13 years ago, when I was in Business School, I had the chance to listen to a talk given by the legendary investor Warren Buffett.
“The secret to a great marriage,” he deadpanned, “is low expectations.”
As it goes in love, so it goes in business. Most will tell you that the key to success in business is about under-promising and over-delivering. At first blush, it makes sense. In a customer situation, exceeding expectations creates greater customer satisfaction. With investors, exceeding “the plan” creates much less painful board meetings. I get it. Everyone is happier when expectations are exceeded. Here’s the problem though:
An overwhelming desire to over-deliver, creates an overwhelming need to underpromise. And the trouble with under-promising is that expectations have a way of becoming reality. It’s the nature of goal setting. I’ve seen it over and over again. In sales forecasts, it seems like whatever the goal, teams have a way of being within range of that goal. Why do so many Silicon Valley start-ups achieve higher valuations than equivalently situated companies in other locations? One reason is because the expectations of everyone in the ecosystem – investors, employees, and founders, are fundamentally higher. I see that in the pricing of software. Why do some SAAS providers charge $500/month, some charge $10,000 a month and some charge $100,000/month. Sure, a lot has to do with the quality of the product and the market they are in. However, a lot simply has to do with setting the right expectations of “value” with the customer.
Bottom line – expectations have a naturally high correlation with reality.
Now lets map that to start-ups. The best start-ups are about creating the .1% case where you defy all odds to create something disruptive, transformative and dramatically more profitable than anything that is rationally imaginable. So what happens if you’re obsessed with “beating the plan?” You tamp down expectations. You eke your way past that plan and you call it a victory. Everyone (employees, founders, board members) is super-happy in the short term. You might even get a raise or get promoted. The trouble is, you have materially diminished the probability of the .1% outcome.
The great thing about aiming for the impossible is that amazing things often result. At BloomReach, we challenged the notion that we could not sell our first 10 enterprise deals without a marketing launch. I don’t know if we got to 10, but we got pretty close. We challenged the notion that you could not price software on a performance basis. We ended up inventing a new business model in the process.
We set a goal to go live with a large deployment in an insanely short period of time and launched an entirely new product line much faster than we would have had we demanded less from ourselves. Sometimes we missed the mark big time. At times our aggressive release schedules have resulted in subpar engineering designs. Sometimes our insane revenue forecasts have resulted in me having to stand up at Board Meetings to report that we missed our numbers. One of the natural consequences of setting insanely high expectations is that the team can feel like they are “always failing.”
At BloomReach we have tried to address the consequences of BIG expectations in a couple of ways. We try to be straightforward with our team that the expectations are super audacious and internally describe our plans as “The hero plan.” We set OKRs at a level where a score of “80%” is an “on target” score. Anything higher suggests the targets were too low. We decouple people’s compensation from these goals. Pulling off this approach requires a set of investors and board members with an exceedingly long-term vision. We must have the confidence that those board members won’t make decisions based on achievement of short-term, easy-to-meet criteria. It also requires a really aggressive executive team and a super-committed employee base. We are fortunate to have all of those.
I can’t imagine a public company trying to sell this approach. But I am advocating it as a way to get there. Life is too short to under promise. I would rather aim for the sun and hit the moon, than aim for liftoff and barely escape the atmosphere.