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Businesses Fail Because of Two Variables
Businesses Fail Because of Two Variables

Businesses Fail Because of Two Variables

Had the opportunity to attend the April CEO Connect meeting, here in Ann Arbor.  The guest speaker was Ted Dacko, former CEO of Healthmedia.  A serial entrepreneur, he has led five start ups. As he describes it, 3 had good exits, one so-so, and one….  Healthmedia was most recent, and quite successful.  Ted provided a very enjoyable, engaging discussion on his entrepreneurial experiences, preferring to live in the ‘launch’ phase of a new business.

One of the key points he made, which I wanted to share, is that businesses fail because of only two reasons.  They are opportunity pool and win rate.

Too many businesses focus on the product, on it’s features, and trying to demonstrate them to you, in maniacal fashion.  Ask them about who the customer is, what their problems are, and as he say’s, “…they look at you like you’ve grown three heads.”

I’ve experienced the 3-head syndrome myself.  Smaller companies often focus toward areas they’re comfortable in to the neglect of other key areas.  Try to take them outside their comfort zone, to think about the bigger picture, and they struggle to understand what you’re asking.  The fall back, he points out, is for them to want to do another demo. Demo. Demo. Demo.  In the past, my partner and I closed significant business (software) without ever doing a demo.  Our peers would ask afterward, ‘…what were your demos like?’  The fact you could sell without ever even doing demo was beyond them.

Getting past demos, Ted posited there are only three variables in business success:

  • Opportunity pool
  • Win rate
  • Price

Too often, with a maniacal product (or other) focus, companies focus too narrowly and do not have large enough pools of opportunity.  They need to increase the number of customers, the size of the pool, to which they’re marketing their company and its offerings.  This is a key function of Marketing—increase the size of the playing field.

Win rate, is the percentage of opportunities being converted to paid/paying customers.  Clearly, the higher your percentage of closed deals, the lower your cost per customer, the better your chances of success with any size opportunity pool.

No time was spent discussing pricing.  The key message in this segment was to focus on opportunities and win rates.  If your opportunity pool’s too small, 100% win rate may still provide insufficient revenue.  Flipping the coin over, even with a huge opportunity pool, if you’re not closing enough deals, you’re still left with a poor revenue situation.

Clearly there are many more variables driving a successful business.  But assuming the business is functioning properly (e.g. good product, trustworthy delivery, well executed…), you can certainly appreciate from a CEO’s perspective how these can be two very key variables.

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