From the December 2016 issue of HealthCare Business News magazine

If you have the ability to execute subscription agreements, they really pay better recurring dividends in the long-run. The other big financial performance indicator is gross margin. Everyone loves to focus on EBITDA and revenue, but gross margin is one of the single most important metrics in evaluating a company’s health. If you can grow your company from a topline perspective, but the costs that are required to deliver that revenue are basically equivalent to the revenue itself, you’re not really adding any value. Better is a model where each dollar of incremental revenue can be delivered proportionately for less cost.

If a company is getting into the 70-80 percent gross margin range on software products, the ongoing subscriptions are heavily weighted toward a profitable revenue stream. That’s really where you see the biggest exit opportunities. So gross margin is absolutely critical to focus on, especially when companies are sub-scale and have not yet reached mature EBITDA margin potential.


Alongside that comes customer retention. Related to best of breed perception, retention rate is one of the single most important metrics for determining a company’s health. In the instance of an exit scenario, it’s much easier for buyers to take an existing brand that has a verifiable customer base and upsell it into their existing customer base, as opposed to presenting a product that has no brand awareness in the market.

The last point under financial performance is demonstrable return on investment. This is a metric that unfortunately is often overlooked by early-stage health care entrepreneurs. All too often companies say they don’t worry about return on investment because the market already understands the need for their product, but there is a great deal of noise, especially in the health care technology market, and making this assumption is a mistake.

No matter how mature a market is, you always need to be able to articulate how someone can get the value back from what they’re paying. It may be worth approaching some of your key customers and offering some discount in exchange for the ability to truly measure the impact of your technology, particularly in health care, where validation may come over many months or years, as well as authorization to take credit for it. Then put out a press release and shout it from the rooftops. Not only will this help drive future sales, but will significantly enhance the future exit value.

Pillar six: Management team

December 2016 Magazine

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