that you have grown by 15% each of the last five years, so you want to stay the course.
- Using market growth. If a market your serve is growing by a certain percentage, you can maybe assume that you can grow that percentage. To be safe, I would maybe make your firm’s percentage a little less than the overall market’s growth rate, unless there is a very high barrier to entry.
- Using a strategic plan goal. If you have a long-term strategic plan in place that dictates a certain growth percentage each year, then you should use that. However, it is always a good idea to revisit long-term strategic plans, especially if there have been market changes.
- Using an arbitrary number. I have experienced this. A firm leader just says the firm needs to grow by 15%. If that happens, that’s the goal. Your job then is to do other research to determine how realistic and attainable that goal is.
This goal setting approach is based on the number of employees. You would develop a measurable goal that includes the number of employees you want your firm to be at the end of the goal setting year.
An example would be to grow from 150 to 225 employees by the end of 2019. Another example would be to grow the firm by 75 employees by the end of 2019.
You might think these examples are saying the same thing. There is a slight difference between how the goals are worded. The first goal wants to end the year at a certain number of employees while the second example is adding a certain number of employees. The difference is employee turnover (attrition). If you want to account for attrition in your goal, especially since you know people will leave your firm, I would recommend the first goal.
In my experience, operations folks like the employee-based goal because planning for employee growth helps them determine how many hours they can plan for projects, amount of office space and workstations they need, etc.
This is probably the most difficult approach but might be the most accurate. In this approach, review your markets and their potential projects to develop your goal. You must really lean on your business developers, client managers, market researchers and whoever else knows your markets and clients.
This can be easier for those firms who work with public sector clients. If your client is a DOT, you can look at their annual capital improvement plan, determine what projects you will pursue, and then apply your historical hit rate percentage to calculate your estimated revenue. You would do this for each major client and then add them all up to get your firm’s revenue goal.
For private clients, it’s a little more challenging. You will need to do some research on the market’s growth and then understand how much market share your firm has. I would also suggest meeting with major clients to get an understanding of what’s coming up for the next year. Sometimes they will tell you, and sometimes they won’t. You can also review your firm’s historical contracts with that market, identify the trends and make a forecast based on that.
Then there are new markets. Does your firm want to go into any new markets? This can be either geographic or industry. You can follow the same steps above if its public or private. It will just take a bit longer depending on your relationships. If your firm is considering a new market, I would suggest having some strategic discussions in addition to the regular business planning meetings. Here are some questions to get those discussions started.
How Does Your Firm Approach Business Goal Setting?
Does your firm use any of these approaches? If so, let us know in the comments below.
Are there other approaches you have used to develop your annual business goals? If so, definitely leave us a comment below so we can continue to learn.