at the end of almost every quarter. When sales were significantly
behind budget going into the quarter's final month, key executives
were exhorted to do whatever it took to make the number. We put
sales promotions in place for key customers, offered large distribu-
tors special terms in exchange for large orders and told department
heads to hold off on spending. We were told time and again that if
we didn't make the numbers, the stock price would drop and we'd
be "taken out" (acquired).
Reasonable efforts to meet revenue and profit targets are generally
okay. But I now know that the rules around revenue recognition and
expense management are very complex, and it's not always clear when
you're crossing the line that separates being aggressive from being ille-
gal — especially if, like me, you don't have an accounting or finance
background.
What was most disconcerting in my early days at ArthroCare was
that it felt like making the numbers at times took priority over sound
business strategy. For example, a gentleman who ran a company
that sold and distributed aesthetic spa products approached me at a
cosmetic surgery trade show. He wanted to distribute Coblation con-
trollers and disposable devices to his customers. I didn't think this
was a good idea for many reasons, chief among them being that this
company didn't have a physician on staff (only a physician could use
ArthroCare products). And while we had a device that aestheticians
conceivably could use in a spa setting, it was a prototype that was
still in development. Although I recommended against it, I was
directed to strike a licensing deal with this company — provided
they purchased $150,000 worth of controllers before the end of the
quarter. Should this revenue have been recognized? I don't know.
However, it did turn out to be a bad deal for the company. We were
unable to provide them with reliable product and they eventually
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