Do startups really need an OKR strategy?

When I first joined Panda Health, my boss Rajesh Aggarwal, now founder of Twenty30 Health, had me read Measure What Matters. It introduced me to the concept of OKRs and I’m thankful it did. If you haven’t read the book, it tells the stories how OKRs were concepted and implemented at Intel and Google during phases of explosive growth.

Now I’m realizing I need to actually explain OKRs in case they’re new to you.

O = Objective

KR = Key Results

When establishing OKRs, you can use sentence frameworks like I will [Objective], by doing [Key Results]. In other words, the objective is your goal and the key results are how you’re going to achieve that. Depending on your organization, an objective may be more abstract or tangible, while key results are definitely tangible to help you know whether you’ve been successful in achieving your objective. There should be no gray area in whether you achieved a key result. Put more simply, it’s a goal and task list.

Why set OKRs? OKRs are used an organizational strategy to measure what changes in an organization. What are you trying to accomplish this quarter (or another timeframe) and what are you doing to get there to know you were successful?

There’s a few types of OKRs.

1. Committed OKRs are OKRs that the team needs to achieve to be successful.

2. Stretch OKRs are OKRs that the team is striving for and even 80% could mean success.

3. Learning OKRs are often the most “fun” for a team or individual as they’re about doing something new.

Common Examples of OKRs and Where Organizations Can Go Wrong

A very common example used in describing OKRs is American football and I firmly believe it’s a great example to show OKRs can trickle down through an organization. For example, the head coach may have an objective to be a “championship-caliber team.” Next, we want to create KRs that tell us how we know whether or not we’ve become a championship-caliber team. Examples of KRs could be (1) average 17 offensive points a game, (2) have a top five ranked defense, and (3) average 0.5 special teams touchdowns per game.

So, how do these trickle down? Let’s look at the roles under the head coach. Commonly, that’s an offensive coordinator and defensive coordinator.

This is where organization alignment is critical. Is the head coach and offensive coordinator aligned on what a successful year for the offense looks like?

Example of not being aligned.

The offensive coordinator sets an objective to have an electric and pass heavy offense. In order to achieve this, their KRs are to average 300 passing yards per game, total offense of 375 yards per game, and average less than 2 turnovers per game.

While this OKR setup for the offensive coordinator sounds incredible, it’s not necessarily aligned with the head coach. Even if offensive coordinator successfully hits all their KRs to feel they achieve their objective, it could still fall short of the head coach’s KR to average 17 offensive points a game.

Example of being aligned.

Now, let’s setup the offensive coordinator’s OKRs to align with the head coach’s wish of having the offensive score at least 17 points per game. First, we’ll pass down the KR as the objective. So the OC’s objective is to score 17 points per game. Now, what key results will help the coach achieve that objective? There’s plenty of options. But it could be KRs of (1) scoring two pass touchdowns per game, (2) one rushing touchdown per game, and (3) convert 67%+ of red zone opportunities into touchdowns.

The difference here is the offensive coordinator and head coach are aligned on what success means for the offense at the end of the season. As much as the offensive coordinator might want to brag about throwing for 300 yards per game, it doesn’t matter to the head coach if those drives end in turnovers and points don’t end up on the board.

This is an example of top-down OKR setting. While it doesn’t leave much room for creativity in OKR setting, it does help team members see how their goals connect to the organization’s overall objectives.

OKRs aren’t meant to micro-manage.

OKRs are designed to help form trust between two roles. If we continue with the head coach and offensive coordinator scenario, the head coach should approve the offensive coordinator’s OKRs and trust him to get them done. The OKRs are easily observable, did the offensive coordinator get two passing touchdowns in the last game? Or, convert 67% of red zone opportunities? If not, it’s not a sign the head coach needs to get involved in the offensive coordinator’s responsibility; more so, it opens the door for a conversation where both coaches know they’re on the same page that things should have gone better. The offensive coordinator was hired to achieve those KRs and should be trusted to adjust things to get back on track.

Now, I’m not saying you shouldn’t be checking in, you absolutely should. But, an offensive coordinator having a bad game once isn’t a reason for the head coach to adjust his day to day to monitor the head coach. He’s losing focus on other areas that could need his attention. In a 17 game season, having 3 straight weeks of underperforming is a sign things need to turn around and 10/17 weeks of underperforming may be a sign the offensive coordinator’s job is at risk.

I’m doing my job and you’re doing yours.

This is the best part about OKRs but I’ve seen so many companies get it wrong. As we’ve already discussed, designing OKRs are to allow multiple team members, dozens, hundreds, to be sure their working towards the same goal. It doesn’t sound like setting up an assembly line, but in a way it is. Everyone is specializing for their OKRs or every department is specializing for their OKRs.

Example. Let’s transition to sales for the next example using a Sales Manager and a Sales Rep.

Let’s say the sales rep has a key result to close 30%+ of their sales opportunities but last quarter the only closed 22%. A good sales manager would have OKRs that are focused on their producing results (the objective) and this is done by helping improve their team (key results.) A sales manager doing the right thing doesn’t insert themselves into the sales person’s job and take on their deals - no - they provide that sales rep with extra coaching to give them the skillset to improve their close rate. If the sales manager prematurely feels the need to jump into every detail of every opportunity, they may be micromanaging. Or, if the sales rep shows no signs of turning around or it’s been several quarters they’ve missed quota, the sales rep may not be a fit for the company.

How frequent should OKRs change?

The most common setup I’ve seen for business OKRs is quarterly whereas in the example above, I talked about the football scenario as per season. Again, I think most companies get this wrong because they’re looking for more ways to measure.

Imagine an NFL team, the Baltimore Ravens, where the head coach says we’re going to set new OKRs for every game. At first glance, this might sound logical. The game against the Steelers will have different challenges from the game again the Chiefs. One game might be more focused on the passing defense while another is focused on executing a stellar run game. The downside to this is becoming so focused on the measurement you miss the bigger picture - becoming a better all around football team. The same is true in business.

What about your business is changing quarterly?

Probably nothing. You sales team is still trying to close deals. Your marketing team is still trying to generate leads. Your product team is still trying to build a better product. Your finance team still wants to become profitable or increase profitability.

Pick your head up.

What will actually move the needle for your business? Short term focus can be counterproductive. Let’s go back to football and weekly KRs. This time, let’s say your playing the Baltimore Ravens and you’re going up against MVP quarterback Lamar Jackson. Jackson is known as a dual threat quarterback (can effecitvely run and pass) so the defensive coordinator sets one of their key results to keep Jackson to under 80 rushing yards. While it’s true that this could be effective, Lamar Jackson may be the only quarterback or one of two the team faces all season that could realistically run for this many yards. It would be counterproductive to make any changes that would have long term impacts just to prepare for Lamar Jackson. This would be like a sales team in the short term putting all their eggs in one basket to close a huge deal and forgetting about creating pipeline or nurturing other deals to close in the future.

Another example of this is when sales quotas don’t match sales cycles. If an average sales cycle is 4 months, for the love of God, stop measuring you sales reps on monthly quotas.

This creates habits that are not in the business’s best interest. If a sales rep is one deal away from hitting quota for the month and they have a deal they feel is likely to close, they may offer a discount to try and pull that deal forward. Maybe they discounted the deal from $50,000 per year to $45,000 per year so they can hit their monthly quota. It closes at the end of the month, fantastic! But, a year from now, who in the world cares whether that deal was closed May 31st or June 4th. Your business just gave up thousands of dollars because your team is incentivized to perform on short time frames.

OKRs are set on short time frames because they’ve transformed from a way to set and focus on goals to a management structure. If you tell me you want to achieve X, then I can measure you against that and know whether you’re doing good or bad. Managers may feel out of control by longer time frames that give employees and teams are longer amount of time to be judged. Let’s be honest and call it what it is. It’s lazy as managers.

OKRS at Multiple Levels

CEO → VP Sales → Sales Rep.

We all know the sales team is responsible for revenue growth. So the VP of sales has objectives around revenue growth and key results around sales rep performance, deal size, and number of deals closed. As a sales rep, their objective is then based on what they close with key results around contracts sent out, demos performed, etc.

When OKRs are set too short, it’s easy assign blame downward. The VP of Sales can easily step in and say “Look Jimmy missed his quota this month. I think it’s time we let him go.”

But, what if Jimmy’s organization set a quarterly quota for a sales cycle that was two months?

An informed and inquisitive CEO could look at the VP of Sales and change the conversation from Jimmy missed quota to → the VP of Sales let Jimmy underperform for three months. Entirely new deals went from start to close this quarter. Did the VP of Sales see signs of struggle and help coach Jimmy? Or, did they just watch Jimmy’s number struggle?

Whether it’s Jason Lemkin or Brendon Cassidy on Linkedin, you’ve probably seen them say that hiring that big company sales VP for your Series A startup is probably a tragic miss. This is why. Those big company VPs are used to measuring. They’re getting reports on everything going on to decide what or who is working out instead of jumping into what’s not working and figuring it out.

OKRs versus KPIs

So, should you have OKRs as a startup?

OKRs are helpful to keep teams on track and aligned. But they were created in huge organizations - Intel and Google. The examples in the book I mentioned above talked about how OKRs were used in rolling out new product lines and pushing sales across massive sales orgs. Not on how a 10 person startup found their first million in revenue.

What you could try instead is aligning on a north star and KPIs. For a healthtech company that sells to providers, you might have a north star focused on how many providers use your product. It’s a number that should indicate revenue growth and success of the business. Everyone in the business should see how a north star is relevant to the success of the org and a north star shouldn’t change. It should be the same year after year. KPIs are a step down, they are a measurable that each department can think of as their north star, or one of their north stars to focus on. These also likely don’t change. For example, a sales org likely wants KPIs of how much new revenue they’re closing, how many accounts they close, and their average deal size to name just a few.

A key difference between KPIs and OKRs are KPIs are about health. For example, an industry standard close rate might be 25%. You’re tracking your sales team’s health related to that industry standard. It’s literally in the name, it’s an indicator of performance. On the other hand, OKRs are about what’s changing. What is your goal and are you accomplishing items to reach that goal.

In reality, OKRs and KPIs are both meaningful for businesses of all sizes. They help you know you’re growing in healthy way and the work you do has meaning to move the needle for the business. It really comes down to culture. OKRs can be an effective way to rally departments together towards a common goal.

Use OKRs and KPIs as a way to show trust in your organization.