Edited excerpt from Charlie Munger’s comments at the Wesco 2000 Annual Meeting, quoted in The Tension Created By Stretch Goals:
There are two lines of thought. A whole bunch of management gurus say you need BHAGs — bold, hairy, audacious goals. That’s a technique of management, to give the troops a goal that looks unattainable and flog them heavily. According to that line of thought, you will do better chasing a BHAG than you will a reasonable objective.
Then there’s another group that says that if you make the goals unreasonable enough, human nature being what it is, people will cheat.
These two factors are at war. You don’t want the cheating, which is bad long term and bad for the people who are doing the cheating. However, you do want to maximize real performance.
What people generally do is give people the unreasonable goal and tell them, “You can’t cheat.” That is the American system in many places.
I’ve got no answer to that tension. Low goals do cause lower performance and high goals increase the percentage of cheating. Each organization has to find its own way.
(1) In a startup like Seeking Alpha, I’m less concerned that managers will cheat (ie. be dishonest) than optimize for short term growth at the expense of medium term growth. However, if the manager knows they’ll stay in their role for the medium term, is that really a risk?
(2) “Low goals do cause lower performance.” See (i) Don’t set goals based on what you think you can achieve, (ii) Think big, (iii) Ensuring you’re sufficiently ambitious, and (iv) Set stretch goals.
(3) Setting ambitious goals isn’t just about performance, but about vision and aspiration too. See Lessons from Jeff Bezos: Set “audacious and inspirational” goals.