Dear Buildoor,
OKRs, short for Objectives and Key Results, are arguably the best management innovation of the 21st Century. When done properly they are a vehicle for companies to create focus for their team, better communicate priorities to their investors, and measure actual growth.
In this piece (Part I) I’ll expand on OKRs and their benefits.
Future Part II will be more tactical and outline how to write effective OKRs and fit them into your overall operating cadence.
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Background
OKRs went mainstream in the early 2000s when companies were aiming to mimic the disruptive operating processes of the then fledgling Google.
The premise of OKRs is straightforward.
Objectives (O): Outlines what the team is aiming to achieve. They enable focus by defining the most important goals. Objectives can be aspirational, but unlike vision statements, they should (eventually) be achievable and definitely measurable.
Key Results (KR): Quantifiable metrics to evaluate if the objective has been achieved. Importantly, and perhaps the area where most companies err, is that KRs should not measure input or tasks completed (eg Launch “Feature X”), but rather they should track track outputs that matter to the business.
A few notes on OKRs:
OKRs apply to all team sizes: On the large end, Google implements company-wide OKRs that apply to its 150k employees, and each business unit implements supporting OKRs. On the smaller end, startups with two cofounders can effectively use OKRs. At 6MV we use OKRs for a five person fund.
Less is More: There should be a single top-level set of OKRs for the company (or autonomous business unit) which consists of 3-4 objectives and 1-4 key results per objective. One mistake I see is that companies create OKRs for each business function (eg Engineering, Marketing). The problem is doing so splits focus across multiple OKR lists, creating misaligned incentives, and provides a foothold for ‘pet projects’ which may not be critical to the business. The entire company should be aligned on achieving the same OKRs. There are of course specific work streams that business functions need (eg code migrations) and these can be captured at the roadmap level.
Product should drive the process: PMs own the definition and delivery of products that are purchased and used by end users. Because they interface with nearly every function they are usually best positioned to understand the levers to drive top-line growth and the design/build tradeoffs to deliver it. I’ve found it beneficial that PMs own the OKR process. In the event the company is small and doesn’t have PMs then the founders / CEO can lead this process.
Visit them often: Countless times I’ve seen teams go through a laborious OKR generation process only to not visit them until 2 weeks left in the quarter, at which point it’s too late to take the necessary steps to achieve the OKRs. For quarterly OKRs I recommend teams at minimum do a mid-quarter OKR review with company stakeholders. Ideally, OKRs become so engrained in the company’s efforts that they are so top-of-mind that they help guide the daily prioritization choices of team members.
Four Reasons to Implement OKRs
I’ve found OKRs to be the best framework to succinctly create clarity and focus. Below are five reasons why you should be managing via OKRs
1/ They force the right conversations
Remove bias
The OKR generation process helps remove personal biases and empowers all voices to be heard.
If you ask five department heads what the company should focus on you’ll receive six different answers. People tend to believe that their initiatives/goals are the most important because everyone sees the world through their own lenses and because their prioritization benefits their own influence and career. A single set of OKRs helps root out these biases and ideally, the most important objectives are selected.
In addition, making people’s voices be heard is incredibly important to finding the best ideas (the squeaky wheel isn’t always the most important) and also helps keep employees engaged. An open OKR generation process provides a platform for all stakeholders to weigh in, including more introverted / quiet individuals as well as departments that may otherwise have less influence. Individual feedback can be sought by both asking for written comments as well as having 1:1s.
2/ They make sure everyone is moving in the right direction
We over me
Shared OKRs elevate the goals of the company above the goals of the individual. A single set of OKRs aligns incentives across teams, yoking them in the same direction towards joint success or failure.
If each function has their own OKRs then each focuses on their goals, and conversations tend to involve “I” more than “we.” It’s hard to have strong cooperation when everyone is operating from different goals and evaluation criteria.
3/ They empower investors to help you
Help me Help you
VCs usually have many portfolio companies and receive more inbound investor updates and requests from portfolio companies than they have bandwidth. Naturally, VCs prioritize, often based on power law outcomes, focusing on portcos that have the highest probability of returning their fund.
As a founder, you are highly advantaged to succinctly communicate your focus areas and metrics of success to investors. OKRs are the best medium to do this. I’ve received many long-winded investor updates that leave me confused about the company’s goals and how they will measure success. It’s unclear for me and other investors to then determine what questions to ask and how to support the founders.
When VCs understand your most important objectives it helps them create the right connections - making introductions that help propel you towards your key results and helping block those that are a distraction.
4/ They Empower Your Team
Define outcomes, not tasks
The biggest way to stifle exceptional leaders is to give them a list of things to do. It unnecessarily reduces the innovation space and removes creativity from business building.
Well worded Key Results don’t specify how to achieve the objective, but rather identify the KPIs that indicate if the objective was achieved.
This is incredibly liberating to strong teams, enabling them to experiment and iterate quickly to achieve their desired outcomes.
Wrap
Hopefully you now understand the benefits of OKRs, and if you don’t use them already will try them out.
However, poorly written OKRs can hurt the company by consuming substantial time in their generation while not actually creating focus or measuring the right outcomes.
In Part II we’ll focus on the characteristics of effective OKRs and how they fit into your overall operating cadence.
Please drop a like if you found this article helpful so others can find it, and drop a comment or feedback if there are other other PM / VC topics you would like to learn more about.