Does Your Revenue Match Your Expectation?
A few years ago, 4Growth had been working with a technology company that specialized in developing mobile application for smart phones. I love telling this story even today as it continues to be a major issue in developing and growth companies.
We had been given the task of developing and implementing an exit strategy specifically for our client with the intention of selling them to a leading Canadian software company. The interested buyer intended on branching into secure mobile document management. It was the classic build or buy scenario and like all companies that want to bring their product to market sooner rather than later they elected to buy.
For months the acquiring company did a great deal of internal and external analysis and they liked what they saw. Everything to this point indicated that this deal would be going through without a hiccup in the process.
After about five months of thorough analysis it came time for the managing partners of the mobile app developer to make their case to the acquiring company’s acquisition committee. The partners were ready, confident, and sure that retirement was all but a few signatures away. The presentation they were about to give had been ironed out and combed over many times to ensure that nothing stood in the way of their exit from the business.
At 10:00AM the presentation began, and their compelling story started coming to life in front of the acquisition committee. The partners articulated in depth the deep-seated values that permeated throughout organization. They explained the strategy that had been refined over the past 12 years. They went on to describe the market opportunity available to the acquiring company. The partners had all their bases covered and were in the last leg of the lengthy PowerPoint presentation feeling better than they were before the presentation; and that’s when it happened.
The Chair of the acquiring company said to the partners, “I have a question, and it’s a Got’Ya question.” The room fell silent as everyone was doing their very best trying to anticipate where the hole in their story was. He boldly asked, “How come your current revenues don’t match your story?”
Wow. What a great question, perhaps one of the best I’ve ever heard.
At this point the partners did what anyone in their situation would do; they backpedalled trying to come up with anything that would put this question to bed. The two partners acknowledged they had problems but that that was all in the past. Look to the future and that is where you will see the value they pleaded.
After they finished their lengthy explanation to his question the Chair said to them, “Yes, those are problems but, they are not the problem.” He then said, “I know what your problem is. Could you please go back to Slide 19?”
It was the company’s org chart. What could he have seen that the managers had not thought of yet?
Beneath the CEO of the application development company there were four divisions: Product Development; Delivery; Finance & Administration; and Sales and Marketing. They were employing 19 product developers; 3 project managers; 2 administrators; and (can anyone see where this is going?) 1 sales and marketing employee.
“This is the reason we are not here talking with a company doing $8 million in revenues” the Chair announced to the room. How is one lonely sales person supposed to get 19 developers’ hard work to market? The answer – It’s not possible.
The moral of the story - Companies that spend all their capital on resources attempting to build a better mouse trap are doomed to a stagnant revenue stream. The most successful companies in the market are not always the ones with the best product; they are the ones with products on the shelves.
There are many technology companies that focus on getting products out the door year after year. Not necessarily the BEST or most perfect products. The logic for these companies is dead simple. They realize the world needs products that work; people recognize that there are no perfect ones yet; an imperfect one will still make users’ lives better.
No matter what industry or business you may be in, a balance between product development and sales/marketing is absolutely necessary.