R&D, Sales Force, and Margins
Points 3 through 6 — turning growth potential into actual, defensible profit.
The next four points move from "can this company grow" to "can it actually execute and keep the resulting profits." Point 3 asks how effective the company's R&D is relative to its size — not just how much it spends, since large R&D budgets can be poorly directed and small ones can be highly productive.
Point 4 asks whether the company has an above-average sales organization — a genuinely important, frequently underrated point, since even an excellent product doesn't sell itself, and a mediocre sales effort can leave real value on the table that a competitor with a better sales force would capture instead.
Points 5 and 6 turn to profitability itself: does the company have a worthwhile profit margin, and — just as importantly — is it actually doing something to maintain or improve that margin, rather than assuming today's margin is permanent.
These four points share a common thread that's easy to miss on a first read: each one is really asking whether a genuine strength (a good product, a growing market) is actually being converted into a durable financial result, rather than leaking away through poor execution. A company can pass Points 1 and 2 — real growth potential and real ambition — and still fail to compound shareholder value if any one of these four execution checks reveals a leak between the opportunity and the profit that should follow from it.
| Point | What to look for |
|---|---|
| 3. R&D effectiveness | Output relative to spending — productive research, not just a large budget |
| 4. Sales organization | A genuinely above-average ability to convert good products into actual sales |
| 5. Profit margin | A margin worth having — not just any margin, but one that justifies the business |
| 6. Margin trajectory | Active efforts to defend or improve the margin, not passive assumption it holds |
Two companies each spend 8% of revenue on R&D. One has a tight, focused pipeline that regularly produces commercially successful products; the other spreads the same budget across many unfocused projects with a poor track record of actually reaching the market.
Since R&D productivity rarely shows up as a clean, reportable figure, Fisher's practical approach relies heavily on track record and scuttlebutt rather than a single ratio: how many of the company's past research projects actually became successful commercial products, how that success rate compares with competitors' own pipelines, and how industry insiders privately describe the company's research culture — disciplined and commercially focused, or diffuse and academically interesting but commercially unproductive.
The spending percentage alone tells you almost nothing about which company is which — Point 3 is really asking about a track record of actually converting research into revenue, not the size of the budget behind it.
A healthy current margin under active pressure from new competition, with no visible management response, is a weaker position than a currently modest margin that management is actively working to expand — Point 6 is explicitly about the trend and the effort, not just today's snapshot number.
The sales-force point and the margin points are more connected than they might first appear. A genuinely superior sales organization doesn't just move more units — it often supports a stronger price and a stickier customer relationship, which shows up directly in a healthier, more defensible margin over time. Weakness in Point 4 frequently shows up, with a lag, as pressure on Points 5 and 6 — a company forced to compete increasingly on price because its sales organization can't otherwise differentiate the product is quietly trading away future margin for current volume. Reading these four points together, rather than one at a time, is often the only way to notice this kind of slow-moving trade-off before it's fully visible in the reported numbers.
- R&D effectiveness is about output relative to spending, not the size of the budget alone.
- A great product still needs a genuinely capable sales organization to convert it into revenue — this point is easy to underrate.
- A worthwhile margin and active efforts to defend or grow it are two separate checks — a good current margin with no defense against erosion is a real warning sign.
- Margin trajectory, not just the current snapshot, is what these two points are ultimately trying to assess.
- Weakness in the sales organization often shows up later as margin pressure — a company competing increasingly on price is trading away future margin for current volume.