Situation: A company experiences high revenue volatility from month to month, making it difficult to forecast expenses and personnel needs. The company has about 300 clients. Fifty percent of annual revenue is repeat business, with about 10 client projects ongoing at any one time. How do you boost revenue consistency and decrease month-to-month volatility?
Advice from the CEOs:
What you describe is the norm in a service business. Averages across service industries are for 70%-80% of revenue to be from repeat business – more than you have currently. Boosting repeat business reduces your volatility by smoothing revenue across months and quarters.
Ask how you got to this point in the first place. Here are some important questions:
Look at your account development process. Are your account managers cross-selling to other potential customers within a given client to increase service penetration within the client?
Are you talking to the right people within your client accounts? To whom do these people report – what are their most important needs?
Similarly, look at your clients’ major customers and suppliers – is additional business available here?
Do you have an account development plan for each of your major customers? Are there time and performance metrics to assure that the plan is implemented and monitored:
Plan creation by the account manager
Number of new business development meetings with client
Prospective pipeline of business within the account
Are you using the right incentives? Adjust your incentive pay package to encourage business development within existing clients.
How have your organized sales and service delivery? Consider two areas – delivery on existing business and gaining new business from existing customers vs. developing new customers. These require different skills and most likely different people
As an example, one company initially combined key account management and prospecting as a single job. Under this scenario, new customer development was dismal. As soon as the company split the effort into existing account maintenance/expansion, and new account prospecting, new customer development jumped 10x. There was an investment up-front but it quickly paid off.
Situation: A company has an engineering structure which emphasizes function over cost. As a result, there is little collaboration between design and manufacturing, and little design for manufacturability or cost control. This contributes to a last-minute mindset and expensive solutions. How do you shift design engineering and manufacturing from a craft to a lean mindset?
Advice from the CEOs:
Changing how people think and act may also mean changing people. Are you prepared for this? If not, then it may be difficult to achieve the change that you desire.
Let’s use a mindset change in another area – sales compensation – as an example. In this case, the sales team had previously focused primarily on revenue, with no incentive to drive margin. This impact was continuously eroding margins, though the company realized revenue goals. The mindset was changed by introducing a new system with dual incentives: to retain their position, a sales person had to hit at least 85% of their revenue target, however commission was based completely on the gross margin from their sales, with a bump in commissions when they hit 100% of their revenue target. This system drove both revenue and margin targets and was very successful; however, the company lost a few sales reps who couldn’t make the adjustment.
Transferring this lesson to the engineering situation, design an incentive structure that drives both function and low cost manufacturability to achieve both targets simultaneously.
Task your VPs of Operations and Manufacturing – and the key managers of your design and manufacturing teams – to create a dual incentive system that meets both function and manufacturability objectives. Measurements may include:
Actual vs. initial estimated manufacturing costs.
Margin on final product.
Once the parameters are developed, clearly communicate these to all affected employees up front to set clear expectations for the future.
Incentivize your VPs and key managers jointly on collaborative efforts and their ability to develop joint solutions.
Another solution which will speed the process – put design and manufacturing engineering in the same work space instead of separating them. This encourages the teams to work together.
Situation: A company is in the midst of due diligence for sale of the company. Chances of closing the deal are 50/50. The CEO, key staff and the Board must plan for both contingencies. How have you planned for contingencies whether a sale goes through or not?
Advice from the CEOs:
You have to assume that the company will be a going concern. If there’s no hope for the future, there’s no power in the present. Without hope, you can’t establish a motivating vision around which to rally the team. Whether or not the sale goes through:
It is essential that the owners and Board make a commitment to the key employees, if not to the long term business.
Absent a long term commitment to the business, customer initiatives and alliances may prove difficult, because major customers will know that an offer is on the table. They want to be sure that they can count on you for ongoing needs.
The Board and Leadership Team must create a strategy for moving forward.
Key to success will be material and financial commitments from the Board to motivate the Leadership Team to stay on-board.
Retention plans may include:
Sizeable retention bonuses to the team.
If an employee stock-ownership program is in the works, there must be assurance that this will be put into place.
Rules of engagement in the case of future due diligences that will preserve the financial interests of the team.
For the CEO, support of the Board is crucial. It is imperative that the CEO impress on the Board how critical their support is to both the company and their own financial and fiduciary interests. If the Board fails to make commitment to the team and company moving forward, it will be difficult to create a winning strategy.
Situation: A company needs a strong pool of engineers in their market niche to stay ahead of the competition. Their niche is specialized with little transferability from other engineering specialties. They struggle to find local talent and relocation expenses are high. How have you recruited hard-to-find talent?
Advice from the CEOs:
If you want a mix of fresh and experienced talent and need to add 3 to 5 new engineers per year to keep up with growth and turnover, you will be hiring a new engineer every 2-3 months so you need a standardized, repeatable process that is ongoing. If you don’t have either in-house or reliable outsourced HR capabilities, you need to secure this as soon as possible.
Consider establishing a satellite office in a geographic area which has an available talent pool.
Look for areas with a top university engineering program in your field.
Look at your key competitors’ locations and see whether they are in areas with both the educational and industrial-technology base to be a candidate location.
As you develop a new geography, forge strong relationships with the university programs that can feed you the younger talent that you need. This is a win-win relationship, because universities are focused on their placement statistics and corporate support.
Get to know the professors in your specialty and explore establishing a center of study or excellence within the engineering programs.
One company works closely with Santa Clara University and developed a program that offers financial rewards for the best technical papers produced by students in their specialty. This has created a buzz around the company, helped to establish a study program in their specialty, and enables them to attract the best and brightest graduates.
As you establish a reputation for attracting the best younger talent, this can help you to attract seasoned talent that wants to work with the brightest young talent in the field.
Another option is to find 2-3 key experienced engineers who are willing to relocate for the opportunity to build a new team.