A techie acquaintance participated in all team conference call with the CEO of an online marketplace, who started the meeting by stating that the sales targets have not been met. My acquaintance asked me what was the meaning behind that statement? I asked, in return, how often has the failure to meet revenue targets happened? If that were the first occurrence, then it is a serious problem, but rectifiable. If this is the second occurrence, then the investors become seriously concerned. By the third occurrence, the investors will begin to demand “heads”.
By addressing this issue, the CEO is beginning to ask team about solutions to the problem. Is the advertising budget big enough to attract more customers? Is there something wrong with the product(s)? Is there a distribution gap? And so on. Another perspective would be whether the projections were too sanguine? And that might be a dilemma. Understating the potential sales might discourage investors. The opposite — a far, too high targeted projection — will disappoint them.
Then, let us look at the perspective of the investors. I recall the impact on Wall Street for not meeting revenue targets some years ago. A Fortune magazine article once interviewed Morgan Stanley as to why, after being the underwriter for a telecom company for bonds, Morgan did not lead the IPO. Morgan answered that the company “… missed their numbers after the deal.” In other words, Morgan felt that any investment in that company would be a disaster. That prudence proved correct when a couple of years later, that same company lost the investors over $2 billion and filed for bankruptcy. So meeting sales projections are important.
After a while, the company runs out of excuses. The marketing team gave rosy but unrealistic projections. Or the company has no experience in the space. Who knows? But consistent failures in meeting projections to Wall Street or any other type of investors can be fatal.
This comment leads back to an earlier blog – companies must meet their milestones – in this case, projections. Whether it be Wall Street or a VC, they all behave the same. They need to be comforted that the company they invested in meets their business plan projections.