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?
from the CEOs:
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.
a close look at operating capacity.
current capacity based on staff count and average billing rates.
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.
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
a recovery, pull back those who were let go.
there is underutilized time from the team, pitch this to investors to obtain
equity financing for new IP.
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.
at banks which are aggressively expanding in the region. If they are hungry for
new clients they will offer attractive rates.
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.
the level of financing that is needed.
where it would be used and what kind of return the company can yield on the
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?
from the CEOs:
in terms of the referenceability of early customers. As a new company, the first five customers
define the company to future customers.
core values of the company will help clarify how to make early choices.
just go for the easiest closes.
a chart of potential customer prospects:
potential prospects into groups.
is the deal model and key value proposition for each group?
a video and communications package to demonstrate the company’s benefit to each
are trade-offs between the different deals that the company will pursue:
fast deals are most likely to meet immediate cash flow needs.
biggest deals may involve the creation of LLCs. These will involve both more
time and additional legal fees.
sure that early deals align with the company’s core brand.
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
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.
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
Situation: The founding
CEO of a technology company is considering options for the future. The company
is doing well, with two options for future development either within or outside
the company. How do you choose between strategic options?
from the CEOs:
expertise is less important than business experience, P&L experience, and fund-raising
success. A diversified background and successful experience as a CEO are as
important as specialty industry experience.
to pursue all options for the time being. See how the new opportunities mature
before making final choices, and either split time between the options or
assign good managers to oversee each.
agreements should be based on cash investment of the parties – not time and
#1 – Focus on the primary company.
challenge is that most of the Board members just see the numbers, not the
dynamics of day-to-day operations. They don’t know the CEO’s contribution.
that the Board understands the CEO’s contribution and is rewarding the CEO appropriately.
#2 – Focus on New Opportunity #1.
this option more like a product or a company?
this option as a product incubator rather than a single product company –
producing and spinning off a series of ideas for development.
can be done either within the primary company or as an outside effort.
#3 – Focus on New Opportunity #2.
development can be self-funding. Compared with manufacturing, software is
inexpensive to develop and requires little investment to scale and sell once
the code is written.
trick is to rigorously focus on market opportunity while minimizing cost.
staffing commitments. Use scarce resources to lock up irreplaceable
capabilities. Hire or offer equity only for significant contributions such as
IP development. For labor, use consultants, independent contract arrangements,
or look for what can be outsourced.
Option #2 this can be done either within the primary company or as an outside
A CEO struggles to balance time and responsibility commitments to his business
with demands of his family. This is not an uncommon struggle for executives.
The question is: what strategies are effective to address the needs of both.
How do you balance the demands of work and family?
from the CEOs:
Member: It takes a plan to find a solution.
what you want and write a business plan to get there.
relationship do you want with your soul mate? Make this part of the plan.
a conversation and test whether your and your spouse’s long-term visions are
take on additional work – this is good both for family relationships and the
role as CEO.
Member: My spouse and I talk about this a lot – particularly around time.
have agreed on how the week is carved out – family time/work time.
agree to honor each other as we are – not how we want the other to be.
work commitments because – long-term – your spouse and children more important
and more lasting than work.
Member: I’ve lived through the same issues.
probably erred on side of family vs. career. The benefit is that now, I can’t
get enough time to play with my kids. It’s great!
to children is very important during the early years. While infants are not as
capable of communicating as they will be later, the basic emotional and
learning patterns – as well as affection patterns – are created early in life.
It’s like the foundation of a building – not much to look at from the street,
but it allows the whole building to stand.
same mind that developed your business can solve this.
open to solutions.
is uncomfortable, but not bad. The struggle proves that you care.
your spouse as somebody who cares enough about herself so that she thinks she deserves
a class act from her mate. Isn’t this what you want in a mate?
A company is moving from sole focus on servicing a market to a split focus
including developing and marketing their own products. This is a significant
transition for the team. What is the best way to organize this effort? How do
you manage a business transition?
from the CEOs:
the company’s financials are great for their market, cashflow may be
insufficient to fully fund a development company.
development of new products can create conflicts if it creates competition for
resources between internal and external projects.
avoid this, create an independent company or entity – in a separate location.
Seek outside funding whether bank, angel or partner financing. The independent
entity can then buy resources from the primary entity at competitive rates.
years ago, another CEO utilized the strategy just described. The important
that venture is properly resourced.
that there is a balance between proven structure and creative application
best resources available at same rates that key customers pay.
free guidance but not free services – peer reviews are key.
third CEO had an opportunity to open a new business using the spin-off model.
allowed infrastructure sharing – with proper compensation and incentives
both entities were successful.
Properly implemented, this model works.
are four aspects to the challenge.
business plan for the new venture must address all four.
internally (vs. externally) creates natural conflict. Workers will tolerate change
in direction from clients better than they do from insiders.
A founder CEO is faced with two options – either selling his company or buying
a complimentary company. The acquisition would fulfill his dream as CEO, but he
is concerned both about the synergy between the two entities and his ability to
manage the combined company. Should he sell, or buy the other company?
from the CEOs:
Given these concerns approach the
purchase opportunity skeptically. Be more prepared to say no than yes.
In evaluating his ability to run a
larger operation, the CEO should objectively assess his own abilities.
A good CEO is not a Superman. A good CEO
creates a viable business model and vision and hires a good team to bring that
model to reality.
Consider past accomplishments. In an
industry where nobody makes money the CEO has created a business model that is
sustainable, highly profitable, and technically superior. The only thing lacking
is size in terms of revenue.
The new opportunity – on the right terms
– can launch the company from dominance in a niche to dominance in a
significantly larger industry.
Assess the new opportunity both as a
technical and cultural match. If there is a good cultural match:
Fewer things must go right to add value.
The purchase provides a channel to a
The acquisition will rapidly speed company
The biggest concern will be the time to
manage both entities.
The most important factor will be the
chemistry between the two company teams. If the chemistry is good, the
combination offers reasonable assurance that the two teams will complement each
Look at the purchase as an opportunity to
build a win-win with enduring value.
In considering outside investors to
support the acquisition, be cautious about financial partners and the conditions
behind each financing option.
A CEO is concerned that too much of her company’s business is focused on two
few customers. The loss of a single large customer can potentially mean a significant
hit to revenue and profitability. How do you diversify your customer base?
from the CEOs:
If current cash flow is good, the company should consider purchasing diversity by buying a company.
Consider acquiring a supplier that is in good shape, but with lower margins. They will have the infrastructure to run their own operation, and the purchasing company will have the additional profitability to make the combined entity more interesting.
Given the company’s existing cash generation potential, there are creative ways to finance such an acquisition.
Why is this a good strategy?
Purchasing another company can instantly expand the customer base.
Diversifying the company opens additional options to build long-term sustainability.
A purchase strategy can bring in a ready-made and smoothly running infrastructure in the form of the purchased company.
Diversification can boost the value of the combined company on a more diversified business base. It might allow the company to combine low volume, high profit lines with high volume, lower profit lines. There are advantages to each of these business models.
Where can such a company be found?
Look both inside and outside of the current geographic base.
A candidate could be a higher volume but lower profit supplier of one of the company’s current customers that does not compete with the company’s current offering. Alternately, look at companies with more diversified customer bases in a related industry.
Look at the niches that the company’s current customers serve.
What similar niches exist? Are there acquisition candidates there?
Look at the functionality that the company’s products add for its clients. In what other industries would similar functionality be of value?
As these questions are asked, look for candidates that have complementary customer sets, customer bases, and geographical reach.
A company is in discussions with a competitor about a possible merger. The CEO seeks
advice both about how to proceed with these discussions, and how to communicate
the possible merger to staff. How do you merge with a competitor?
from the CEOs:
Until there is a signed binding legal contract everything must be business as usual.
Maintaining this attitude provides more leverage as the negotiation proceeds because the company is prepared for either situation.
If there is a differential in pricing between the company and the competitor, write short term contracts with customers that the company takes from the competitor. This creates the opportunity to revise the contracts and pricing if the merger is completed.
This issue begs the question – why do a deal now versus in 1-2 years? If current strategies are increasing the size of the company relative to the competitor, in another 1-2 years the company will be worth more compared to the competitor and will be in a position to complete a deal on more favorable terms.
At this point, most staff are unaware of the discussions. How is it best to proceed?
Consult an HR expert on when to start communicating, what to communicate and how to phrase the message.
The trigger to initiate top level staff communications will be the signing of a due diligence agreement.
The message to senior management: there is interest but no binding agreement, here’s the deal that’s being discussed. Then just listen to what they have to say.
Communications to staff create an important management challenge. Staff will be concerned about their futures and will want to have assurances that these are secure.
A founding CEO wants to cut back to 1-2 days per week with someone else overseeing
day-to-day operations. Her timeline to accomplish this is 3 years. Currently
she splits her time between engineering and sales support, managing operations,
overseeing the CFO and managing the company. How do you accomplish this
transition? What is your 3-year plan?
from the CEOs:
for and hire a General Manager/engineer who can understand the company’s applications
and develop unique solutions.
for and hire an understudy for the sales person. This could be someone in their
40s who is experienced, and who can act both as the sales person’s back-up and develop
additional accounts to diversify the business.
the company continues to grow it will take more time and effort to manage all
the activities. Plan the company’s organization chart and infrastructure to
account for this.
careful not create an infrastructure during good times that is unsustainable
during down times.
the new GM gains familiarity with the company, this individual will and should start
to take control. This automatically means that the founding CEO will have to
agree to release some of her control. Prepare for this.
several alternatives for the GM:
President – $400K.
with engineering talent – perhaps a consulting or engineering sales background.
Hire at $150-200K and develop into the President.
the 3-year lead time this individual could be a Technical Lead or Project
Engineer. The objective will be to develop a very talented person into the GM
or President. This alternative opens a larger pool of talent, at lower initial
are these people found?
high-quality engineer that another CEO won’t be hiring over the coming months. Talk
to friends and industry contacts.
Situation: A company wants to up its game by focusing on service. They are evaluating different options to provide customized services to gain a sustainable differentiating advantage over their competition. How do you enhance your customer service model?
from the CEOs:
the gaming industry one CEO sees an effective model focusing on higher level customer
service. The top games have allowed user customization using generic
customization tools. This allows the provider of the tool kit to serve a larger
number of users using a single tool kit to provide a wide variety of gaming
example from the gaming industry focuses on middleware developers. These
developers create an interactive knowledge base for customer self-service. The
knowledge base is monitored by the host company, and misleading or potentially
harmful input is excluded. The benefit is that this enlists clients to provide
their input on customer service as well as product development.
CEO sees this as a useful way to drive down customer service costs by providing
more tools and fewer bodies to perform the customer service task. The model’s
objective is for the customer not to need personalized service, but to be able
to develop solutions on their own using a flexible took kit. The host company
gains additional advantage because their user agreement allows them to take the
best models used by clients to spark their own product development.
fourth CEO sees lasting value in developing close relationships with customers.
They have developed tools that allow the customer to solve simple customer
service tasks but require company assistance for the more sophisticated
solutions. The company, in exchange for this added expense, learns from the