How Do You Manage a Reorganization? Five Ideas

Situation: A company is preparing for a reorganization. The CEO plans to hire a new manager to in time become General Manager of the company. He also wants to terminate two current employees. How do you manage a reorganization?

Advice from the CEOs:

  • Develop a 90-day integration plan for the new manager, including his/her top 3 to 5 objectives, and have the individual develop and execute the plan to achieve these objectives.
  • Use an early project to schedule working sessions with each department in the company during the new manager’s first week. This will help the new manager and current employees learn to work together and develop trust in each other.
  • In addition to providing broad objectives for the new manager’s first 90 days, clearly establish behaviors and outcomes that are unacceptable.
  • One of the employees to be terminated is a long-term employee who reports to the CEO but has not performed to expectations. The CEO should take the lead in terminating this person, and offer them a suitable severance package.
  • A junior employee who is not performing to expectations reports to a supervisor. However, the junior employee has repeatedly tried to work around his supervisor by approaching others in the company with his suggestions and complaints.

o    First, make it clear to everyone that the employee’s behavior is not acceptable and that he has to work through and with his supervisor.

o    Then let the supervisor determine whether or not to eliminate the employee, and support the supervisor’s decision. This includes offering a suitable severance package should the supervisor decide on termination.

How Do You Work with an International BD Person? Seven Ideas

Situation: A company has been approached by an international business development specialist who wants to help them expand into Asian markets. The company would need to hire local resources to support business that was generated. Most of this would be cookie cutter as opposed to creative work. How do you work with an international business development person?

Advice from the CEOs:

  • Research the country markets where the specialist can help you and focus on the more developed and promising markets first.
  • If the specialist that has approached you has a local presence in the markets in which you are interested, lean on this person for help getting you started – office space, staff support, and so on.
  • One company started a subsidiary in Canada. The CEO believes that you must have a highly trusted person to own the project. Success is all about the relationship with this individual and their knowledge of both local and American culture.
  • Another company hired very promising business development person for a large Asian market. As the relationship progressed, they found that this individual was double dipping – working for them and their competition at the same time. Apparently this is acceptable in that culture.
  • Many cultures are relationship based. Local contracts are critical. Does your specialist possess these, and are they premier companies or also-rans.
  • Talk to individuals in your industry who have experience in the region.
  • Have your eyes open and recognize that this is will not be a quick process.

How Do You Replace a Sales Manager? Four Suggestions

Situation: A company’s Sales Manager is likely to retire in the next two years, but has no strict timeline. This individual is the chief rain-maker and has been for many years. The subject of replacing this individual has been sensitive when mentioned in the past. How do you replace a Sales Manager and how do you manage the transition?

Advice from the CEOs:

  • Have a frank conversation with the current Sales Manager. For the company to thrive it is necessary to start selecting and training an individual to take his place when he retires. Have him help develop the recruitment and transition plan. Also involve your Customer Service Manager.

o    Hire a person like the current Sales Manager and allow for up to two years for the new individual to get up to speed.

o    Find someone who is currently associated with one of your key customers and who has contacts.

o    Adjust your compensation scheme to focus on growth and customer diversification with enhanced commissions for bringing in these accounts.

  • To ease the transition, start to build a different customer relations structure – one where the CEO has more engagement with key customers.
  • An alternative to replacing the Sales Manager is to create a different organizational structure. For example, hire a COO who will eventually take over business development as well. Think longer term about to how you want the management structure to grow. Build your future vision of the company into this process.
  • You can’t wait – start now!

How Do You Emerge from the Recession Stronger? Five Actions

Situation: A company is encouraged by signs of a strengthening economy. They want to encourage their staff to prepare for growth and new opportunities. The CEO is curious about what other companies are doing to prepare their staff so that they emerge from the recession stronger than they were in 2008. How do you emerge from the recession stronger than you were before it began?

Advice from the CEOs:

  • One company is organizing company meetings at each site to outline their high level plans so that all managers know the plan and vision:

o    General company direction

o    Market and opportunity

o    The plan – where they are, what they’re going to do by when

  • Another company conducts a general employee meeting every two months. At the last meeting:

o    They cancelled the 20th day off without pay – and celebrated!

o    They compared revenue growth now versus last year, focusing on the positive upside and company’s potential.

o    They explained why they are now recruiting, and reinforced their business model.

o    They had kept up marketing and sales during recession and these are now paying off.

  • Another is reinforcing the belief that they will stay lean and mean.
  • Another is Increasing update communication frequency and assuring that managers are updating their teams. This maintains the soft reasons for people to stay onboard, and to stay excited.
  • What not to do: do NOT allow cuts that were made to survive destroy the long-term workable business model.

Should You Use Project-Based Accounting? Five Thoughts

Situation: A company has been using the accrual method of accounting. As they approach the fourth quarter of the year, they are looking at project-based accounting to reduce year-end cash reserves and taxable income. How do you create and manage a project-based accounting system?

Advice from the CEOs:

  • The PeopleSoft Division of Oracle offers a project-based accounting package. There are a several issues that accompany a shift to project-based accounting: do employees work on more than one project, how do you plan to account for shared services such as administration and Human Resources, and do you plan to share revenue and costs across projects? These can entail a fundamental change in how the company is organized and behaves. If your primary motive is tax avoidance rather than organizational change, why would you pursue this level of change in the organization?
  • Looking at hundreds of companies with which the CEOs in the group have worked, nobody has seen any that utilize project-based accounting.
  • The company’s objective is to better understand the various projects that the company manages, and to have revenue travel with cost. A far simpler option from an accounting standpoint is to look for ways to pre-pay future expenses and thus reduce year-end cash reserves.
  • Another option is a hybrid between cash and accrual accounting.
  • If you have a strategic reason to pursue project-based accounting, look at firms that serve the construction and entertainment industries. These industries have similar challenges to those faced by the company.

Do You Give Equity to Board Members? Four Considerations

Situation: An early-stage company has a key advisor who is helping them to build a 3-5 year vision and plan. The company can’t afford to pay the advisor full-time but he’s interested in working one day a week or becoming a Board member. Should they give him equity as a Board member and under what conditions?

Advice from the CEOs:

  • Adding Board members increases complexity, especially when it comes to big decisions. Once an early stage company transitions from their start-up Board to a more formal Board with non-founder members, particularly when a significant number of the new members have strong corporate experience, the Board will take on a certain level of independence in corporate and compensation decisions. Be aware of this, as a larger more independent Board may make decisions that the founders would not make.
  • It is not irregular for Board Members to receive equity or options. If you want to grant options, you must undertake an initial company valuation exercise, followed by annual valuations. It is common to grant options with 4 year vesting on a monthly basis. Vested shares can be purchased at Day 0 price, with some period to exercise options following departure from company.
  • Seek an expert in Board operation and compensation. There are a number of advisors with deep experience in this area who can advise the company on standard practices for Board operation and compensation.
  • If the company decides that they are not yet ready for an expanded Board of Directors, another alternative is a Board of Advisors.

How Do You Attract a High Powered Individual? Three Thoughts

Situation: An early-stage company is in discussions with a high-powered individual who could invest, join their Board, or help them more directly as an executive. They want to involve him enough so that he is interested in working with them. How do you attract a high powered individual?

Advice from the CEOs:

  • You are still in fact finding mode. Get an NDA ASAP! Backdate the NDA to your first conversations.

o    This individual needs to meet face to face with your current team. See how the dynamics work; be very sensitive to conflicts and jealousies. These can wreck an early stage company.

o    You need to see how the new individual interacts with your current team to check chemistry before you go too far.

o    Be gingerly with your co-founders about adding another “founder.”

  • Create a high level straw man for this person’s roles and responsibilities.

o    Ask the individual what he sees as the potential for the company and how he foresees being able to contribute.

o    Develop a business plan for this individual – with the appropriate title. Spell out roles and expectations.

  • If you offer an equity position, be sure that shares are on a vesting schedule and that you have a shareholder’s agreement.

o    Be creative in your vesting. Rather than vesting on time, consider vesting on individual and company performance against milestones. If the company doesn’t hit the milestones what is the value of the shares? Make the milestones consistent with the individual’s objectives – bringing dollars into the company based on investment or revenue hurdles.

o    If this individual wants to come in as a “founder” insist on some investment to demonstrate commitment – you and your co-founders have funded the company to date.

How Do You Develop Products with a Foreign Firm? Five Ideas

Situation: A company has been approached by a foreign company that is interested in their expertise. The foreign firm says that they are only interested in their own domestic market, and want the company’s help developing new products for their existing domestic clients. How do you develop products with a foreign firm?

Advice from the CEOs:

  • There is great variability between companies in different locales and on different continents. Before proceeding with negotiations, get references from the company and check them carefully. Research the company and its local market.
  • Relationship will be critical. You want to meet with their CEO. This is an important factor working with any company. Watch the commitment level of the CEO and top staff. Take an expert with you – someone knowledgeable about local mannerisms who can read the body language in meetings. Position this individual as someone who is assisting you in the negotiation.
  • If you proceed with negotiations toward an agreement, make your enforcement jurisdiction either the US or a neutral country with a western judicial system. For example, if the company is Chinese, make the enforcement jurisdiction either Hong Kong or Macao.
  • Will intellectual property be a factor? If so, get an IP attorney knowledgeable about both the market of the other company as well as your preferred enforcement jurisdiction.
  • Could this help you to augment or fund your own development? If so, ask for rights to produce and distribute products developed through the collaboration in the US and other markets outside of partner’s domestic market.

How Do You Handle a Side Project? Two Considerations

Situation: An early principal of a company has done a lot of work on a product that no longer fits the company’s business strategy and focus. The CEO wants to reward this individual for past work. An arrangement could include equity plus a big chunk of whatever this individual can make marketing the product that he created. What is the best way to handle this side project?

Advice from the CEOs:

  • There may be benefits to working with this individual as proposed. Letting the individual play in his own sub-market gives you an additional customer and may lead to interesting but yet unknown opportunities. Take care that this does not impact critical timelines for the company’s principal strategy.
  • A set of guidelines for this arrangement may include:

o    No grant of additional stock in the company – the opportunity to pursue the project should be sufficient incentive.

o    Keep this side project as company property.

o    Give the individual a sizable chunk of any revenue that he can gain from the product.

o    Task the individual to manage and solve technical challenges so that this does not impact company priorities.

o    Retain control of timelines and quality sign-off so that this project does not conflict with your higher priorities.

o    Give the individual sufficient support so that he is more likely to succeed.

  • Are there concerns regarding brand risk?

o    Draft an agreement to allow this project to operate cleanly and treat the principal an early small customer. Define the requirements of the project, release timelines, and branding options so that they do not interfere with the company’s larger goals.

How Do You Respond to a Breach in Policy? Five Suggestions

Situation: A company recently terminated their lowest performing sales representative. Prior to surrendering the company computer, the employee sent a goodbye email blast to the company and customer email lists. This action was a breach of company confidentiality policy. How do you respond to a breach in company policy?

Advice from the CEOs:

  • Have the human resources manager send out a company-wide message specifying how this misconduct violated company policy and the potential impact on the company. In the same message, re-emphasize company confidentiality policy and the importance of complying with policy. Follow-up with conversations between managers and employees about the importance of company confidentiality.
  • Consider having all employees sign a new company confidentiality agreement every 6 months. This should be accompanied by explanations of company policy and conversations to reinforce the importance of complying with policy.
  • As a follow-up to this situation, be proactive by informing affected clients that this individual has left the company and let clients know who their new sales representative is.
  • Be aware in your internal communications that this action may have been an honest mistake, not intended to harm the company. If this is the case and your internal response is too strong, this may have a negative impact on other employees.
  • If the individual goes to work for a competitor, send the new employer a copy of the termination agreement signed by the employee and put them on notice that you will prosecute any violations of prior confidentiality agreements.