Interview with Chuck Gershman, Founder and Former CEO, Bay Microsystems
Situation: Following a consolidation of equipment suppliers, the broadband network market has matured with a few large players. This potentially reduces diversity and creativity because barriers to entry are now enormous. How do you fund a new venture in a mature market?
Chuck Gershman’s Advice:
If you can get the venture off the ground, the opportunity is tremendous because competition for new approaches in a mature market is limited. Large players don’t move quickly. Their incentive is to change slowly to lengthen product life cycles.
The downside is fewer financiers interested in the space because of the barriers to entry, and because the likely exit is an M&A play at low multiples.
Given this, how do you attract investors?
In the hardware space, you must demonstrate a convincing go-to-market strategy with modest investment and a moderate cost of market penetration. If the cost of success is high, it requires too much investment and risk before you can accurately assess the possibility of success.
You must be able to show a substantial total available market.
You must be able to show that your capability meets the needs of the market.
You must be able to show that the customer base will respond en masse. This is critical!
With fewer investors willing to look at your product and technology, it takes more time and work to find interested investors.
Investors invest on perceived risk, so the task is to show that the risk is manageable.
In the past, investors were convinced by a committed strategic customer that would finance bringing the product to market.
In the current market, an effective strategy is to develop an early customer who is a strategic investor in your company from Day 1. This raises the likelihood of an exit, and appeal to investors, but reduces downstream options and ROI.
Another strategy is to pursue a creative IPO exit. For example, launching the IPO on a smaller foreign exchange. This reduces the long-term payout to founders, but may increase appeal to investors who prefer an IPO to an M&A exit.
Situation: The Company has both an annual and a 5-year plan. These are discussed in both company meetings and in 1-on-1s with managers. The CEO fears that he’s starting to sound like a broken record. How do you maintain the focus to stick with your plan?
Advice from the CEOs:
Break the 1-year plan into quarterly objectives. Don’t just divide annual objectives by four. Vary objectives for each quarter so that the total sums to the annual plan.
Divide your broad plan into a series of milestones. Celebrate the achievement of each milestone. This helps to maintain momentum and keeps everyone engaged.
Establish metrics to assess your progress against the plan. These will enable you to evaluate progress against plan and the degree to which you are above or below plan. It will also help you to evaluate whether underperformance is a matter of externalities or a flaw in the plan itself. If there is a flaw, fix it as soon as you find it.
Evaluate your “worst case” scenario so that you know the implications. This enables you to compare current performance against “worst case.”
In his book “Good to Great,” Jim Collins found that an important difference between G2G and non-G2G companies was the ability of the G2G companies to maintain faith and to slowly build momentum regardless of the apparent obstacles faced. This allowed good companies to establish the momentum that eventually made them great. Non-G2G companies continually changed direction and never built sustainable momentum.
Key Words: Plan, Annual, Long-Term, Objectives, Milestones, Celebrate, Momentum, Engaged, Underperformance, Worst Case, Good to Great
Situation: The environment has become more complex for leaders. Not only must leaders perform classic roles, they must also deal with increased uncertainty and change. How do you build a new leadership paradigm to address ongoing change?
Jorge Titinger’s Advice:
There are three challenges facing leaders today.
First, given that change is constant, what does the next likely settling point look like in your environment look like and how is this different from past settling points?
Everything starts with the people.
Once you determine the likely next settling point, do a capability inventory within your leadership team to determine whether you have the right people to handle the new reality.
Can current members be trained?
Do you need to bring in new talent?
Second, are your processes limiting or enhancing your flexibility?
Do current processes encourage adaptability and cross-functional connection and communication?
If not how will you change them?
Deconstruct/reconstruct all critical processes to make them more agile.
Third, how are you linking desired outcomes with rewards and incentives within the company?
Growth in the past focused on building up infrastructure – adding more people and capacity.
Knowledge management focused on tools and processes to make people more effective. Individualized assessment and reward structures became an obstacle and had to be shifted to emphasize the importance of collaborative versus individualized performance.
Agile leadership and management focuses on reaching outside the boundaries of your own company. To deliver differentiated value suppliers and customers must be included in the exercise. We must reinvent how we engage with suppliers and customers so that they are part of the collaboration.
The agile paradigm focuses on the unspoken needs of suppliers and customers. This takes the conversation beyond the transaction and includes quality, on-time delivery, and other differentiators that are mutually important. It can include competing for your competitors’ suppliers by being a better customer!
Situation: The Company sells customized products and pricing has been per product/per customer. A large client has proposed to purchase product rights across a number of products and uses. The technology is early in its expected 5-year life span. How should the Company set pricing to this customer?
Advice from the CEOs:
Start with a series of questions:
What is the value of your technology to the customer?
How much competition do you face?
What other solutions are available to the customer?
Based on this framework, ask contacts within the customer company open-ended questions that will reveal what is important to them including:
Planned use of the technology, and
Any protections that they seek.
You need to understand these before you can make decisions on pricing.
There are several pricing scenarios:
Set up a scale with a declining pricing driven by volume.
A large lump sum payment now, non-transferable if the customer is acquired by another company.
A large annual fee to cover a preset number of uses and volumes, with small increments for additional purchases.
The final arrangement will depend on the priorities of the customer.
Find out what the customer is willing to pay, but you set the terms.
Ask what guarantees they desire to protect their position. This includes:
The customer’s key risk factors.
Whether they want exclusive or usage rights. Exclusive is worth more.
Interview with Naeem Zafar, President & CEO, Bitzer Mobile, Inc.
Situation: Starting a new venture is a daunting task. You must determine market need and land your first few key customers on tight timeline and budget. What are the most important foci for the start-up CEO?
Advice from Naeem Zafar:
The answer lies in what I call the Three Clarities.
Clarity #1 – Deep Knowledge of Customer Pain Points
The fundamental point is that your eventual success is not about your technology – it’s your ability to understand and address the needs of your customer.
Research and talk to potential customers. Ask them about their pain and problems (and not about your product). What makes their job or their lives difficult? Learning these facts takes time, patience, persistent questioning, and open listening both for what they are saying and what they are not saying.
Once you have a clear idea about their need and can succinctly define it, you must determine whether your capabilities can address the customer’s need.
Clarity #2 – Understanding the Purchasing Behavior
Once you have identified your target customer, their need and your ability to meet that need, you must understand their current purchase behavior.
Have they ever bought from a startup before? What happened when they did? Are they happy or unsatisfied? Where are the gaps in satisfaction?
Particularly for a start-up with limited credibility, it is critical to identify those purchasers who will take the risk to buy from a new company.
From what you find, determine how you will frame a personal relationship with the likely buyer – how you will frame both your solution and the buying experience – and build a psychographic of the buyer so that you can quickly determine likely customer candidates.
Clarity #3 – Understanding the Decision-Maker’s Sense of Urgency
Who makes the purchase decision? In B2B sales is it the CEO or someone further down the organizational chart? Who approves the purchase budget?
Why now – do they have their ”hair on fire” so a decision must be made now?
The essential question is: what are the alternatives to not having your solution?
Situation: Employee pools are now multi-generational, with Baby Boomers, Gen X, Gen Y and Echo-Boomers. Each group may have different expectations for work environments and careers. How do you connect with different generations? How have you set up mentoring programs?
Advice from the CEOs:
People may be of different generations, but they are still individuals. Ask what drives or motivates them, and what they would consider an ideal reward for hard work.
Some companies offer a sabbatical after several years of employment – the opportunity to work on hobbies, go on an adventure or use the time as they wish. This attracts employees and encourages retention.
Some employees don’t seek promotion but are good contributors. They may prefer an extra week of vacation over a promotion.
One company gives employees budgets to spruce up their work space – allowing them some control over their work environment.
What are good tips on working with younger employees?
Coach them to communicate thoughtfully and carefully – instead of shooting from the hip without considering impact or consequences. Younger managers may find that they need more patience communicating expectations to older staff.
Establish individualized performance metrics and enable them to monitor progress on their computers.
Bring them into the process; don’t tell them to wait. Let them start as an observer. Listen when they have questions or suggestions. Ask their opinion.
Break down job tiers into additional levels with more achievement incentives. Allow them to reset expectations frequently.
Key Words: Multi-generational, Boomer, Gen X, Gen Y, Echo-Boomer, Expectations, Environment, Career, Mentor, Motivation, Reward, Sabbatical, Incentive, Communication, Performance, Expectations
Situation: The company has been running very lean for the last few years, with very good people. New opportunities are opening up, and we need to staff up to execute. How do we get the best talent while minimize hiring costs?
Job Posting Boards: You can often find specialized talent on industry specific job boards such as Dice.com, SimplyHired.com, Cybercoders.com, TheLadders.com or similar non-traditional job boards.
Online Interest Groups: There are a wide range of industry and product specific user groups through Google Groups, LinkedIn Groups, and so on. Connecting with relevant groups will not only position your company as a key firm within the segment, but also make you THE place for career progression.
Go Social: Leverage the power or social media to publicize your available positions. Facebook advertisements, LinkedIn job postings and similar sites can build targeted interest in your company, and available positions.
Go Viral: Even if you don’t personally like Twitter or Facebook, these sites can create viral awareness of your company and technology. Tweeting that you are hiring now, with a 140 character job profile.
Be Cool: Create exciting new ways to add in the cool factor. Skilled talent likes to work with fun, exciting, successful companies. Capture photos of company events and add them to a Picasa or Flickr gallery. Positive blog posts build good vibes around your company, your technology and your products.
Ground & Pound: There are many groups that meet on a regular basis to discuss skills, functional interest, best practices, business opportunities or to just mix and mingle. Sites like Meetup.com to find local groups that match the talent you’re seeking. You will often find candidates, people that can pass the opportunity along, or even someone willing to provide an awesome referral.
Attack: Be pre-emptive in your focus. Select a few top-notch recruiters who specialize in your technology, market and/or geography. These professionals already know the talent pool, may accelerate the process, and ultimately provide higher quality candidates.
These are a few thought-starters. What has worked for you to find good candidates at minimal cost?
Situation: One client represents a majority of a company’s revenue. They have multiple contracts with this client. A new purchasing agent is on a mission to reduce purchasing costs, and claims that other suppliers cost less. What’s the best response?
Advice from the CEOs:
Spend time with your true client – the employees and managers who have chosen your product. These people stand to gain the most from an ongoing relationship with you and may be able to reduce the pressure from purchasing.
Assemble testimonials and metrics from the client to show that you produce a better result at lower cost than they can get from other suppliers.
Simultaneously, reduce your overhead so that if you must cut prices to retain the business, you can afford it.
If you must cut prices, you have other options:
Reduce the cost of resources producing the product and service. Let your client contacts know that you are being forced to do this. This may prompt them to argue that they need more senior experience from your team at the higher rate.
Offer lower prices in exchange for higher volume and longer term purchasing commitments. This can lock out the competition by reducing the frequency of contract renewals.
Remember that the job of the purchasing agent is to reduce costs. The agent who is hounding you is hounding other suppliers as well. If they can negotiate savings from 30% of the suppliers, it’s a big win. Get your ducks in line so that you aren’t in that 30%.