# How to Set up and Manage OKRs

> A NachoTuesday interview — the C-Suite Insights series from NachoNacho, the B2B SaaS and AI
> marketplace. In conversation with John Nantz, Founding Partner, Redwood Advisors.

- **Page:** https://nachonacho.com/nachotuesday/video/How-to-Set-up-and-Manage-OKRs
- **Guest:** John Nantz, Founding Partner, Redwood Advisors
- **Guest on LinkedIn:** https://www.linkedin.com/in/johnnantz/
- **Recorded:** 2024-06-24
- **Watch:** https://www.youtube.com/watch?v=lQLh6zoYB0A

## Summary

In this NachoTuesday webinar, John Nantz from Redwood Advisors provides valuable insights into strategic decision-making, focusing on the importance of "thinking big, starting small, and acting fast" for transformational change. He introduces OKRs (Objectives and Key Results) as a crucial operational planning methodology to translate strategy into action. John outlines key principles for effective OKR implementation, including focusing on top strategic priorities, differentiating between budget, target, and stretch goals, and decoupling OKRs from performance management. He emphasizes the need for CEO buy-in and the selection of attainable objectives with easily trackable key results. Key Talking Points: Successful Transformation Relies on "Thinking Big, Starting Small, and Acting Fast": Companies that envision ambitious goals, break them down into manageable steps, and execute rapidly are more likely to achieve significant transformational change. OKRs (Objectives and Key Results) are a Powerful Tool for Driving Strategic Execution: Objectives are qualitative goals aligned with strategy, while Key Results are quantifiable metrics that measure progress toward those objectives, enabling accountability and focused action. Effective OKR Implementation Requires Careful Planning and Adherence to Key Principles: This includes selecting strategic priorities, differentiating goal types (budget, target, stretch), decoupling from performance management, ensuring CEO buy-in, and focusing on attainable objectives with easily tracked, practical results.

## Product discussed

- **Name:** RWAdvisors
- **Page:** https://nachonacho.com/product/rwadvisors
- **What it is:** We help clients maximize profitable growth, achieve organizational excellence, and deliver top strategic opportunities
- **NachoNacho deal:** Fundraising: $95,000

## Full transcript

Good morning, everybody, and welcome to another NachoTuesday! Today, I have John Nance here with Redwood Advisers. We’re switching up the format a bit. John will provide some keen insights into the information he shares with executives to help them make better strategic decisions. He’s going to walk us through a presentation today that is usually only available to special paying clients, so this is a very special opportunity to learn from one of the best in the business. Introduction to Redwood Advisers (00:34) Without further ado, John, I’d love for you to introduce your company. About Redwood Advisers (00:34) Awesome, yeah. Good to meet everyone. We’re going to walk through a presentation on OKRs and provide a bit about our company. I started my career at McKinsey & Company and have been deeply involved in strategy and organizational excellence throughout my career. I’m very passionate about this field. Our company helps Enterprise B2B SaaS companies gain strategic clarity and design their organizations to effectively deliver on it. We focus on strategic planning and organizational excellence, which includes designing and implementing OKRs (Objectives and Key Results). Today, we’ll discuss how OKRs can drive transformation in your business. Understanding OKRs (01:06) For those unfamiliar, OKRs stand for Objectives and Key Results. I'll show you some slides that will explain what they are and how you can use them. At a high level, OKRs are an operational planning methodology popularized by Google. Google’s success with OKRs has helped make this concept increasingly popular across various industries, particularly in technology. Client Experience (02:09) To give you a bit of background on us, here are some clients we’ve worked with: Lassi, DocuSign, The Bill & Melinda Gates Foundation, VMware, etc. We’ve collaborated with both large enterprises and smaller, high-growth companies. While we don’t always display logos from smaller clients, it’s worth noting that we’ve worked across a broad spectrum of businesses. Presentation Setup Issues (02:36) John, could you update the slide? It looks like you should be on slide four. There we go, perfect. Let me see if I can get this into presentation mode. (03:01) For some reason, it’s not letting me switch to presentation mode. Do you see the presentation mode, Andy? (03:01) No, I don’t actually. (03:01) Okay, we’ll stay in this view. Transformational Change (03:30) Today, we’re discussing three key factors that drive transformational change. We’ll focus on thinking big, how to achieve it, and provide a strategic planning one-pager as a cheat sheet. The majority of our time will be spent on executing transformational change and OKR best practices—how to effectively use OKRs for this purpose. The Role of OKRs (03:58) Before diving into the specifics of OKRs, it’s important to understand that OKRs are just a methodology. The goal is to drive successful, value-creating transformations. Sandy Aug, a performance executive at Blackstone, conducted an intriguing study that analyzed Blackstone’s portfolio. He explored why some companies succeeded while others didn’t, beyond macroeconomic factors. Key Behaviors for Success (04:30) Aug identified three key behaviors that distinguished successful transformational change stories. One of these was "thinking big." Did the company have a bold vision for its role in the industry? Were they looking to transform their industry and engage with customers in new ways, or were they simply pursuing incremental improvements? Factors for Successful Transformations (05:33) One key factor for truly successful transformations is starting small. This might seem at odds with the idea of thinking big, but it’s crucial. Companies often develop grand plans, such as goals for five years down the road, but if they remain at this conceptual level, nothing actually changes. They risk getting lost in their own grandiosity. Starting small means getting specific. For example, think of creating a minimal viable product (MVP). You start with the most basic version of the product, launch it, and then build out additional features over time. This approach prevents getting bogged down in the details of a larger vision without a solid initial foundation. Applying the Methodology (06:05) This methodology can be applied at various levels. Whether at the corporate or product level, it’s important to think big but start small and act fast. This approach ensures that you remain focused and agile. It’s a concept that also translates well to personal development, although we won’t delve into that today. Strategic Planning (07:25) Today, we have an ambitious agenda, but we’ll get through it. I want to start by discussing how to think big. Our firm engages in a lot of strategic planning and OKRs, so I’d like to offer a cheat sheet on how to think big. We often work on larger projects to help people develop comprehensive strategies, but sometimes that's not feasible. For nearly 15 years, my favorite strategic overview is a one-pager that’s flexible and relevant to a broad range of companies. It involves answering three simple questions: What is our winning aspiration? What does success look like in 3 to 5 years? For smaller companies under $10 million in revenue, consider a 1 to 2-year timeframe. For more established companies, a 3 to 5-year horizon is appropriate. Imagine a future meeting where we assess our success—what would need to be true for us to consider ourselves successful? Where do you want to play? Define clearly where your company will compete and where it won’t. Often, it’s more crucial to determine where you won’t compete—whether in certain product categories, geographies, or channels. This focus is incredibly beneficial. How are you going to win? Identify what makes your company or product superior to competitors or substitutes. This involves understanding the competition and ensuring you offer something better or different. Translating Strategy into Action (10:11) Next, let’s discuss translating your strategic thinking into action using OKRs. OKRs consist of two components: an objective and a key result. Objective: This is a qualitative goal aligned with your strategy, stated in plain English. For example, “Become the largest B2B SaaS provider by revenue in North America.” Key Result: This is a quantifiable outcome that supports the objective. For example, “Increase revenue from $30 million to $39 million (a 30% growth) in the next fiscal year.” A key result is measurable and can be tracked to determine if it was achieved. Principles and Best Practices (11:22) I’ll cover some best practices and principles for effective OKRs, drawing on our extensive experience with companies like Atlassian. Although I won’t cover everything, here are three key principles that are commonly effective: Select and Focus: Prioritize and concentrate on the most impactful objectives. Top Strategic Priorities (11:52) When setting OKRs, it's crucial to thoroughly debate and think through your top strategic priorities. This should not be a quick, one-afternoon activity. For OKRs to be effective, they need to be precise. Consider whether you’re focusing on total revenue, gross new revenue, or expansion revenue from existing customers. Decide if you want to break revenue into different categories or keep it consolidated. You might also consider differentiating between digital versus direct business, sales-enabled versus product-led growth, or different geographies. The key is to slow down and identify the most important objectives. Select the right results that will help you determine if you are meeting those objectives. This is the first key principle. Types of Goals (13:02) The second principle involves understanding the different types of goals. Many people, especially when new to OKRs, may only set one type of goal. Here are the three types: Budget Goal: This is what you promise to finance and investors. It's often a bit conservative to avoid underperforming against expectations. Target Goal: This is what you actually aim to achieve. It’s more ambitious than the budget goal but still realistic. Stretch Goal: This is an ambitious goal that is possible but challenging. In practice, it’s common to see misalignment where different parts of an organization are discussing different types of goals. For example, the CEO might focus on a stretch goal, the finance team on a budget goal, and product leaders on a target goal. To avoid confusion, consider setting three distinct goals: a budget goal, a target goal, and a stretch goal. For instance, for revenue, you could set goals of $39 million (target), $42 million (stretch), and so on. Decoupling Performance Management from OKRs (15:13) The third principle is to decouple performance management from OKRs. It may seem logical to tie performance bonuses directly to OKRs, but this can create perverse incentives. Employees might manipulate numbers or withhold information, leading to unintended consequences. Instead, assess performance separately from OKRs, ensuring that OKRs remain focused on their intended purpose without becoming a tool for performance evaluation. Essential Questions for OKRs (16:27) Before starting with OKRs, consider these essential questions: Is the CEO on board? If the CEO is not committed, OKRs are unlikely to be successful. Often, OKRs are championed by other leaders in the organization, but without CEO buy-in, it’s best to reconsider. What principles will guide your OKRs? Define clear principles before diving in. For example, decide whether OKRs will be used for performance management or focus solely on strategic goals. Another principle might be to provide updated numbers on OKRs monthly. What OKRs should you create? Ensure that objectives are attainable and aligned with your strategy. Results should be linked to accessible and easy-to-track data. It’s better to choose practical metrics that are easy to measure rather than ideal but difficult-to-obtain ones. Example: Disney (18:14) Let’s look at an example with Disney. Their high-level strategy is to entertain, inform, and inspire people globally with world-class entertainment properties, movies, content, cruises, and digital assets. Their three-year goal could be to expand their global footprint with new properties, expanded digital assets, and enhanced customer experiences. This strategy cascades down into an OKR system. For instance: Objective A: Grow our global business by increasing non-core market global sales by 7% (e.g., XUS and X Europe). Objective B: Delight our customers by improving our net promoter score by 10%. Objective C: Build a great corporate culture by achieving a weekly employee satisfaction score of 8+. These specific objectives support Disney's broader strategy. The associated key results are designed to be measurable, providing clear indicators of progress. Discussion and Recommendations (20:18) Now, regarding where companies often fail with goal setting: startups and smaller companies often face different challenges compared to more established, midsize, and larger companies. Smaller companies need shorter timelines, focusing on what can be achieved in the next one to three months. In contrast, larger companies, like Disney, can plan over a longer horizon, such as three to five years. The level of uncertainty, which correlates with company size, should influence your planning timeline. Long-Term Strategic Planning (21:19) For established companies, it's reasonable to plan for a long-term horizon. For instance, a corporate entity like General Motors or a large foundation might plan for three to five years, or even 10 to 15 years. When I worked with the Bill and Melinda Gates Foundation, we considered a 15-year timeframe because they had significant resources and weren’t concerned about going bankrupt. Conversely, a corporation might plan for three to five years, while a startup might focus on one to six months. The length of the planning period and the time invested in the process are both related to the company’s size. Larger and more established companies generally require longer planning periods and more time spent on the exercise. In contrast, smaller companies might engage in more iterative and shorter-term planning. Opportunities and Challenges for Startups (22:17) In my experience, startups and small businesses often struggle with strategic planning. While midsize companies recognize the need for strategic alignment and are more likely to take action, smaller companies sometimes neglect this aspect due to the demands of development, marketing, and sales. I believe that even early-stage companies benefit from a strategic approach. It doesn’t need to be perfect, but having a basic strategy is crucial. For example, you could start with a one-page summary and discuss what success looks like. If you’re comfortable with it, we could provide an editable version of that summary for companies to use. Startups might find it more reasonable to develop a minimum viable product (MVP) before scaling up with additional features. Once revenue starts coming in, companies can refine their strategies around revenue goals. Engagement Process with Companies (24:38) When companies reach out for strategic clarity, it often starts with a recognition that something feels off or unclear. Typically, the CEO or board chairman will acknowledge the need for a clearer direction and seek help from firms like Redwood Advisors. We get involved when a company needs help to better articulate their strategy, especially before a fundraising round. Having a clear strategy can significantly impact valuation, making it a common reason for our engagement. For companies with over $100 million in revenue, our process typically lasts two to three months and involves extensive analysis and alignment. For smaller companies, the process may take three to eight weeks, or even just three to four weeks for very small firms, and includes workshops, interviews, and analysis. Fundraising Offer (26:53) We have a $95,000 offer aimed at high-growth, early-stage companies preparing for a fundraising round. This package helps companies present a compelling strategy and market analysis to investors. We assist in evaluating market sizes and segments and provide an external, credible perspective. Our goal is to present a strong, third-party validated story that aligns with both the company’s and investors' interests. This approach can be invaluable for startups and other companies seeking to align their story with investor expectations. Three to Five Year Goals for Redwood Advisors (29:05) Over the next three to five years, Redwood Advisors aims to continue its growth trajectory, having achieved about 30% growth over the last six to seven years. Our goals include: Product Goals: Continue expanding the number and size of products offered. Technology Network: Grow our network within the technology sector, especially in B2B SaaS. New Lines of Business: Develop a new line of business in the healthcare space, particularly with smaller companies acting as growth investors. Closing Remarks (30:34) It’s been a pleasure working with you, John, and we look forward to growing our businesses together. I encourage everyone to check out Redwood Advisors in the NachoNacho Services Marketplace. The offer there can be a great opportunity for companies seeking expert strategic alignment. Thank you for joining us today, John. We appreciate your insights and look forward to further collaboration. I’ll send you the PDF of the presentation shortly.

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