Large enterprises have the luxury of being very data rich and because of this they can pour through tons of information related to historical sales performance and form realistic expectations of what can be achieved in the future. The situation is very different for Start-ups. Throughout this blog we will explore the impact that setting realistic goals can have on your sales team’s performance and how you can make changes to how you approach targets and goal setting. Before we do that, let me set the scene.
Did you know that it costs approximately £30,000 to replace and train a new employee? For a Start-up that is cash strapped or just raised angel or seed funding, these numbers can feel a bit daunting. Hiring the first few salespeople for your Start-up is not an easy task nor one that should be taken lightly. You spend 5-15% on recruitment consultancy fees, 2-5 cumulative hours on each candidate that reaches the final stages and then comes the time and costs associated with on-boarding. All of this comes into play before the salesperson has even made a commercial impact on the business, and now you are focused on seeing an ROI from your new hires.
For Start-ups, sales targets are often aligned to a compensation package and the company’s revenue forecasts. With little to no historical data to rely on, it’s very much a hope and pray, finger in the air goal that you need them to achieve. For some, it may just be a revolving number that pays a high commission %. Fast track 4 months down the line, one of the new joiners brings in a good amount of revenue, 2 of the others struggle and are riddled with frustration as they have held successful careers up until now. Now you are having meetings with the CEO and board to discuss replacing the team. Sound familiar? Unfortunately, this is the situation that a lot of companies end up in. Admittedly, this is a stretch, but it happens. Let’s explore goal-setting theory and how this may impact the outcomes as detailed above.
For some people, there is an assumption that if you pay someone what they have asked for and set a goal, their hard work ethic, historical performance and compliance with authority figures will be enough to get them to target. Whilst this position does have some logic, Locke & Latham popularized the theory of goal – setting after conducting research into the area during the 1960’s. In their words, “goals are immediate regulators of behavior,” and that 90% of the time specific and realistically challenging goals lead to higher performance than unclear “do your best” goals. Let’s dig into the detail.
There are 5 principles of goal setting to improve the chances of success:
- Task complexity
This blog will not explore all 5 areas today but, we will take a closer look at commitment. Locke & Latham observed that it is important to consider the strength of the relationship between commitment to goals and actual performance. Commitment to goals has been split into 3 different categories;
- External factors – authority, peer influence, external rewards
- Interactive factors – participation and competition
- Internal factors – expectancy, internal rewards
The strength of the relationship between commitment and performance is stated to depend on the amount of variance in commitment. Put simply, goal setting does not work if there is no actual commitment to goals. Personally, and in my experience, companies do number 1 and 2 pretty well. Through team meetings, SPIFFS, internal celebrations and numerous other initiatives, I have seen a collective sense of influence from external and interactive factors. What I have not seen much of, is an intentional investment in understanding the internal factors that can determine a person’s commitment to an assigned goal.
“Commitment is the more inclusive concept because it refers to one’s attachment to or determination to reach a goal, regardless of the goal’s origin.” Latham & Yuki 1975
Many studies have found that it is hard for people to commit to goals that are hard or unproven. This is also amplified for those who have low self-efficacy. The challenge for Start-ups is that goals are often set with no precedence or based on a single outlier sale. Goals are set against organizational projections rather than actual reality. This is not to say that it should not be done this way, it is to be cognizant of the obstacles that may be faced by both the business and employees when goals are created in this way. It is vital that companies invest in their employees. Training and support should not be an afterthought. Early (1985) research showed that information about how to perform the task increased goal commitment and also one’s self efficacy and thus performance. Managers should constantly discuss and check in with team members and illustrate how a salesperson’s performance affects wider organizational goals. It is important to also remain aware of the findings that goal setting has no effect if management are indifferent to the goals that have been set.
So, what can Start-ups do today to help improve the outcomes of their existing and future salespeople? With the environment of uncertainty that Start-ups exist within, it is important to seek out passionate, positive, proactive and confident individuals who are self-motivated and can show examples of this. This provides a great foundation for setting uncertain goals as these types of individuals will be receptive and conducive to the 3 categories of commitment that have been proven to positively impact performance.
Companies often build SMART objectives – specific, measurable, attainable, relevant and time-bound. This is a great model for a salesperson to adopt in the first few months. Why not experiment with co-creating targets for the first quarter? One of the best ways to improve confidence is by doing what you say you are going to do. The salesperson will also be internally committed to hitting this because they are the authority setting the goal.
Ensure that the salesperson understands how significant their contribution is to the growth and development of the business. If the salesperson hits target, what will that do for them, the company, the team or even the marketplace? No one wants to feel dispensable.
I hope you have been able to take away some useful points from this blog that you can implement in your own business. Thanks for reading.