How Do You Create Consistent Business Operations? Seven Thoughts

Situation: A CEO is concerned that business operations are inconsistent. Employees are always coming to her for answers instead of working things out themselves. As a result, the CEO is continually focused on operational details as opposed to strategic direction. How do you create consistent business operations?

Advice from the CEOs:

  • Make managers live up to their titles.
    • Require them to go to each other to solve problems first, instead of always asking the CEO.
    • When they ask a question, don’t give them the solution, but advice on how to solve it.
    • Require them to present solutions vs. problems
    • Be willing to spend money on their solutions.
  • Answer all questions with questions.
    • Ask them for their recommendation.
    • Keep asking until they come up with the answer.
  • When one starts to delegate, it hurts for a while but will work itself out.
  • The CEO should not be doing “regular jobs” that are really employees’ responsibilities.
  • How has implementing these suggestions impacted other companies?
    • Businesses have become more diversified.
    • CEOs are focused strategically vs. tactically.
    • Businesses are more successful and profitable.
    • CEOs enjoy coming to work again.
  • Create a sales intern program.
    • Hire 4 sales interns for $10-15/hour – with the offer that after 3 months there will be full time jobs for those who prove they can sell.
    • Have the top 4 sales staff design the intern program – call response scripts, responsibilities, etc. – subject to CEO review and approval.
    • Assign one intern to each of these 4 sales staff in mentor/mentee relationships. This will demonstrate the capacity that each has as a sales manager.
  • Should younger workers be handled differently?
    • Allow flexibility – where appropriate – on hours and how they do their jobs.
    • Responsibility will also vary by pay level – higher pay equals more hours and more accountability.

How Do You Plan for Patent Expiration? Six Suggestions

Situation: A company is facing the expiration of the principal patent for its main product. There are subsidiary patents which still have life. Currently, there are no competing products, but several companies understand the technology. How do you plan for patent expiration?

Advice from the CEOs:

  • Think of this as a two-step process:
    • Step 1 – Step back and look at what the company has:
      • Patents – including the claims that have been awarded on all company patents.
      • Facilities – capable of manufacturing current products, but also additional products, perhaps with a minimum of additional equipment.
      • People – competent staff running manufacturing operations, and tight office operations.
    • Step 2 – Loot at where the company could go and evaluate the markets where the existing technology is applicable:
      • Work with outside, imaginative people who can take a fresh look at the options.
  • Looks carefully at the claims in all the company’s patents.
    • What do they cover?
    • Is there an opportunity to extend current claims through process patents?
    • Caveat: a company can file for a process patent on anything that has been for sale on the market for less than a year. However, if they have been selling a product covered by this application for more than a year, they cannot.
  • Look at other markets – companies that could license the company’s technology, or with whom the company could partner to provide new consumer-oriented products:
    • Is there inexpensive, affordable equipment that would enable the company to produce additional products in the current location?
  • Think outside the box: what business is the company in? Think more broadly than the current market about where high value opportunities exist. These can be low to medium volume, high price/margin or high-volume lower price/margin.
  • Patents are not the only protection – trade secrets also work. 3M’s primary IP strategy, particularly on their adhesives, etc. is through trade secret – both for low and high-volume products.
  • “Product” patent extensions have limited utility. They are easy to design around. “Process” patents have more utility. These can be licensed at low cost per application in high volume applications and provide a nice royalty reserve stream.

How Do You Price a Product and Service? Five Approaches

Situation: A company offers a product combined with a service. Small companies can’t afford the combined price, but don’t need the full functionality of the combined product plus service. An option is to create an offering on a per-seat basis. In this option, how do you price seat utilization? How do you price a product and service?

Advice from the CEOs:

  • Pricing needs to follow value. For large companies, functionality and seamless operation are key. Small companies have different challenges – they have less money and don’t need all the features required by large companies. Configure a limited product for this market.
  • Don’t de-feature the product – create a different use / pricing model. Consider a model that prices based on the user company’s revenue, with periodic review of their revenue and fees paid. As they grow and increase utilization, they increase their ability to pay for, and their need for full utilization.
  • Use a cloud model and create a “pay per amount of use” option. Limit this offering to X number of users or X number of projects to create a different product from the full license option. While this will require monitoring, it will differentiate the partial license option from the full license option.
  • Develop an alternative to what is offered by the chief competitor and create an offering that this competitor can’t compete with.
  • Before making a final decision, institute a formal process for collecting ongoing feedback from customers. This will help to clarify alternatives going forward.

How Do You Increase Brand Awareness? Six Observations

Situation: A CEO wants to increase brand awareness for her company and its primary service. The objective is to increase the client base and drive revenue growth. They have identified their primary growth opportunity and differentiating advantage. What else should they do? How do you increase brand awareness?

Advice from the CEOs:

  • What is lacking is a clear vision, path, and marketing plan. These are prerequisites to deciding either the solution or hiring a high caliber individual to execute the plan.
  • What steps are involved?
    • Survey 20% of current clients. Ask “why did you choose us?”
    • Develop the tools to track and show clients service performance online.
    • Use these same tools to show company performance online.
    • Tune messaging to potential clients to highlight demonstrated service performance.
    • Play elite – as the company’s name and reputation grow, clients should aspire to being accepted as clients.
  • Think long-term.
    • What is unique about the company’s ability to manage and extend the longevity of clients’ key assets?
    • How well prepared are potential clients to manage this on their own?
    • How does the company help potential clients to manage and extend the life of those assets?
  • Once there is a clear plan, fine-tune the internal focus of the company to align with the plan.
  • Increase involvement in communities where potential clients are found.
    • Host seminars and webinars on relevant topics.
    • Evening seminars in locations that potential customers congregate – existing clients attend and bring a friend.
    • Focus on referrals from existing clients – with a reward – a free consultation.
    • Look for non-competing service providers who can be good referral sources.
  • Make it easy for potential clients to switch. Use mass-marketing to spread the word with a multi-tiered approach to different segments of the target market.

How Do You Respond to a Price Increase from a Supplier? Six Points

Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?

Advice from the CEOs:

  • This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
  • Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
  • Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
  • Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
  • Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
  • Start building relationships with alternate suppliers.

How Do You Boost Your Sales and Marketing? Four Points

Situation: A CEO’s company has built an admirable suite of products. The next step in company growth is to create a more structured marketing pipeline. They have experienced salespeople, but these people have come to the end of their rolodexes. A new approach is needed. How do you boost your sales and marketing?

Advice from the CEOs:

  • Create a profile of the ideal customer. This is the customer who can create the greatest leverage using the company’s suite of product. Aim for the top management of this customer.
  • Incentivize the sales reps to target high value accounts. To create targeting incentives, graduate the commission base.
    • Set initial commission based on the size of the customer.
    • Differentiate commission by product – pay the highest commission for highest gross profit products or the company’s highest priority products.
  • Salespeople need to be able to close sales by themselves.
    • Currently, salespeople are acting as lead generators and are counting on the CEO to close the sale.
    • Create a different set of expectations, including thresholds to limit the CEO’s direct involvement in the sales process – for example, limit CEO involvement to accounts with a revenue value over $500K.
    • Train the salespeople to communicate the value proposition for initial conversations as they qualify a new client. Create a set of resources to assist them along the way.
  • Is it a good idea to pay ongoing commissions forever?
    • Another CEO used to do this but has moved to X% for the first period/project and X/2% on follow-on-periods/projects. This keeps them hungry for new customers who will pay the higher commissions.
    • Don’t create a perpetual annuity – the way insurance brokers are paid. Reduce commissions on existing accounts so that they decline over time – keep salespeople focused on bringing in new accounts to maintain their income levels.
    • Decide on an acceptable level of total compensation for salespeople. Plan the commission structure to allow them to reach this level, but they have to keep selling to maintain this level. Keep them hungry.

How Do You Construct a Business Acquisition? Five Essential Points

Situation: A CEO has an option to purchase another company with whom they have a long and good relationship. A smooth transition will be important. The owner’s relationship with their customers is central to their success, as is his employees’ knowledge of their key accounts. How does the CEO assure that these relationships are retained? How do you construct a business acquisition?

Advice from the CEOs:

  • Based on the CEO’s responses to the Forum’s questions, the owner of the other company needs this deal more than the acquiring company needs him. This creates a strong bargaining position.
  • The owner of the business is the business and the key to a smooth transition post acquisition. Retaining his ongoing involvement – at least for a reasonable period – is essential to gaining maximum value from this acquisition.
  • The value of this business is its people: the owner’s relationships, and both the owner’s and his employees’ knowledge of their key accounts. His employees know the inner workings of their customers’ businesses. These are the relationships and the knowledge needed to assure that the acquisition is profitable post-close. Retention clauses and penalties must be part of the agreement.
  • If the owner wants 50% of the net income generated from his piece of the surviving company during a transition period, this is fair. However, the financial and operational details of the transition and his share of the income must be spelled out in the agreement and the agreement must assure that there is proper follow-through to qualify for the payments.
  • The income from the owner’s accounts must support his salary. However, even with this the owner will still cost the acquirer time and energy. Plan for this and budget for it in the agreement.

How Do You Monetize a New Venture? Eleven Suggestions

Situation: An entrepreneur has created a new business offering a critical service but struggles with how to monetize it. The primary clients don’t have the resources to fund it viably. What alternative sources of funds or revenue can be found? How do you monetize a new venture?

Advice from the CEOs:

  • The venture’s brand name must carry the message – the name must describe the mission.
  • One of the core messages is reciprocity. Reinforce this theme all over the site.
  • Testimonials are critical. Testimonial videos of real users personalize the experience. These drive participant acquisition and contributions.
  • Make participants feel like they are a part of a community.
    • Consider a variety of landing pages – same database but different doors of entry.
    • Encourage even more communication within specific target communities.
  • Look at MySpace vs. Facebook to guide the model:
    • MySpace was already big when Facebook launched.
    • Facebook exploded by making itself a more closed community – all exclusive colleges and Universities.
    • Monetize via donation or advertising vs. subscription. Fees could kill the opportunity. Too many other resources are available for free.
  • The key appeal is enabling people to do something that makes them feel good.
    • Post stories from those who have succeeded as a result of the platform, as well as those who have helped on the site. This will inspire others to participate.
  • How do you recruit new participants?
    • Some CEOs joined LinkedIn because of peer pressure – after enough people asked them to join, they did.
    • Install a template to encourage people to invite new participants – allow new participants to tell their story and the need that the service fulfills for them.
  • Consider adding premium content to the site, but only for those who have made contributions – monetary or in-kind.
  • Consider Fremium to Premium. In the Fremium model include a banner ad for users, like a university Training Institute.
  • Consider creating an advice network. Post questions and ask for answers from the community. Include an option to click to become a contributing participant.
  • Online there are eyeballs vs. action – the action is what matters.

How Are Your Relations with Your Bank? Seven Points

Situation: A CEO’s company is short of cash to make a scheduled payment against a line of credit. They have been notified that if the payment isn’t made, the bank will transfer cash from the company’s checking account to satisfy the payment. This would compromise their ability to meet payroll and pay vendors. How are your relations with your bank?

Advice from the CEOs:

  • What the company needs is time, so that they can pay down the line of credit from cash flow. It is best to compartmentalize any discomfort with this situation. Remember that any bank action generally takes time.
  • Advice from the company’s lawyer is that if they stop making deposits, the bank will notice and react negatively. Given that the current interest rate on the line is low, a negative reaction from the bank could lead to an increase in the rate.
  • The company has a bargaining chip. The bank does not want to show the company’s line as delinquent. If they admit that a delinquency exists, it puts them in a bad place.
  • Develop a contingency plan to guard against the company’s biggest risk – inability to make payroll. Assure that this can be covered.
  • Use checks paid by customers to move a portion of company assets to another bank.
  • Secure a new line of credit with another bank to cover credit needs, including salary coverage if the current bank acts adversely.
  • Assure that any conversations with the bank are documented in letters to the company’s contact at the bank.

How Do You Improve a Business Model? Four Observations

Situation: A CEO is in conversation about combining with another company. One option is for the other company to absorb his company. What are the pros and cons of this option? Are there other options that will better serve both owners and employees? How do you improve a business model?

Advice from the CEOs:

  • The company has a great model today. The option under consideration looks like a double compromise – it alters both the company’s strengths and its fundamental business model.
    • The company’s strength is lean and mean – moving from a hourly/fee-based model with high utilization to a salary-based model, as the option on the table proposes, will change this. It also changes the dynamics of who will work for the company.
    • The magic of the current model is that it attracts top talent by offering them the best of two worlds: high individual billing rates with ready access to billable hours. Over the long term this has also made it very profitable.
  • Explore an alternative – how does the company transform its existing business model while retaining its strengths – lean, mean, low overhead – while transforming the model so that it builds “products,” perception, and recognition for the company?
  • A longer-term alternative is to look for a financial acquisition of the company. It has good net margins, good cash flow, and even spins out cash. This is valuable to a financial buyer.
  • What is the role of the CEO right now? Another CEO was asked “Do you have a job or a company? What happens if you leave? If the company dies, you have a job. But it may not be necessary to change much to become a company.”