Monthly Archives: June 2010

The New Manager Isn’t Cutting It. Not My Fault!? Four Important Questions

Situation: I recently hired a new high level manager. To integrate the individual into the company the original set of assignments was limited in scope – to help the manager get to know others within the company. This manager seems to over-analyze things. Long hours are spent carefully drafting plans but there is little action. Did I select the right person, and how do I manage them without micromanaging?

Advice from the CEOs:

  • It looks like this person is working long hours but not necessarily productive hours. This is costing you time and money – both yours and your employees. The question is whether the root cause is the individual’s behavior or your own expectations and behavior.
  • Ask yourself the following questions:
    • Have you clearly outlined your expectations in terms of what is to be delivered, the time in which it is to be delivered, and any constraints around the projects for which this person is responsible?
    • Have you provided necessary resources, and empowered the individual to make the decisions necessary to bring projects to completion?
    • Have you scheduled regular update meetings with this individual and openly discussed project progress and obstacles to completion?
    • Have you set appropriate expectations with your other staff as to the authority of the new individual, and are you honoring those expectations in your own behavior?
    • If you have done these things, and the individual is not performing, then it is time to ask whether you hired the right person.

Key Words: Manager Performance, Objectives, Expectations, Delegation, Planning and Review 

Partnership Agreement for a New Venture: Seven Points to the Negotiation

Situation: We are negotiating a partnership venture. We would fund the entity, and the partner will earn ownership through sweat equity. How do we draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to drive a successful venture: proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capability?
    • Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation.
      • The beauty here is that you retain control until the partner has proven their value by delivering results.
      • The potential downside is long-term liability of the venture.
        • The longer that you retain majority ownership, the longer you retain majority liability.
        • Insure yourself against this liability.
    • Buyout clauses are important to retain your interest if the partner fails to deliver.
    • Include a liquidation clause in case the venture fails.
  • Negotiating the agreement:
    • Draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives.
    • Negotiate fair protections desired by each party.
    • Consider a consultant to facilitate settlement of areas of contention.
    • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement.
    • Factor the cost of legal advice as well as consultant facilitation into your planning model.

Key Words: Partnership, Joint-Venture, Sweat Equity, Agreement, Negotiation, Buy-Out Clause, Liquidation Clause, Letter of Intent (LOI) 

They’re Infringing my IP! Six Strategic Considerations

Situation:  We have a competitor who is infringing our key intellectual property. Counsel tells us that we have a case, but to expect the process to take 2-3 years and to cost $2 million minimum. I’m concerned that if we start down this path, we will drain the company of both time and cash. What should we consider going forward?

Advice from the CEOs:

  • The risk here isn’t just your IP; it’s the value of the company!
    • Example: if your current valuation based on your IP is a 5x multiple of revenue, and if 60% of your IP is at risk, 60% or more of your valuation may be at risk.
    • Under this scenario, you cannot allow the infringement to go unchallenged.
  • The hard reality: can you withstand, in time and of money, a large and distracting suit?
    • If the infringer is larger, they may be gambling that you won’t sue. Remember, the loser pays the winner’s out of pocket costs, plus damages.
    • If your case is good, you may be able to get a lawyer to represent you on contingency.
  • If you decide to sue, it must be a surprise. If not the infringer may outmaneuver you in setting venue, etc. through countersuit.
  • Get a second opinion, and as much independent advice as possible without showing your hand.
  • Key Question: Can you show your IP and research predates your competitor’s?
  • Is there a middle ground or a settlement scenario that makes more sense than an all-out suit?

Key Words: Intellectual Property, IP, Technology Protection, Legal Strategy, Settlement 

But We Don’t Produce Anything Measurable! Seven Metrics and Tactics for Service Companies

As a service company we find it challenging to measure project profitability and client satisfaction. What measures and metrics do you find most useful?

Advice from the CEOs:

  • For billable services: utilization percent defined as (hours available for service delivery)÷(billable hours)
    • Include in the denominator both billable hours and customer good-will or preventative maintenance hours. The latter, while not producing current income, are an investment in future income.
    • Set up audits for service needs, especially future needs, when working with customers. This will help you to stay abreast of changes in the service environment and to plan accordingly.
  • For fixed budget projects – measure budgeted vs. actual expenditures by project.
  • For fixed-fee services: a fraction expressed as: (income per customer company) ÷ (cost in hours for that customer)
  • Customer audits and surveys. Options
    • Exit “pizza party” with the client – may produce tainted results. While this builds customer good-will and may provide qualitative feedback, it should be supplemented by more objective measures.
    • Mailed survey – from 3rd party with a prize for responding.
    • Email follow-up from 3rd party that directs you to the 3rd party site to complete the survey.
  • Ambassadorial CEO visits to the top contact person in key accounts
    • Opportunity to learn about the customer’s present and future needs, staffing plans, business and strategic direction. Helps to anticipate changes in the competitive landscape.
    • The more your business relies on recurring revenue, the more important these visits are.

Key Words: Service Metrics, Project Profitability, Resource Utilization, Customer Satisfaction, Business Trends 

I’m Up all Night Worrying that Things are “Too Good.” Three Considerations

Situation: Business has turned around in the last six months and I’m so focused on sales that I don’t have time to plan. How and when do you plan for growth?

Advice from the CEOs:

  • Think about the business cycle – the upswing, the peak and the downturn:
    • On the upswing there is a tendency to be so focused on the day to day that you spend no time testing the business environment or on the long-term planning activities that are critical to sustained growth and success.
    • If the CEO doesn’t take time during the upswing to evaluate new opportunities it’s easy to fall into the trap where planning occurs until after the cycle has peaked.
    • After the business cycle has peaked, it is too late to take advantage of opportunities that were available during the upswing.
    • Once the business cycle is in a downturn attention shifts to preservation and survival. The opportunity to reallocate resources to build alternative future scenarios has been lost.
  • If you feel pressure to bring on additional resources, set a timeframe to evaluate the situation – say a few weeks or a month – and see if the pressure is sustained. If it is, have a plan in place to secure those resources. Do this with a clear head – not on impulse. Exercise discipline.
  • Remember that leadership is your job – not being immersed in the day to day. A leader keeps others immersed in and focused on the day to day.

Key Words: Leadership, Business Cycle, Planning, Adding Personnel 

The Dreaded Performance Review: Two Methodologies

Situation: We set objectives for employees; however these objectives frequently aren’t met, and there are lots of excuses for not meeting objectives. Most frustrating, employees are eager to share good news, but hide bad news and performance issues. What do other CEOs do to prevent these problems?

Advice from the CEOs:

  • A service company’s method:
    • Frequent measurement of performance against objectives.
    • Key metrics are monitored with top staff in weekly meetings that last tops one hour. We use a problem solving approach to address obstacles and to correct performance.
    • The CEO watches the direction, and staff makes the changes to make corrections to direction.
    • The trick is in the metrics. Metrics must measure meaningful performance and be tied directly to the company objectives.
  • A light manufacturing company’s method:
    • Historically the CEO had a problem holding on to non-performing individuals for too long.
    • He addressed this by instituting objectives and eliminating non-performers. The result: reduced complacency, and improved morale because performing employees were tired of taking up the slack for non-performers.
    • Documentation of non-performance and establishing a solid case for eliminating the employee are critical to avoiding wrongful termination suits.
  • General Observation: if a company has objectives, but lacks meaningful metrics to measure performance against objectives or a regular review process to assess performance against objectives, then the objectives are meaningless.
    • The CEOs’ experience is that establishing meaningful SMART (Specific, Measurable, Appropriate, Realistic, Time-Bound) objectives and regularly assessing performance in a collaborative atmosphere are the most important ingredients to an effective performance management system.

Key Words: Performance, Objectives, SMART Objectives, Employee Reviews, Performance Reviews 
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Financing: OOM or OPM? Three Things to Consider

Situation: An early stage web Company is looking at steep ramp up expenses. Many companies have bootstrapped their way to success. However outside investment may speed the process. How have other CEOs evaluated these two options?

Advice from the CEOs:

  • Raising money takes time and is a major distraction to your development process. The two big variables will be investor interest and timing of investment.
    • Talk to Angels and VCs now. Start by presenting a broad outline of your technology and business model. Ask what they will want to see to offer you funding at different levels.
    • This will give you a reality check as to investor interest in funding you, and creates a roadmap to funding if the response is positive.
  • What are you seeking? Money or accountability? One CEO bootstrapped the company early, then looked for outside investment to gain accountability and advice – a whip to help move things along.
    • This CEO found that investors brought few of the anticipated assets, and added a new level of distraction and pain.
  • If you are looking for funding to purchase content to serve through your portal, consider a more creative way to gain content.
    • Can you use a Web 2.0 portal through which your target audience provides both the content and the consumer audience in a marketplace exchange? Establish the audience and add premium services to monetize the model.
    • This can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.

Note: OOM = Our Own Money; OPM = Other Peoples’ Money

Key Words: Investors, Investment, Ramp-up, Bootstrap, Financing, Cash Requirements 

How Much Rope Do I Give the New Sales Guy to Hang Himself? Four Pieces of Advice

Situation:  We hired a new sales person 3 months ago. To date, the sales person has signed some good customers, but only generated $5K in sales. How patient should the CEO be with this person, how much time should be allowed to demonstrate performance, and what metrics do other Forum members use to assess or incentivize sales performance?

Advice from the CEOs:

  • Set 90 day targets that you expect for the individual to reach:
    • X new accounts.
    • Y in sales revenue.
    • Other measures as appropriate to your business.
    • Set these targets WITH the individual, not FOR them so that the individual has ownership of the targets.
    • Monitor frequently. If the trend is below the target, ask what the individual plans to do to meet or exceed the target.
    • Targets are best set at the time of hiring. If the individual cannot approach these numbers, then cut sooner rather than later.
  • How do you differentiate the sales person from the sales talker?
    • Based on results. Expect to see results quickly.
  • The traits that correlate with success are not traits that reps develop after they are hired. They have to have these from the beginning. Your hiring process must select for these traits.
  • There are a number of companies offering tools that will help you to identify whether candidates for a sales position possess the traits that you deem most important. Among these is TTI – Target Training International – www.ttidisc.net and Sandler Sales – www.sandler.com.

Key Words: Sales, Management, Performance, Assessment, Objectives 

OMG – our Product is taking off! Two Considerations and Two Options

Situation: Demand for our product has increased, and we need to scale up production. We’re small, so how can we do this without killing the product?

Advice from the CEOs:

  • This represents a major change of mentality and culture. Essentially, you’re moving from a “handmade” process to a commodity volume process. You may also be moving from low volume/high margin production to high volume/low margin production – this will change you.
  • If you are sure that you will get the contract for long-term production consider establishing high volume production at a new site.
    • Rent/lease another facility. Also hire a different set of experienced people, and consider giving this facility a new name to suit the new team. This will help you to establish a new culture suitable to the new opportunity.
    • Ask for an option for additional space on the lease.
    • If things don’t pan out, look at this new space as the eventual location for your existing team.
  • Other options to consider:
    • Outsourcing to a 3rd party manufacturer. This is an option, unless you are an OEM outsourced producer yourself. Essentially you could be telling your OEM customer that they could go direct to another source at a lower price.
    • Establishing an overseas production capability – one where you own the facility and manage the QC. This will be a challenge if the customer wants to specify “Made in US”, or where quality concerns are essential.

Key Words: Production, Scale-up, Ramp-up, Outsourcing 

Good News – Business is Building! Now, What to Pursue? Four Guidelines

Situation: The business climate is starting to improve. Opportunities are coming in. How do you decide what to do and what not to do?

Advice from the CEOs:

  • Talk to your customers. What do they value about your product/service and what is less valuable? Build on opportunities that customers value – which are consistent with your company’s strength and focus.
  • Consider a customer survey – Survey Monkey or a telephone.
    • If you don’t have in-house expertise to design and administer a survey, find knowledgeable outside resources.
    • Make sure that the survey questions will drive understanding of your focus.
    • If you are short of cash, at least get an expert to review the survey and administration plan.
    • Before you launch the survey to your full customer base, “test” it with a select group of customers – this will tell you whether it will produce usable information. If not, rewrite.
    • Have employees take the survey and predict how customers will respond. Compare these results with the actual results from customers. You may learn something!
  • Which opportunities will build sustainable recurring revenue vs. opportunistic (one-time) revenue?
    • Recurring revenue can be lower margin if the income stream is sustainable.
    • Balance efficiency and utilization. For example, fixed fee service contracts that renew consistently.
  • Judge opportunities against your “Hedgehog” as defined by Jim Collins in Good to Great:
    • What you are passionate about?
    • What you can be best at in your marketplace?
    • What you can measure by a single economic ratio?

Key Words: Customer Needs, Customer Survey, Business Opportunities