Why OKRs are a Terrible Fit for Startups

“All aboard”! ‍

Well…not quite. 

Start-ups are fledgling organizations that have just left port and embarked on their hopeful journey toward ‘the land of milk and honey.’ 

Unfortunately, however, it is common knowledge that most start-ups end in failure. Recent statistics point to around 90% of start-ups failing over the course of their life cycle, with 10% failing within the first year. In other words, we’re looking at a success rate of roughly one in ten. 

Multiple reasons are cited for startup failure; chief among them are a failure to find the right product-market fit, poor marketing strategy formulation and implementation, and cash flow problems.

In a recent survey, 150 startup founders were asked questions concerning challenges, reasons for failure, and advice they would give founders to assist their success. 

When offering advice, one in three founders found it vital that new founders pick the right goals and align them with their vision.

There are numerous goal-setting methodologies out there that founders can implement as a tool to set their goals and potentially align their strategies toward targeted outcomes.   

OKRs is a goal-setting framework that stands for Objectives and Key Results which gained popularity through its successful implementation within Google and has since been evangelized by John Doerr, who was responsible for that introduction. 

Since this successful implementation, the OKR framework has been copy-pasted, stretched, adjusted, and morphed into multiple methodological approaches to fit various types and stages of organization, leading to its share of successes and failures.  

Of course, many organizations and leaders will (and do) defend them vehemently, sailing towards their own horizon on their ‘Ship of Right’ while others capsize and struggle to tread water in the ‘Sea of Wrong.’ 

We jest, of course. However, what is certain is that OKRs and their implementation are becoming an increasingly divisive topic among leaders and teams throughout organizations at varying levels of their life-cycle. 

Even those who defend the framework and its implementation are generally insightful and experienced enough to understand and admit that OKRs are not a ‘one size fits all’ solution. 

As with any tool, the manner in which it is understood and implemented is ultimately likely to be the defining factor in navigating toward success or failure. 

This article will argue that OKRs may not be the right ‘fit’ for startups.

1. We will begin by analyzing the nature of a startup before offering some insight into OKRs and their potential incompatibilities with those aspects.

2. Finally, we will encourage founders to do their due diligence by seeking alternatives to OKRs before embarking on their journey or when the seas are rough, and a new approach is imperative in maintaining course toward the chartered destination. 

The Nature of Startups

A ‘Startup’ is typically defined as a fledgling business enterprise. Such definitions aren't wrong, yet they are very broad and potentially misleading as there is far more meat on the bone, in essence. 

In more specific terms, a startup is a new business venture seeking to exploit perceived demand with a novel idea, product, or service or enter an established market to test a competitive product or service by meeting a need uniquely. In essence, it is a business experiment with potential, which explains the inherent risk of failure. 

Key traits of startups 

Vision-Driven

A strong mission or vision usually drives startups. Founders and employees are passionate about the problem they are solving, which should foster a strong sense of purpose and determination among them.

Rapid Iteration 

Startups tend to adopt a more flexible and iterative approach to development, often using methodologies like Agile or Lean Startup. They test and pivot their products or services based on customer feedback and market conditions to build a minimum viable product (MVP).

Scalability 

Startups have high growth potential. They are designed to scale rapidly, often leveraging technology to serve a large customer base without a proportional increase in resources or infrastructure. Once a startup has found its product-market fit successfully, it attracts more venture capital and enters the growth phase, aka ‘Scale-up.’

Uncertainty and Risk

Startups operate in environments of high uncertainty. Most startups lack a well-developed business model since they are still experimenting with what does and doesn't work, therefore operating with an increased risk of failure by nature. Although they have a high risk of failure, they also provide unique challenges and opportunities to learn. 

Limited Resources

Startups are typically financed by the founders themselves and/or with the help of friends, family, or venture capitalists. In the early stages, startups usually operate with limited financial resources, staff, and infrastructure. As a result, they focus on lean operations, often requiring multitasking and agility from their team members.

Flat Organizational Structure 

Startups often have a less hierarchical structure than larger corporate entities. This has advantages and disadvantages. For startups, a flat organizational structure often aligns with the need for agility, fast innovation, and team cohesion. Still, without some form of hierarchy, there can be challenges with growing and managing larger teams and role ambiguity. 

Startups and Goal-Setting

Based on understanding this inherent nature, leaders must ideally select a goal-setting approach that diligently considers and accommodates these traits through implementation. 

Any framework or method for goal setting should consider the following; 

Clarity

Each objective or target should be clearly understood and established to avoid ambiguity. The broader organizational strategy should always be clearly identifiable and tied to each objective so that each team member can understand the ‘why’ behind its conception.

Alignment 

The shared vision should be evident in every aspect of the method or framework. This is important to foster alignment throughout the organization and across all teams. Ultimately, each member is working towards the same outcomes through their individual contributions, which must be apparent.

Motivation

When considering motivation, we’re ultimately looking at fostering what encourages it against that which negatively impacts it. When fostering motivation, an approach should seek employee engagement in every aspect. Again, this ties into the ‘why’ aspect: employees should feel like their work is meaningful and tied to the overarching organizational strategy.

They should know and feel the value of their contribution and, where possible, be consulted on their individual expertise in the so-called ‘bottom-up’ approach when setting targets that are realistically achievable. 

Alternatively, a heavy-handed ‘top-down’ approach has the potential to harm motivation by stifling potential innovation (a desirable aspect for a startup) and setting goals or targets that aren't realistically achievable, thereby ushering and embedding failure into the culture with demoralizing consequences. Teams are motivated by wins. 

Adaptability

Due to the fast-moving, turbulent, iteration-fuelled, ever-growing, adapting environment that startups must thrive in, the importance of selecting a fitting goal-setting approach cannot be understated. It needs to be agile and flexible. Targets will move and adapt over time, and strategic pivoting is part of the process; therefore, an adaptable approach emphasizing targeted outcomes over metrics is desirable. 

Actionable work

When setting targets, it is important to consider the actionable work or the steps needed to get there so that objectives are not overly vague. Not only does this allow for diligent oversight of resource allocation, it also fosters clarity and alignment by creating roadmaps for successful attainment that can be easily adjusted on the fly when necessary without affecting the desired outcome. 

Time 

As mentioned above, resources are limited. Time is a very real and very valuable resource in the world of startups. Yes, testing and innovating take time. Yes, in finding what works, startups will have to navigate what doesn't. However, waste can still be diligently accounted for and managed. A desirable approach is to leanly streamline and optimize resource use by trimming away the excess waste. This can be implemented through a goal framework that allows for consideration of all of the above when determining input. 

With this understanding of the nature of startups and the recommended considerations when selecting an approach to goal-setting, let us now focus on OKRs as a framework and how their implementation for startups can be problematic. 

The Problem with OKRs and Startups

Let's be clear from the offset: OKRs are a powerful tool and, when used well, have their successes well-documented. However, this does not spare them from critical analysis and consideration.

We’ve discussed some of the common pitfalls of OKRs at length in another article. Here, we will look at OKRs through the lens of the context of startups provided above and focus on their specific incompatibilities. 

The Nature of OKRs 

OKRs stand for Objectives and Key Results and, at face value, are designed as a goal-setting tool to foster the alignment of work with an organization's strategic vision. 

A Typical OKR can look like this; 

We will…

‍

Objective: Increase brand awareness in the target market; 

As measured by… 

Key Results:

1. Achieve 50,000 website visits per month.
2. Grow social media followers by 25%.
3. Secure 5 media features in industry-relevant publications.
4. Increase email newsletter subscribers by 20%.
5. Reach 10,000 downloads of a new product demo within the next quarter.

As said, these can be taken at face value, with detailed communication of attainment being considered, planned, and documented with cadence externally. Alternatively, they can ‘cascade’ into ‘individual OKRs’ where we take one of the Key Results and assign it to a team or individual to become their Objective that its own Key Results measure. 

The successful implementation of OKRs assumes a deal of mileage and experience using them; some will argue that the same goes for any methodology, and, while not wrong, there is far more division on the successful understanding and implementation of OKRs, even among seasoned veterans of the framework. 

As the founder of a startup, the risks of implementing a framework you’re unfamiliar with are already significant. This concern is heightened by the possibility that the framework may not fully meet your needs. Additionally, the implementation process is often scrutinized and debated among experts, further complicating the situation.

To reiterate, OKRs can work but are best suited for organizations that have grown beyond the startup phase and by leaders who have experience implementing them. 

A very well-delivered keynote by Whitney O’Banner of Medium offers some interesting perspectives and noteworthy insights into her experience with OKRs. While still defending and maintaining professional affection for them, she offers some potential adjustments for startups who are set on using OKRs.

Some of the key takeaways relevant to this article are; 

• First-time introductions to OKRs are a disaster for many companies. 
• ‘How Google sets goals’ is still one of the primary resources for understanding and setting OKRs, is quite dated, is plain wrong in some instances, and does not work for companies of all sizes.
• Ditch ‘individual OKRs’ and use ‘Tasks’ instead. 
• OKRs are not a performance measurement tool; tracking a performance goal may not necessarily align with what the business is trying to achieve.
• Ignore the metrics and focus more on the outcomes.
• Do not ‘cascade’ every goal - Individual contributors are closest to the problems and have their eyes on the ground. Therefore, they sometimes have the best solutions.

These are some fantastic takeaways, and while the suggested adjustments are helpful, they still highlight the issue that OKRs require experience that isn't available to all founders from the offset. 

Furthermore, there are alternative approaches and frameworks that implement some of these ideas inherently without the need to force-fit OKRs prematurely. 

Let's now shift focus toward the earlier suggestions for startups and goal-setting, highlighting where OKRs fall short. 

OKRs are bad for Startups

Clarity

OKRs offer a clear objective but fail to offer the fundamental ‘why’ behind it. With no clear link to the strategy, OKRs risk the creation of a schism between understanding strategic direction and its link to actionable execution. Furthermore, the language of the objectives and key results is often vague. They offer ‘what’ needs to be achieved but fall short of offering ‘how’ to get there through individual ownership and accountability.

The outcomes can become confusing with an excessive focus on metrics, particularly for startups.

Metrics are often prematurely and unnecessarily assigned as targeted outcomes without any foundation of where an organization currently stands. In other words, you need to know where you are before you know where you are heading.

How can you target X as a Key Result before knowing where you are in relation to X when you begin? Metrics can and should be applied at later stages of development.  

Alignment 

At face value, OKRs tend to fall short when offering vertical alignment by tying strategic vision and direction with actionable outcomes.

We just touched on this, but to purely focus on alignment, employees and individuals have no tangible indication through OKRs as a reference point for their decision-making to align with overarching organizational strategy. 

Key Results can't foster cross-functional alignment alone. They risk becoming the sole focus of teams and individuals and can potentially create silos through a lack of indication of how teams are pulling toward the same strategic direction. 

The ‘why’ and ‘how’s are important. Key Results are milestone indicators of ‘how’ we measure, not ‘how’ we work together to execute.

Motivation

OKRs set stretch goals with best practices at 70% goal completion. This is ambitiously set to push teams beyond what's possible and encourage innovation. While innovation can be desirable, such practices also pose a significant risk to motivation. Teams need wins, and pushing a goal beyond what is realistically achievable risks fostering a culture of failure while simultaneously burning individuals out. 

Goals should be deterministic and not probabilistic, particularly for startups. 

To promote engagement, teams and individuals want to feel valued and that their work is meaningful. As mentioned in the above-shared keynote, a bottom-up approach to setting goals, i.e., consultation and determination of what is realistically achievable, helps in this regard as opposed to the top-down stretch goals characteristic of OKRs. 

Adaptability

Startups require flexibility and adaptability from a framework. OKRs are often set quarterly or annually, which can feel rigid in a fast-changing environment as the business may have already pivoted when an OKR has been locked in. 

If OKRs are too static or not revisited regularly, they can conflict with Agile principles of responding to change. Again, with excessive focus on metrics over outcomes, OKRs struggle to foster an environment where pivoting can effectively achieve a qualitative outcome over a quantifiable metric. 

Actionable Work

OKRs set ‘how’ a target is measured and do not provide an actionable roadmap for ‘how’ it is to be achieved. What are the Tasks involved? As mentioned earlier in the keynote, Tasks are a far more effective way of aligning actionable work with strategic outcomes. 

The vaguely set Key Results in OKRs leave much to be desired regarding the allocation and management of resources. Since startup resources are limited, they should be administered diligently. This does not promote excessive micro-management but rather encourages the viewing and allocation of resources as an integral part of a strategy. 

Time

Finally, startups do not have the luxury of time on their side. As mentioned at the beginning of this article, 10% of startups have already failed by the first year. This increases to 20% by the second. OKRs are often set quarterly or annually, which are windows of time that do not fit the fast-changing environments that startups navigate. 

Yes, you can potentially set monthly and weekly OKRs. Still, we now run the risk of short-term thinking, lack of strategic depth, and insufficient time for execution, all of which must be addressed within a framework never originally designed for that purpose. Again, while all these aspects can potentially be focused on and adjusted, at some point, we’re undermining the framework's core purpose and effectiveness when it may just be better applied elsewhere. 

Seeking a potential goal-setting alternative might prove more effective than forcing a fit.

Conclusion

While OKRs are a powerful tool, they are not inherently suited for startups. They are a better fit for larger organizations with some form of experience using them. Especially when they are at a later stage of operation seeking to align broader long-term objectives with measurable milestones set by higher levels of management. 

You could even argue that founders may not need a formal goal framework in the early stages. They can probably weather most storms with a North Star Metric, a few product and GTM hypotheses, and a clear ownership of deliverables. 

However, there are alternative methodologies that do not require an army of coaches to explain how they should be implemented—meaning such a framework has already reached a level of complexity that requires careful consideration before adopting. 

So, if you’re looking for a more suitable framework that will optimize the wind in your sails, there is a modern solution available. It’s called NCT, which stands for Narrative, Commitments, and Tasks. This framework emphasizes the strategic ‘why’ behind objectives, aligning them with actionable daily tasks to enhance your productivity. Furthermore, it addresses many of the OKRs’ shortcomings. 

For more information about NCTs, please check out our complete guide to the NCT framework.