Author Archives: Sandy

About Sandy

Publisher, Ceo2Ceos.com

How Do You Plan for Business Expansion? Five Factors

Situation: A company has built a very successful single site business, and wants to expand geographically. They are investigating where it makes sense to duplicate operations in new sites and where it makes sense to consolidate operations. The company’s secret sauce is in their system and procedures. How do you plan for business expansion?

Advice from the CEOs:

  • Look at the shared services piece and the cost/benefit tradeoffs. What services are best centralized, and what are the critical on-site services that you want duplicate in remote sites?
  • Other companies use remote offices for field personnel, but centralize all shared services. Centralized shared services include invoicing and collections, financial reporting, telemarketing, anything dealing with trade names and print or trade-marked collateral, and an array of other services which would be too expensive for individual sites to duplicate, or where leaving things to the individual sites might result in inconsistency of service and erosion of the brand.
  • How do you replicate key talent? Consider whether key talent can be retained in the shared services side of the business, not the cloneable service delivery sites. Typical franchise operations have people who are difficult to replace or replicate so most do not try to include these roles in the service delivery operations.
  • You will need to provide for a sales role in your remote offices as business development will be critical to early success of new sites.
  • In the transition from “successful small” to “successful large” most businesses find that the medium stage is the most difficult. Issues to consider include:
    • Does your direction match your expertise – do you have support of individuals knowledgeable about franchising?
    • What are the margin differentials within the business? Do you want to clone the high or low-margin areas of the business? Develop profitability models for your central and remote sites, and assure that the sites will have sufficient profitability to assure their short-term success. This will make it easier to proliferate the remote sites.

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How Do You Plan for Market Evolution? Three Suggestions

Situation: A tech company competes in a rapidly changing marketplace. The companies they serve constantly evolve their platforms. The company must respond rapidly to assure compatibility with both hardware and software innovations. Users adapt to new platforms at different rates, and the company must address their needs, as well. With so much time spent tending these diverse needs, how do they plan for market evolution?

Advice from the CEOs:

  • In the market you serve you must constantly reinvent yourselves as technology changes. Some platforms make changes on a 5-year cycle, while mobile platforms are currently on a 6-month cycle. This may force choices as to which platforms to serve. You also may want to focus on platforms where what you bring to the table is most useful.
  • You have made the strategic choice to tie the future of your company to a few large companies that dominate their markets. It is imperative that you cultivate close relationships with the technology as well as strategic leadership of those companies. This will give you more advanced insight into their plans, and they may even involve you in discussions about how the market evolves. If so, you will have positioned yourself for that evolution. These relationships may also become your exit strategy.
  • Businesses run on cash, or access to cash. As you cultivate relationships with your key customer companies, look for opportunities to invest in developing markets on a subscription basis which will provide ongoing annuity revenue. Figuring out how to leverage advertising or positioning options into your offering offers an additional revenue stream.

What is an Effective Sales Compensation Plan? Seven Thoughts

Situation: The CEO of a software company pays a high base and incentives for their key sales person. While this is in line with the company’s industry, the CEO wants the opinions of others as to the comp packages they offer and any controls that they put in place. What is an effective sales compensation plan?

Advice from the CEOs:

  • While the paid seems high, your industry may be different from other industries. Most see a 50/50 split between base and incentive as the norm.
  • Consider a draw system so that if the individual falls behind you have the option to reduce future draws.
  • Look at both the compensation formulas, and at the individuals’ predilections and the behaviors that you want to generate. Compensation should align with desired behavior and results.
  • Do you have bonus incentive plans in place for your sales support people? Consider these, and check whether the goals and objectives for your sales and support people complement each other. They should.
  • Consider a discretionary bonus pot that you can use to reward specific achievements at your discretion.
  • What will you do if your sales person performs significantly below target – for example, this person is only hitting 40% of the objective after 2-3 quarters?
    • Consequences for non-performance should be clearly understood by both you and the employee before you launch any new plan with the individual.
  • Whatever you decide for this person, you may well be setting a standard that you will have to live with as you hire additional sales personnel.

What is a Fair Revenue Split? Five Pieces of Advice

Situation: A professional services company is constructed as a network of members. The company’s contract specifies that if a member of their network goes to work for a client – even a client that the member brought to them – the client owes the company a fee of 50% of either the member’s salary or the annual consulting revenue paid to the member. This is onerous. What is the best way to respond? What is a fair revenue split?

Advice from the CEOs:

  • This does seem like an onerous provision. It is unclear whether the bite is as fierce as the growl.
  • Consult a lawyer. If you quit the network and go to work for the client, what is the level of risk that the company will successfully sue, and what you can do to mitigate this risk?
  • If the offer from the client is appealing, quit or avoid using this company’s services. Given their cut to your revenue you will see a net gain in your own pay for services rendered.
  • If several members agree that this stipulation is onerous, team up and start your own network with better terms. This can provide you and the others with an annuity revenue stream.
  • Integrity in professional circles is everything. Whatever course you decide on, be up front.

What is a Reasonable Broker Commission? Five Thoughts

Situation: A company has contracted with a broker to sell the company. At the minimum acceptable sale price to the founder, the commission would be 2.5%. Is this reasonable? How should the founder think about earn-outs, residual payments, and role post-sale? What is a reasonable broker commission?

Advice from the CEOs:

  • The proposed commission structure looks reasonable. To validate this, ask merger and acquisition experts what they think reasonable commission rates on a sale of this size looks like in the current market.
  • Beware of earn-outs – don’t take them if offered, at least not without a fight. The challenge with earn-outs is that it may tempt the buyer to report the books in a way that minimizes your share. This will depend upon the terms, but experience advises against this alternative.
  • Similarly, you don’t want a residual payment conditioned upon your remaining with the company for a period following the sale. The buyer will ask because they see you as important. Counter with an employment agreement at twice your current salary.
  • Your job following the sale is assuring a smooth transition, not company growth. Growth is the new owner’s responsibility. They wouldn’t be talking to you if they didn’t see a growth opportunity.
  • Understand that their vision for the company is not yours. Accept this gracefully. Once the company is sold it is no longer your company.

How Do You Negotiate Contract Terms? Three Recommendations

Situation: A company has secured a significant new contract with a new, large customer. The customer sent over their standard, non-negotiable contract which includes the right to cancel orders anytime, even if the company has invested significant funds preparing product against those orders. How does the company respond? How do you negotiate contract terms?

Advice from the CEOs:

  • Before you sign the contract talk to the customer about restocking or cancellation fees in cases where you have already invested irrecoverable funds against the customer’s orders. See if they will adjust their purchase order clause or offer language to cover unrecoverable costs.
  • If the customer says that they cannot change the contract, ask for an addendum or side letter of understanding that will protect you from loss of sunk costs against cancelled orders.
  • If the customer will not bend on any contract language, you can go ahead and sign the contract and then take care of your needs as they submit purchase orders. Create a stamp that you can stamp on their purchase orders defining your protections. Each PO is a new contract that supersedes the general contract.

How Do You Rebuild a Company? Nine Strategies

Situation: A CEO is in the process of rebuilding the firm following a period of inactivity. Historically their marketing was word-of-mouth. How do you reestablishing a network which has been dormant for a period, find new clients and communicate an updated value proposition? How do you rebuild a company?

Advice from the CEOs:

  • Track down and visit old customers and contacts. Let them know that you are rebuilding the company and ask for their advice and help.
  • Use LinkedIn to find and reconnect with old contacts. Have breakfast or lunch with them, even those who are retired. Reestablish old connections and ask for an update on their companies and activities.
  • Focus on your knowledge base and the results that you’ve produced historically. There are more technology choices available now than there were in the past. Help old and prospective new clients to navigate the array of choices.
  • Development assessments to show your prospects where they are and where they need to focus their effort.
  • Many have built companies on their own – without professional assistance. The results often look good on the surface but lack a solid foundation. You have the perspective and expertise to bring it all together in a coherent and cohesive strategy.
  • Rejoin professional associations and networks that you may have dropped.
  • Go virtual – use virtual assistants to manage expenses while you rebuild.
  • Do webinars, and give talks on developing and executing a successful plan.
  • Create some pro-bono or low-cost programs for charities. Your target is the Board Members who may become future clients.

How Do You Create HR Using Outside Resources? Four Thoughts

Situation: A company started small with everyone wearing many hats including the person in charge of HR. They wish to create a more formal HR structure with professional advice, but don’t yet want to hire a full-time HR professional. How do you create HR using outside resources?

Advice from the CEOs:

  • One company outsources their full HR function. Services include:
    • Putting records in order and maintaining them.
    • Developing different hiring packages for different levels of employees.
    • Recruiting.
    • Keeping the company and employees updated on compliance regulations.
    • Coordinating on-boarding and training.
  • There are several national HR and personnel outsourcing companies that can help. Examples include Paychex and ADT. There are also a large number of local providers. Network with your business peers or check out your local Chamber of Commerce to learn who these providers are.
  • What about training?
    • Outsourced HR professionals can organize training for formal certifications and some aspects of job skills training.
    • Training in company culture should be done by company leadership. Outsourced HR can organize schedules for this. The key point is that company leadership is the face of the company and the foundation of company culture. This can’t be effectively outsourced.
    • In some cases, training can be done via video. Outsourced HR can help to plan and coordinate creation of the videos, and can then schedule video training for new employees.
  • Have your in-house person join an HR roundtable to embellish their own training.

How Do You Create Consistency in a Business? Six Suggestions

Situation: A CEO feels like he is on a roller coaster ride with unpredictable revenue and processes month to month. His ideal outcome will be to be able to go on vacation for 4-6 weeks, and have the business running better when he returns than when he left. Have you managed to achieve this? How do you create consistency in a business?

Advice from the CEOs:

  • Make your managers live up to their titles.
    • Insist that they go to each other to solve problems first, instead of always asking you.
    • When they ask a question, answer how to solve it – but don’t give them the solution.
    • Require them to present solutions rather than 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.
  • You should not be doing jobs or tasks that are really your employees’ responsibilities.
  • When you start to delegate, it hurts for a while but it will work itself out.
  • What has been the impact on other companies when they’ve made these changes?
    • Businesses have become more diversified.
    • CEOs are focused strategically vs. tactically.
    • Businesses are more successful and profitable.
    • CEOs enjoy coming to work again.
  • How do you work with younger workers, millennials?
    • Allow flexibility – where appropriate – on hours and how they do their jobs.
    • Responsibility will vary by pay level – with the understanding that higher pay equals more responsibility and most likely longer hours.

Should a Start-up Focus on Team Dynamics? Four Thoughts

Situation: An early stage company is wrestling with team dynamics and coordinating the achievement of critical milestones. The strategic picture seems to change on almost a daily basis. New employees who have big company experience want to see formal job descriptions and role definition. Older employees are jealous of the attention that newer, more highly qualified employees are receiving. Where should the CEO be focusing. How should she be handling these challenges? Should a start-up focus on team dynamics?

Advice from the CEOs:

  • At this point, the company is in start-up stage. The most critical issue isn’t team dynamics, it’s getting a product to market and demonstrating that you can sell it. If you don’t have a product, you don’t have a company.
  • Your top 4 areas of focus for the next 3-6 months should be:
    • Get the product out.
    • Close 3-4 good customers – preferably customers that you can reference.
    • Securing the funding – partnership or investor – that will get you to your next key milestones or to positive cash flow.
    • Build your organization and keep planning.
  • As an early stage company, distinct roles and job definitions make no sense. Your strategic picture is currently very dynamic. You need good people who can flexibly wear several hats and fill diverse roles.
    • If employees with big company backgrounds press you on job descriptions and role definitions, tell them that as a small company you must be quick on your feet, and that you need them to fill flexible roles. As you grow beyond 35 employees then roles will start to become more clarified. Ask for their patience.
    • If they continue to struggle with loose role definitions, then they aren’t the right people for an early stage company.
  • Employees who started with you early were great for the beginning. However, they may not be the best for you long-term. They may feel hurt as newer employees with deeper expertise and resumes start to replace them. In the interests of the company, the game is not longevity with the company; it’s about quality and putting the most competent people in the most critical roles.
    • If you are playing pick-up basketball, you play with whoever comes along.
    • If you decide to form a team and to compete, you need quality players. Some of your pick-up players won’t make the cut and need to go find another pick-up game.