How Do You Create a Roadmap for a New Business? Four Suggestions

Situation: The CEO of a new company is building her business. She has a business plan but is struggling to bring in new clients. How do you create a roadmap for a new business?

Advice from the CEOs:

  • Creating a new business is a numbers game. Draft a 3-year plan that will generate $1M in billings.
    • The bottom line of the plan is bringing in new clients.
    • Create a financial template that is driven by how many clients it takes to reach the financial goal in three years. Fill out the annual numbers including where new prospects will come from and set quarterly and monthly goals and activities to generate those clients.
  • Develop a marketing “hook.” For example, in the case of business services:
    • Fixed cost business tune-up – a low-level retainer with limits on time and services offered (up to x hours work per month or quarter on y projects)
    • Fixed fee in-house service for small business – again with limits on the services offered
    • Additional services beyond the limited services will be at the company’s normal rates, possibly with a discount to those on the basic retainer service.
  • Create a list of desirable new clients – the company’s sweet spot. Next look for people who can connect the company with these clients.
  • How to get to the target client?
    • This is a funnel question. To build the funnel take three sources of clients: referrals, current business contacts, networking. How many contacts are needed from each source to generate 10 new clients per year?
    • Make presentations to groups which may produce clients or referrals.
    • Get to know the local business people who make referrals.
    • Write articles for magazines that these business people read. Be an expert.
    • To save money, use student interns from nearby colleges and universities to do some of the basic work – target client research, researching and writing articles (make then co-authors on the articles – looks great on their resumes!) This is an inexpensive win-win for both the company and the intern.

Can Social Marketing Leverage Your Competitive Position? Six Points

Situation: A company seeks to leverage the difference between information from traditional media and the richer information available through social media. Their objective, using publicly available information, is to identify individuals’ specific plans or preferences to better target their clients’ marketing dollars. Can social marketing leverage your competitive position?

Advice from the CEOs:

  • The principal value proposition is the ability to mine publicly available information from consumers through social media and make it useful to advertisers who want to reach those customers.
  • If the company’s technology allows access to shared data which can be used by many companies this is less expensive than clients’ trying to go it alone.
  • The most important differentiation will be the timeliness of data. Many firms collect data after the fact – for example after a key purchase is made. What advertisers desire is the ability to anticipate purchases. An example is a consumer’s plan to buy a house. This information is valuable to many companies. If data is mineable, it is valuable.
  • The essential question is how the client will make more money from data being near-real time. If the client can use the company’s data to enhance their marketing database, this adds value.
  • Consider partnering with the agencies that B2B and B2C companies hire to advertise their products. Even the largest consumer B2B and B2C companies work with outside ad agencies because these companies have better access to targeted customer lists than the companies.
  • Consider a subscription model, offering access to unique, current data to many customers. The differentiating value is the currency and timeliness of the data. A subscription model generates an ongoing revenue stream.

How Do You Train New Employees? Five Suggestions

Situation: A young company is in the process of hiring new employees. Good customer service, including excellent communication skills and empathy are the most important qualifications. Good follow-up skills are more important than educational background. How do you train new employees?

Advice from the CEOs:

  • Training new employees may be putting the cart before the horse. The first task is to solidify the company’s business model. The next task is to determine what roles and positions fill that model. Only then can the company determine how best to train employees.
  • Build an organizational chart for a $1 million company.
    • Who will the company serve?
    • What are the positions and roles?
    • This is future that the company will be building and determines how to select and train people to fill the positions.
    • Suggested Reading: The eMyth Revisited by Michael Gerber – a guide to envisioning the future of the company and how to build it.
  • A word of caution. As CEO, you don’t want to be training people like yourself. This is both difficult and risky. You may be training future competition. 
    • As an alternative, think of a series of distinct roles or functions that make up the business, then select and train different individuals to handle each role. It’s difficult to find people who can do it all. It’s much easier to find people who can bring in new clients, establish and nurture relationships with partners, network to develop a referral base, or counsel new clients on alternative solutions to fit their needs.
    • Organizing this way means training and creating experts in segments of the business, but nobody knows the full business the way that the CEO does.
  • Each position within the company will need individualized objectives and performance evaluation criteria. What are the key metrics for each position? This helps to build efficiency.
  • Think about both one-time and recurring income models. This may call for different employees or at least a different sales activity to build each business segment.

How Do You Maintain a Robust Pipeline? Five Suggestions

Situation: A CEO is concerned that her company does not have enough new prospects or business on the horizon. New business opportunities appear sporadically but not predictably. She asks how others schedule their time and effort to bring in new clients. How do you maintain a robust pipeline?

Advice from the CEOs:

  • Devote a regular amount of time to business and relationship development. Even when business is busy it is important to have the discipline to devote 4 to 6 hours per week to new business development. Schedule this time and fill it with activity. Occasional networking doesn’t work.
  • What differentiates a company is its brand. If new business comes from referrals, turbo-charge this by becoming the information hub for the referral group. Make it easy for others to make referrals.
  • There is a hierarchy of things to do.
    • Stay on potential referrers’ radar screens – monthly or quarterly awareness marketing to referral sources.
    • Spread awareness of best practices in areas where the company has expertise.
    • Make best practices relevant with situational stories.
  • Think in terms of a target.
    • Where do most referrals come from? This is the center of the bull’s eye
    • 2nd Ring – 2nd level of referrals
    • 3rd Ring – 3rd level of referrals
    • Network more with contacts at the center of the target – they know clients in need of help.
  • There is a lot of information in the cloud that is relevant to the business – personnel moves, hiring, firing, etc. If you it is possible to track this, it can help.
    • LinkedIn can help. Look for 1st and 2nd degree links to individuals of interest. For example, you want to meet a CEO who on LinkedIn is a 2nd degree link. Request a warm introduction from a 1st degree link between you and the CEO.
    • Think of LinkedIn in terms of rifle shots, not a shotgun approach. This makes it both more manageable and more valuable.

How Do You Respond to a Purchase Offer? Five Thoughts

Situation: A company has been approached by a larger company that is interested in purchasing it. The purchaser wants to fill a niche that they don’t currently serve, but which is important to their growth. The CEO is concerned about what will happen to employees following sale of the company. How do you respond to a purchase offer?

Advice from the CEOs:

  • Questions for Preliminary Stage Research:
    • What valuation is the tipping point for an attractive offer by the buyer?
    • Determine the nature of the purchaser’s interest in the company and how it fits into their broader strategic picture. If their plan will dramatically change the market the company’s current market value may go down later relative to doing a deal with them today.
    • If the acquirer has a history of buying other companies, look at who they’ve recently bought, what they paid, and what kind of impact they had on the staff and culture of the companies purchased.
    • Check out the purchaser’s P/E ratio. If it is in the range the company’s desired multiple on EBITDA, a good deal is possible.
  • Temper the company’s response and approach to get the most from this experience.
    • Currently, assumptions about the acquirer make the offer appear unappealing. Ask questions to validate or challenge these assumptions.
    • Be open-minded so that the purchaser reveals more about themselves and the market than they would if they sensed a lack of interest in an acquisition.
  • How does the company protect itself during the inquiry and due diligence process?
    • Keep staff numbers and individuals, and customer lists close to the chest.
    • Have an LOI and ask for a breakaway clause before sharing significant information. 
      • Breakaway clause: if the two companies get into discussions and the potential acquirer decides to abandon the discussions, it will cost them $1M.
      • The potential acquirer may not agree to this, but it demonstrates that the company is serious both about the discussions and about preserving the confidentiality of its business information.
  • More Advanced Stage Questions and Research:
    • This looks like a strategic interest. If so:
      • Get assistance from an investment banker.
      • Look at what other alternatives may be available to the acquirer to assess the company’s potential value.
      • Any offer other than a high-multiple strategic valuation and offer should not be of interest to the company.
    • What restrictions will the acquirer put on the company? 
      • For example, if there is an earn-out value, will they give the company the freedom to operate to maximize this value?
    • Be careful with employee communications and how employees are informed of an outside interest. This can be difficult during due diligence.
    • If the founder remains with the company post-sale this could help lock in the value of the exit and assure the employees’ future.
  • Make the most of this opportunity.
    • Are there ways that the company can become better and smarter working with the acquirer?
    • Is there a relationship short of acquisition than would benefit the company like a collaboration or partnership?
    • Can a relationship short of sale enhance the company’s market presence and help the company to achieve national status more quickly?

How Do You Fund an Early Stage Venture? Four Suggestions

Situation: An early stage venture which focuses on a humanitarian mission needs funding. The founder is more interested in providing a peer-driven platform and service than in producing profits. She envisions most of the funding coming from donations rather than investors, at least near term.  How do you fund an early stage venture?

Advice from the CEOs:

  • Given that the venture is focused on building a peer-driven software platform, it is possible that it may be of significant value if the venture was to be sold for its technology or audience. Facebook and similar platforms could have a distinct interest as the venture attracts a significant audience. Is this a potential conflict with the original vision? The answer to this question will impact funding choices going forward.
  • There are several resources available to assist in fund raising:
    • Look for local groups that assist with fund raising.
    • The Foundation Center (www.foundationcenter.org) specializes in helping organizations to secure funding for non-profit ventures from foundations. They have online facilities as well as locations in New York, Boston, San Francisco and other major cities. They also provide training in raising funds from foundations.
  • Us the founder’s network to find people with an interest and contacts in fundraising.
  • Connect with local churches and synagogues which also excel in fund raising. The congregations may be smaller than the mega-churches, but the members are often very connected. Because of the humanitarian nature of the new venture, churches and synagogues may be natural partners.

How Do You Manage Conflicting Demands from a Client? Three Points

Situation: A CEO is struggling to manage conflicting demands from a key foreign client. The client frequently changes targets and priorities; however, the performance contract with the client does not allow variations from plan. In addition, the CEO and client have different expectations concerning ROI. How do you manage conflicting demands from a client?

Advice from the CEOs:

  • Recruit or access expertise from an individual who knows both cultures to coach you on intercultural communications. This will help you to avoid inadvertent miscommunications where your well-intended queries are negatively interpreted by the other party.
    • Cultural interpretation is an increasingly important factor for multi-national business growth.
  • Are there elements of the client’s structure and the agreement with the client that offer significant benefit, but which are underappreciated by company staff?
    • Access to capital?
    • Access to funding or allowance on expenditures that allow the company to increase staff to meet company demands?
    • Assure that staff are aware of these benefits and how critical these can be to the company’s, and their future growth and income.
  • Meet with the client’s leadership to outline the conflicts that the company faces meeting the client’s needs and demands. Explain to them how these conflicts are compromising the company’s ability to meet their needs. Once the conflicts in priorities are clearly expressed this may help the client to understand and resolve the conflicting demands.
    • This may involve a considerable personal risk and cost to the CEO. However, if the effort is successful it will, in the long-term, benefit both companies.

Which is More Important – Cash Flow or Value Creation? Six Thoughts

Situation: A family-owned company has built a sustainable and modestly profitable business. They have built high quality, referenceable collaborations. The CEO is ambitious and wants to become a world-class company. They now seek limited partners as investors to grow the company. Which is more important – cash flow or value creation?

Advice from the CEOs:

  • Both cash flow and value creation are important. There are several sub-questions to the question:
    • First, what is the fundamental business model?
    • Second, the CEO is the company’s charismatic leader. How best to follow his energy?
    • Finally, and most fundamentally, does the current business model make sense? Can it be simplified it to improve its scalability?
  • Currently there are three divisions, each with a different objective.
    • Operations – to be sustainable.
    • Services – low profit and low percentage of company revenue but also low overhead.
    • Investment – to achieve an acceptable rate of return.
  • How does the company get the best valuation?
    • Currently, the company is organized as a conglomerate.
    • Conglomerates are too diffuse and difficult to optimize to attract investors. Pure plays do better. Consider refocusing the company around its key strengths.
  • The family business model is fine. The question for the family – how does the CEO keep and attract the key staff like that makes this business work? Salary alone doesn’t do it. What are the future rewards for key personnel? Consider deal participation to incentivize key employees.
  • The investment and operations divisions are different companies – this is fine. Optimize both.
  • To attract the best LPs, the business model should evolve from a family to corporate model. This will make more sense to investors and improve their ability to participate in future growth and profits.

Where Do You Find Sources of Capital or Savings? Seven Suggestions

Situation: A CEO closely watches company cash flow so assure that it is enough to fund the company during both upswings and downturns. The company is doing well, but the CEO is concerned about a near-term potential downturn. Where so you find sources of capital or savings?

Advice from the CEOs:

  • In anticipating future cash flow needs, planning to breakeven may not be enough. Anticipate contingencies and cut enough to be profitable. This is particularly true if a downturn is longer than anticipated.
  • Take a close look at operating capacity.
    • Estimate current capacity based on staff count and average billing rates.
    • Forecast best – worst case scenarios given market trends. Compare each against current capacity and evaluate the gaps. This will help set staffing levels to assure that the company is not overcommitted in case of a downturn.
  • Discount future cash flow for non-payables based on experience. This may indicate the need to cut expenses deeper to assure that the company survives an extended downturn.
    • In a recovery, pull back those who were let go.
  • If there is underutilized time from the team, pitch this to investors to obtain equity financing for new IP.
  • Consider selling a key customer on a royalty model. This can be a small royalty – maybe 1-2% of products sold based on the company’s contribution.  This is pure profit to the company, and provides an annuity revenue stream, even if small.
  • Look at banks which are aggressively expanding in the region. If they are hungry for new clients they will offer attractive rates.
  • Companies are better sources of funding than investors. A good client can become a strategic partner. Do some homework before first before making the call to a key contact.
    • Know the level of financing that is needed.
    • Know where it would be used and what kind of return the company can yield on the investment.

How Do You Generate Near-Term Revenue? Seven Suggestions

Situation: A young company that focuses on personalized solutions needs to generate near-term revenue to meet expenses. There are also options for debt or equity financing, but the terms for each will equally depend on near-term revenue potential. How do you generate near-term revenue?

Advice from the CEOs:

  • Think in terms of the referenceability of early customers.  As a new company, the first five customers define the company to future customers.
    • The core values of the company will help clarify how to make early choices.
    • Don’t just go for the easiest closes.
  • Create a chart of potential customer prospects:
    • Segment potential prospects into groups.
    • What is the deal model and key value proposition for each group?
    • Create a video and communications package to demonstrate the company’s benefit to each group.
  • There are trade-offs between the different deals that the company will pursue:
    • Small fast deals are most likely to meet immediate cash flow needs.
    • The biggest deals may involve the creation of LLCs. These will involve both more time and additional legal fees.
  • Make sure that early deals align with the company’s core brand.
  • Consider outsourcing to speed the provision of services to early clients. Build this cost into your billings. Assure that the funds from early deals flow to or through the company. This will improve the financial story to additional clients.
  • Consider serving special interest groups. Their potential value is that they work for their passion more than for money. If the company chooses to work with one or more of these groups, assure that customer selection aligns with company values.
  • The current focus for near-term monetization is on merchandizing. As an alternative, consider charging a separate fee for the use of company IP. This may give clients additional incentive to utilize company technology to monetize their investment.