The Importance of Goal Congruence

I have had the privilege of being involved in a few successful ventures as a senior (and sometimes founding) member, and worked with some very talented people. I have also seen a few ventures with friends and colleagues collapse due, either in whole or in part, to a lack of goal congruence. My friend Paul Hanson also refers to it as “unity of purpose”. My definition of goal congruence is when all of the founders and owners all have the level of expectation in terms of risk, effort and reward. A more colourful way to describe it is that all of the founders are all rowing in the same direction, all of them know the destination, and all of them are aware of what it will take to get there.

There are 2 good examples of this in my past, one reinforcing the importance of sharing a common goal, and demonstrating how it was part of the success. I have another that illustrates the problems that can be encountered when the partners don’t have the same goals in mind.

AMSL and Building BIDS Trading

The BIDS Trading alternative trading system in New York is a fascinating business that I was fortunate to be a part of for the past 3+ years. As one of the 6 founders of Alberta Market Solutions (aka AMSL, with the others being Jim Bird, Jim Lee, Mark Beddis, Paul Hanson and Sik Ngai), I was able to participate in an exciting adventure that culminated in getting 12 of the largest sell-side broker dealers in the United States to agree to work together to form BIDS Trading. Forming BIDS and the business concept behind it didn’t happen overnight. It started back in late 2002 when the 6 of us were all casualties of the collapse of EFA Software. Over the course of three and half years, some of the team spent some time doing consulting and contract work to pay the bills while the technology was developed and the business model for BIDS was fleshed out (and that’s a whole other story).

What was important is that all 6 of us understood the risks, we all shared the same goal, and we all understood the effort that was required. First there was the effort to just reach to starting line, to be in the game: to have a business model we believed in and made sense when we described to others, and to do the “other jobs” to be able to fund ourselves. We all knew that we couldn’t have all 6 of us doing contract work. That would mean no one was working on the new business and its supporting technologies, and no one would be out there growing and selling the idea to investors. There is no doubt we all would have made a lot more money in the first 3-4 years of starting AMSL had all 6 of us been contracting. The point was that the revenue from contracting was the working capital to build something bigger than 6 guys getting paid daily rates. Our goal was ambitious: change the rules to Wall Street for institutional investors, and get the explicit support and buy-in from the largest players in the game. The risks were high. The amount of effort to keep the short-term revenue flowing was high, and the level of effort would only increase once we got the funding and backing we needed from the industry.

Getting it started wasn’t enough, though. The next step was having the team all row, paddle or swim in the same direction to build BIDS. I had invested a lot of my time and effort working with IBM while we developed BIDS, and it was interesting work. The work I was going to do at BIDS had its own highlights, but the IBM work was “cool” in ways that the BIDS work wasn’t necessarily going to be. But, I understood that the IBM work was short-term at best, and would diminish over time. BIDS was our future as a team, and as such, I knew that I would have to wrap up the IBM work for BIDS to go forward. My part of BIDS wasn’t necessarily glamorous, but it was important, it had some interesting challenges, and was needed for the business to grow and succeed.

Without this shared, common purpose, without knowing the risks, the effort required and the ultimate goal, this would have failed. We would have been torn apart by internal conflict as partners decided they didn’t like the risk, didn’t want to put in the effort or simply didn’t want to “do the job”. I won’t pretend there wasn’t some conflict, and that everyone got exactly everything they wanted. But we all got enough out of the venture, personally and professionally, and were able to participate in something pretty amazing.

Friends and a Failed Venture

Without goal congruence, without unity of purpose, a team is simply more likely to fail than succeed. As an example of how lack of goal congruence can act to sink a team, I offer an example of friends who tried to form a company based on a hobby. I’ll have to be deliberately vague (although if they read this, I’m sure they’ll know who I’m talking about), but the nature of the business and the people in it doesn’t matter. The dynamics and expectations are what counts in this case.

These friends had decided to form a company to take a common hobby and try to build a business around it. I was more of an observer, being the only one who already had his own small company and having had some limited experience with start-ups in the technology field. During the meetings with the team, there was a lot of talk about the product ideas and the challenges around manufacturing, distribution, sales and such. However, what I was noticing was that no one was talking about the foundations of the business. It sounds mundane, but things like the Shareholder’s Agreement can become one of the most important founding documents for a group, since it lays out the rules, the rights and the responsibilities of everyone involved.

What they also weren’t talking about was around the goals: at the end of the day/month/year, what did they expect from the business? I went around and polled the group, asking them what they expected to put into the venture in terms of effort, and what they expected in terms of reward and in what timeframe. One person was willing to do the odd weekend or evening, and was only looking for a bit of extra income to buy electronics and toys and such. One was hoping to turn it into a full-time job for a few years. Another was hoping to generate several million dollars in revenue or equity, live a very, very comfortable lifestyle and retire on the profits or a sale in a few years.

The different members had goals that were completely disjoint from each other, and at 2 completely different ends of the spectrum in terms of risk and effort. On one hand, you have someone who had modest expectations on reward and wanted to put in minimal effort. The point for them was to have it as a hobby that paid a few bucks. At the other end you had someone who was prepared to risk the personal wealth they had, and to put in tremendous hours of time and effort to become independently wealthy. In the end, it wasn’t going to work, and ultimately it didn’t. The group never did form the company (a couple of them did try something, but they made sure they had the same goals and expectations in mind, and they had set a limit for themselves in terms of capital at risk). The business didn’t ultimately collapse because problems with product or the business itself, it was because the founding partners simply couldn’t agree on what they wanted out of the business.

The Team Must Be A Team

Imagine how successful an NHL team would be if half the players showed up and decided they only wanted to play 1 or 2 shifts on the ice, play 1 period of hockey, refused to check, would quit the game if they were checked, and that everyone would play goalie. It wouldn’t work. The game, as it is played in the NHL, requires that the entire team play the entire game, play at the level required for success, and play their parts.

Consider another example. Imagine 2 people in a canoe. If they both face forward, and each paddle on different sides, know the destination and steer towards it, the canoe moves forward and to the desired location. But if they both paddle on the same side, it goes in circles. If one faces backwards and the paddle in opposite directions, the canoe doesn’t move at all. If one guy does all the work and the other one just sits there, it takes longer to get to the destination, and the one doing the work could easily resent the lack of effort on the part of the other person and decide to kick them out or swim to shore themselves.

For a team to succeed in business, an important element of the team is goal congruence, unity of purpose. Everyone needs to clearly understand the risks, the reward, the goals of the business and the effort required, and be willing to do their part to make it happen. Without that, the team and the business is doomed to failure.