What Impact Will Rising Interest Rates Have on Business?

Situation: A CEO notes that the national debt has nearly doubled over the last 8 years and the Fed is talking about raising interest rates. It’s not clear what impact the debt, or rising interest rates will have. Has this impacted your business and how are you coping? What impact will rising interest rates have on business?

Advice from the CEOs:

  • Impact on business and customers.
    • The prospect of either rising interest rates or taxes increases uncertainty – customers are taking longer to make purchase, expansion and other decisions.
    • Companies are not spending the cash that they have out of concern over possible future expenses or the possibility of a downturn. Large companies have trillions of dollars of cash on hand. Some of this is held off-shore because of the tax consequences of repatriating the funds.
    • Lack of consumer demand holds back investment in production expansion.
    • Feeling of loss of control.
    • More concentration of wealth in fewer hands.
  • Other impacts
    • More people, old and young, are opting out of the business economy.
  • What are you doing to cope?
    • More involved in collections to keep this under control.
    • Delayed payments from big customers are part of the problem – conservative financial management.
    • Manage liquidity and cash – cash is king!
    • Adjust lifestyle and delay purchases – for example buy smaller cars.
    • Scrutinize contract terms – especially AR.
    • Scrutinize our business model. For example look at subscription models or Great Game of Business models.
    • Utilize those who are normally unemployable but trainable for repetitive task jobs. They work hard and produce good work.

How Do You Test a New Service Delivery Model? Seven Thoughts

Situation: A company targets mid-sized clients with pricing that is similar to its competitors. They believe that their principal differentiation is their relationship with their clients. The problem is that this is also what all of their competitors claim. They are considering testing a new pricing concept – a monthly fixed fee that will provide a pre-negotiated set of services at a favorable discount, with a weekly presence in their clients’ offices. How to you test a new service delivery model?

Advice from the CEOs:

  • This looks like an appealing concept. With this arrangement there is no clock ticking and the client may view your various services as a more open menu of options available to them.
  • Another company has a similar relationship with their CPA firm and have both enjoyed this and are using more services from this firm.
  • Just a regular presence in the office is worth the retainer.
  • Another appeal is that this allows regular participation in management and Board meetings.
  • Another CEO offers a similar program for her professional service company’s clients and have found it successful.
  • Since there appears to be strong support for this model within the group, what is the best way to implement this new offer?
    • Negotiate an initial monthly rate for a set level of services as a retainer without a clock.
    • Agree to a periodic review and adjustment of services and pricing – perhaps quarterly – based on the time and services that have been provided during the preceding period.
  • How do you sell this program to those within your own company who are skeptical?
    • Try the program with three clients on a limited trial basis and measure it.

How Do You Boost Morale in a Branch Office? Five Solutions

Situation:  A company started a new branch office last year. This office started with three people and has remained at that level with some turnover. Morale is low because the branch office team doesn’t feel supported by the home office. The CEO is concerned that this could kill the branch office if it is not fixed.  How do you boost morale in a branch office?

Advice from the CEOs:

  • The problem is most likely the home office, as they assert. There have been few visits from home office personnel – particularly the company president. In addition, they are being criticized in weekly reviews for not hitting the same metrics as the company’s established operations.
  • Remediate this situation by scheduling weekly executive visits and monthly visits by the president until things are up and running and there is a track record of profitability.
  • Clarify your expectations to everyone – this is a new office running to different metrics until they establish themselves. Once they are established, they will run to the same metrics as everyone else. Coach the heads of other divisions that the new office needs support, not criticism, until they establish themselves.
  • Allow the branch office to bid low for market share until they are established in their new location for a period – at least 6-12 months. Create a different set of metrics for a start-up office, and review these during weekly sales meetings.
  • The role of management is to show the colors in the new location and manage peer feedback from established locations. Help them win! Establish start-up metrics like lunches with potential clients to establish relationships. Since the branch office is generating business for other locations, create separate general performance metrics from territory specific metrics for this office and show both in staff meetings.

How Do You Create Management Alignment? Five Suggestions

Situation:  Top managers of a company are all very experienced.  All want to drive the company – but each in their own way. Overall objectives are not significantly different but the path forward varies considerably among the managers. Is this situation common? Should the CEO be doing things differently? How do you create management alignment?

Advice from the CEOs:

  • Strong differences among strong leaders are common. This is not necessarily a cause for concern or a problem. Rather, it means that you have a lot of options to help address opportunities or solve issues.
  • When you hire bright, talented people with good ideas, there will always be differences of opinion. This is healthy. You need this, particularly when sailing uncharted waters.
  • As CEO, sometimes you need a strong critic on your team to moderate your inclinations. Just because you are CEO doesn’t mean that you always have the answer. Rather, allowing the answer to come from the team strengthens the team as well as commitment to execution.
  • How do you leverage the strengths of this team to create the best future for your company?
    • First, assure that the broad roadmap is clear and that everyone agrees on this.
    • When addressing a choice, opportunity or challenge lay out the situation in broad terms. Allow all of the managers their say, and facilitate the discussion to identify commonalities and differences. Confirm the commonalities, and dig into the differences to understand the perspectives of each. Digging into differences can identify roadblocks as well as alternative options. Keep the discussion open instead of trying to drive toward a single, quick solution.
    • Summarize the options presented. If there are multiple alternatives, do a ranking exercise to see if one rises to the top. Be sure to credit the managers for their ideas and creative input.
    • In each situation there is a final decision maker. All must respect that after you’ve listened there will be a decision and that decision will be executed. Allow them to execute and focus on results.
  • Be consistent and always be who you are.

How Do You Create a Bias for Action? Five Recommendations

Situation:  Much of a company’s work is non-standard. Each customer’s solution is individualized. Finding the best solution in each case frequently requires a stretch. The CEO’s approach is to simplify the problem to its essential components and from this develop a unique solution. However, several of the staff responsible for developing solutions shy from this approach when confronted with a new challenge. How do you create a bias for action?

Advice from the CEOs:

  • Company culture is defined by the CEO. In this case you wish to establish a culture of innovation. This might be defined by the phrase “we don’t do simple things.” This means that you need innovators or creative people in the problem solving positions.
  • Consider breaking the roles apart. You need experienced and balanced but creative people to develop the unique solutions. People like yourself. On the other hand, you need methodical, reliable people to put the solutions into effect. These two roles usually require teams of different personalities. They don’t conflict, but are different.
  • Look at Landmark Worldwide as a resource for your staff. Landmark specializes in teaching people to expand their horizons. This doesn’t mean changing who they are, but facilitating their ability to team with others with different but complimentary talents to achieve original and effective results.
  • To help the team understand what you want to accomplish, bring in an organizational development consultant to help communicate your vision and assist with culture transformation.
  • It is important to recognize that these individuals are likely as uncomfortable with this situation as you are. This realization helps to craft a win-win solution that will strengthen the company.

How Much Do You Share with a Potential Acquirer? Nine Points

Situation: A company has been approached by a larger company that may be interested in acquiring them. The prospective acquirer is a current customer. Absent an extraordinary offer, the company isn’t interested in selling. Nevertheless, a conversation could be valuable. How much information about the company should the CEO share now? How much do you share with a potential acquirer?

Advice from the CEOs:

  • The key term here is potential. At this point, there is no commitment, and you really don’t know the other company’s motivation. As you start this process, don’t share confidential details about your plans or prospects, or your pipeline. Just broad information. If things get serious, slowly open the kimono.
  • Make sure that you have an NDA in place covering anything that they ask you to disclose for this possible transaction.
  • Given your current situation, a standard offer probably won’t be appealing, so be open to a creative option.
    • Decide ahead of time what your price is. If they are in the ball park, keep talking.
    • For example, Say you want $XX. Would you be attracted to 50% of that now, 50% later? Under what terms?
  • Put a low valve on future payouts, particularly if you are not in a position to call the shots.
  • Be open and creative. You never know what can happen. You could sell to them now at the right price. Then, if the acquisition doesn’t work out, buy the company back in 2-3 years at a discount!
  • If you get into higher level negotiations, employee retention will be critical. Make provision for this as part of the deal.
  • Hire a disinterested professional negotiator you who you can trust.
  • If things get serious, bring in an investment broker to assist. It will cost you 5% but they are helpful in the negotiation and could bring in competing suitors to up the ante.

How Do You Deal with Management Infighting? Five Points

Situation: A company has two key managers who battle constantly. Recently these battles have escalated. Both people are valuable, but this has become a significant distraction. What’s the best way to handle this situation? How do you deal with management infighting?

Advice from the CEOs:

  • Talk to the two people individually. Acknowledge company awareness of the situation and ask what’s going on.
    • Listen – make sure you understand what’s going on.
    • After you listen, coach. The message: I need you to step up. The company counts on you.
  • Both parties must feel empowered by the conversation.
    • Focus on behavior only, not the person.
    • Make sure that each feels validated but with clear direction to change behavior.
      • Acknowledge each individual’s value. Point out the problem, but make it clear that nobody is indispensable.
      • At the same time, be firm as to what is expected of individual behavior as well as individual performance. Set the expectation: either you act in a way which does not harm the company environment, or I will take your notice in 30 days.
      • If either individual can’t agree to this, then that individual is the problem.
    • Revert to guiding principles and values of the company. Raise the conversation to a higher level.
    • Establish what the individual wants from the company. Are their needs currently being met? What can be changed to better meet their needs?
    • An important end point of the conversation – because both are key players – is for each of them to value the other.
    • If, after providing time for the two to resolve their difference, they still can’t make peace with each other, you may have to make a hard decision.
  • Be careful – it may be necessary to take a different approach with each individual.
  • It may turn out that one individual is the instigator and the other is simply reacting to the first’s provocation. In this case, get a 3rd party to coach each of them.
  • Another company recently had this same problem.
    • The CEO sat each person down – talked about impact, big picture and what this does to their image in company.
    • This worked!

How Do You Manage Cash Flow Gaps? Nine Suggestions

Situation: A company has a significant monthly payroll, and business is growing. Accounts payable collections are 90-120 days. Their challenge is to finance the gap. They have tried, but can’t get their bank to provide financing. An SBA loan will help. How do you manage cash flow gaps?

Advice from the CEOs:

  • Look for private non-bank financing.
    • Your AR is safe, low risk, and from reputable companies.
    • Non-bank financing offers better rates than banks, with access to cash from the lender on reasonable notice.
  • Investigate Lendingclub.com. They offer business loans up to $300K at 5.9%. Lendingclub.com operates by spreading the risk over thousands of investors.
  • Talk to lots of banks – not just those with whom who’ve worked in the past. Given your cash flow needs and good credit history, if you offer to shift all of your business to another bank you may get a more positive response. Once you have talked to other banks, let your current bank know your plans. They may become more responsive.
  • Change your service policy so that you give your best service to customers who pay you fastest. Once the purchasers at companies with whom you work learn about this, they will pressure their AP people to speed their payments to you.
  • Put more focus more on services which pay up front.
  • Going forward switch as much business as possible to ACH payments.
  • Offer customers early pay discounts – 1% net 10 or ½ of the Lendingclub.com rate to your biggest clients.
  • Befriend lower level employees in client companies. Particularly those with whom you have regular business contact.
    • They can tell you how to get to the top of the AP pile.
    • Let them teach you their company’s practices.
  • Plan finances going forward so that you can finance the gap yourself.

Category: Finance, Operations

Key Words: Payroll, Financing, Accounts, Payable, Bank, Lendingclub, Non-Bank, Service, ACH, Payment, Early, Pay, Discount

How Do You Focus Your Sales and Marketing? Eight Thoughts

Situation: A company has a technology road map and a flexible set of technical capabilities. To date they have elicited broad interest from a variety of different markets. They currently don’t have the resources to pursue a large number of different markets, and will likely need their next round of funding within the next year to year and a half. How do you focus your sales and marketing?

Advice from the CEOs:

  • A race to generate interest from a number of markets is a valid strategy at this stage of your development; provided that you raise or generate the cash to survive. This caveat describes your critical challenge – determining how long you can afford to maintain and fund a broad strategy.
  • Look at your burn rate and timeline. Pursue options that will generate cash before your next round of funding. Your top objective is to validate your ability to generate revenue prior to your next round.
  • You haven’t yet found the fish. You are fishing and have nibbles but no bites. Look at what your people are doing and start to eliminate options that are less likely to pay off both short and long-term.
  • To preserve development cash, create a new rule. Any project that you accept must come with development dollars. This will eliminate some smaller prospects and targets but will help you to focus on others which are more immediately promising.
  • When one company was in this position, their rule was that the first PO gets the engineers. No PO, no commitment of resources.
  • Another’s company’s policy is that they don’t work for free.
    • A softer version is to give the prospective client 30 days to produce an LOI for the proposed project or you will go elsewhere.
    • Even better is an LOI and $50K up front.
  • A third company’s strategy from the beginning was always to hunt for elephants – even when they had no money. This has worked well both short and long-term. It represented the level of faith that they had in their technology and capabilities.
  • The team needs to hear this message from you.

How Do You Develop a Sales Organization? Four Points

Situation: A small company’s business is increasing and they need to build a sales organization. To date all sales have been conducted by the founder CEO and a single employee salesperson. Should they build inside or outside sales first? Are there trigger points at which one or both should be increased? How do you develop a sales organization?

Advice from the CEOs:

  • Right now you have first mover advantage in your market space. You have a unique offering and no existing competition. The immediate objective is to maximize early market share. Borrow if necessary to ramp sales. There is no trigger point.
  • Hire an outside salesperson now. You want an individual who is knowledgeable about your market and who has a large set of contacts. Make at least 50% of this individual’s compensation variable (commissions) to start and escalate the percentage of variable compensation as sales grow. Hire at current market rates.
  • Supplement your existing marketing with an investment in social media marketing and SEO (search engine optimization). Don’t try to do this yourself on the cheap – hire a pro. Invest in Pay-Per-Click to push your visibility.
  • To sell this plan to your existing salesperson and the rest of the team, it’s time for a Come to Jesus talk.
    • Make a strong business case for your program.
    • The trade-off is either invest now to rapidly build sales or become insignificant.
    • Once you’ve made your pitch and received consent, let the plan work before you ask for more.