George Babu has had a multi-hyphenate career. The engineer-turned lawyer-turned-entrepreneur (and now investor) started his career at Blackberry when it was 100 people, taking on the then-incumbent mobile phone maker Nokia. An MBA and JD degree later, he joined an enterprise SAAS company that Salesforce eventually acquired. After that, he co-founded a robotics company, before becoming a partner at Sweat Equity Ventures — a venture capital firm that exchanges expertise for equity.
Throughout his career (and in his personal life), Babu has implemented the Objectives and Key Results (OKR) toolkit in various ways. At Sweat Equity, the organization uses OKRs to set quarterly goals and priorities. They also use it with their portfolio companies to define the terms of their relationship.
How OKRs help with the investor: founder relationship
Sweat Equity may be conceptually a venture fund, “but the way we invest our money (is that) we work in exchange for equity,” says Babu. The firm commits to doing a million dollars worth of work for their portfolio companies, ranging from a stock exchange platform to an augmented reality startup.
“At Sweat Equity, we’ve been using OKRs since the beginning,” Babu explains. “(But) the level of detail changed over time.” The fund started using OKRs at an organization-level. As the team expanded, they briefly experimented with the tool at a team level. “That was too much,” says Babu. Now, they set OKRs at a fund-level and at a business-unit level, which consists of product & engineering, go to market, talent & growth, and operations. The OKRs and area of focus typically change from quarter to quarter. “In the early part of Sweat Equity, we were focusing on validating the business model. Now our Objectives tend to be on the efficiency of the fund overall. We have OKRs on how happy the founders are with us,” says Babu. For example, one of the fund’s Objectives is that its portfolio company finds them invaluable. A Key Result is that the fund’s NPS (Net Promoter Score) is over 9. A Net Promoter Score is what companies often use to measure how satisfied their customers are, with 10 being the highest score. In recent years, other investors have also used this metric to identify the founders’ level of satisfaction.
Sweat Equity also uses OKRs to govern the relationship they have with portfolio companies. At the beginning of the relationship, they use a statement of work (SOW) to align with the founders. The language of the terms of the SOW are basically OKRs, says Babu. Typical Objectives include evidence of market traction and acquiring X number of customers. Sweat Equity writes the SOW as they are negotiating equity with the company, explains Babu. This exercise forces the company to think about what kind of work would provide the highest value. “We don’t want to be working on things that are of low value. We’re earning equity. Equity is expensive. If we’re not doing high-value work, then we don’t earn equity.”
Babu says that the fund was highly motivated to use OKRs to affirm the sense of partnership they require with portfolio companies. “Some founders would view us as a contractor,” says Babu, "and not give us any insights into (their) priorities. We didn’t feel like partners.” Because most founders are familiar with OKRs, “we wanted to leverage that common understanding to balance the relationship out,” says Babu. That way, if things change at the company, Sweat Equity can be part of that conversation. This kind of arrangement also evens out any imbalance in the power dynamics. In a previous call to What Matter’s Chief Storyteller Lisa Shufro, Babu explains that it creates a clear sense of obligation on what both parties need to deliver. “If they can fire us, we both need to agree on what needs to happen.”
The importance of constant feedback
Babu has seen tremendous value in using OKRs during the start of the engagement with portfolio companies, but admits they are still working on tracking and systematizing the process of checking in (and potentially updating) the company’s OKR. “Right now, it’s very ad hoc,” says Babu. When COVID-19 hit, everything became “all hands on deck.” Now that things are a little more settled, the fund is actively looking at ways to create a more structured approach to track how the company and the fund are progressing on their mutual goals. Babu believes that OKRs work best when you implement it in conjunction with continuous feedback. “I think it has to be done together. You can’t do OKRs and not have some feedback mechanism.” That’s because while OKRs are meant to be a tool to ensure that the company is working on things towards its long-term vision, many startups are in a dynamic environment and need to be adaptive to change, says Babu.
Why companies should keep OKRs simple
If there is any downside of OKRs that Babu has seen, it’s the founders’ and leaders’ potential to overcomplicate the process. For example, a company may choose a specific tool to set and track their OKRs, and then spend too much time following bureaucratic (and unnecessary) steps.
Babu says, “All you need is an Objective,” and adds that companies who find themselves spending extended amounts of time on OKR processes “are missing the essence of it.” Companies who are thinking of implementing OKRs for the first time shouldn’t overcomplicate it, says Babu. He suggests starting slowly and experimenting with something like a two-month OKR at the executive and CEO level. He also recommends being flexible: “If there’s a new opportunity, then change the Objectives.”
It’s also crucial for the executive team to keep themselves accountable if they don’t meet their OKRs. “I’ve seen this happen in startups,” he says, where the company knows that they failed to meet the OKRs, but when there is a meeting at the end of the quarter, they don’t acknowledge that fact. “Whatever the CEO/founder/leader does is going to set the standard that others would try to reach. If you’re really slack, then everyone else is also going to be slack.”
But if you hold yourself to a high bar, says Babu, then it’s likely that everyone else in your company will do the same too.
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