Author Archives: Sandy

About Sandy

Publisher, Ceo2Ceos.com Adjunct Instructor, Southwestern Indian Polytechnic Institute

How Do You Compete Against Free Software? Six Tactics

Situation: A boutique software company with superior expertise in their market competes against a large corporation that provides similar software for “free.” The competitor sells systems with their software pre-installed; however, these systems are known to work better with the boutique company’s software. How do you compete against free software?

Advice from the CEOs:

  • Create an alternate message that rings consistently through your advertising, speaking, and media. The core of this message is that if you want a successful experience with the competitor’s installation, the only clear choice is your software. Feature data from your case studies showing improvements in performance, savings of time and resources, etc.
  • Your best target is customers who are in the proof of concept stage. Here they are learning about the system and dealing with the early challenges with the software installed by the competitor. They not only have to pay for the system, but they must pay for installation services. If you can demonstrate both cost savings and smoother operation they will be open to your pitch.
  • Keep a list of the competitor’s trial sites and approach them three months after they try the pre-installed software. Have case studies in hand that demonstrate the clear superiority of your software. At this point they will have experienced enough during the trial that they will be open to your sales message.
  • Focus on the regional rales organizations of your competitor – the people who sell the competitor’s equipment. The RSOs are driven purely by sales performance. Show them that it is easier to sell their systems, and that trials go more smoothly when they recommend your software as part of the sale.
    • Your message: with our software your trial installations go more smoothly; without our software, the entire system sale is at risk.
  • Continue to refine your search engine optimization so that you appear in the first five hits when anybody asks about the competitor’s systems or software.
  • Find an independent Blogger who cares and wants to spread the message that your software is the only way to go with the competitor’s system. Continually feed this blogger with fresh material from your field sales experience.

How Do You Manage Family in a Business? Three Approaches

Situation: The CEO of a family-owned business finds it difficult to hold family-member managers accountable. They are responsible for significant portions of the business; however, family dynamics make it hard to supervise them. How do you communicate that their responsibilities affect both the business and the family? How to you manage family in a business?

Advice from the CEOs:

  • The first issue: Why have they not been asked for accountability to date? If you don’t ask for accountability, then don’t expect them to take this on by themselves.
  • Assign one family member responsibility for developing the marketing and sales strategy for the company.
    • Change the compensation from salary to salary plus commission. Over a 6-month period, reduce the base salary to half of what this individual currently earns and tie the rest to success increasing sales.
    • Assign this person responsibility for analyzing the markets that you serve. Are there areas that the company has not tapped into yet? What can you do to make your web site up more effective at driving sales? How can you use exclusivity on select products to your advantage?
  • When was the last time that the principals of the business met to figure out what to do?
    • Set the stage: we have split the business into two divisions and have separated the financials. This gives us more flexibility as we develop the business.
    • Show them the trends of each business.
    • Show them that if the current trend continues the business will be unsustainable in X years.
    • Facilitate a discussion that will start to generate solutions.
    • If the others do not respond:
      • Tell them that you appreciate their attendance at today’s meeting.
      • Tell them that you will meet in another two days as a team. Until then you expect them to think things over and to come ready to share their ideas.
    • Do not hold the meeting in your office or conference room. Secure an off-site neutral location with a white board.
    • If you are uncomfortable facilitating this meeting hire an outside facilitator. Ask for the input of the others in selecting a facilitator and follow their recommendation. If you work with a facilitator, start with your own dilemmas to set the tone.

How Do You Finance Growth? Three Options

Situation: A mid-sized company faces challenges financing their growth. Investment of time, energy and resources precedes the reward of future revenue. It can be difficult to balance the cash needs of current operations with new growth opportunities. How do you finance growth?

Advice from the CEOs:

  • Have you analyzed growth opportunities and evaluated which could increase your cash flow? For example, if you increase manufacturing efficiency, can the savings help to finance growth?
  • If you produce parts or products for start-ups, can you structure the relationship so that if the start-up become successful and is subsequently purchased by a larger company there is a bonus payoff for the work that you’ve done?
    • Analyze – by project, not company – the jobs you’ve done that have eventually become large volume opportunities. Try segmenting your analysis based on the source of the original project: jobs for start-ups, mid-sized and large companies. This may provide insight on where to focus future efforts.
  • Another company performs clinical services for both big pharmaceutical companies and start-ups. To take advantage of the upside from working with start-ups they take payment both in cash and in stock.
    • One option is to set up a separate Investment LLC – not tied to the operating company but owned by the same people – that takes the stock position and can, at its option, provide limited venture funding to start-ups.
    • Start-ups are not yet threats to your large customers but are potential future acquisition targets. Because the stock financing is done outside of the operating company, it is more difficult to trace back to the operating company. Further, competing large companies have not tended to see these investments as threatening the way that they would view direct investment by the company in a competitor. At the time of acquisition by the larger company, the member’s ownership position in the start-up is liquidated.

How Do You Expand Your Customer Base? Five Strategies

Situation: A web-based software solution company wants to expand their customer base. They have several large clients, and want to expand their presence both geographically and to additional sectors. How do you position the offering to appeal to a larger audience? How do you expand your customer base?

Advice from the CEOs:

  • In customer presentations, talk about out-tasking versus out-sourcing. This is less threatening to the customer’s existing IT and analyst infrastructure. It allows you to focus on your strength and to build a pitch that augments the customer’s current capabilities.
  • Is there a trade-off between customer depth and breadth of adoption?
    • Test doing both on a limited scale. Go deeper in four accounts, and simultaneously focus on one application that you can rapidly sell to 20 accounts.
    • This exercise will help you to find the right balance.
  • Look at customers with whom you have had early success. Those customers are proof cases. Look for similar prospects who will respect the experience of the early adopters.
    • Take a current client who has had success with your applications. Go to similar state and regional companies who will respect the first company’s experience. This will help you to create a national presence in a sector or industry.
  • Build strategic alliance partnerships.
    • For example, take a potential customer that wants to be an application service provider.
    • Look for other companies serving that customer who could benefit from an alliance with your company. Build an alliance to offer bundled services to the potential customer.
    • If you do not have someone in this important business development role, you need it.
    • The Association of Strategic Alliance Professionals is a great place to start strategic alliances.
  • Work more deeply with your current clients. Offer additional applications, subscriptions and offer combinations of services.

How Do You Manage Culture as You Grow? Six Solutions

Situation: A tech company has grown to twenty people. The CEO is concerned that if they grow much beyond this their culture will start to change. The principal question is whether team leadership structure will remain tight and focused, while teams will continue to be flexible and have fun. How do you manage culture as you grow?

Advice from the CEOs:

  • Other companies have grown to twice this size and continue to increase their number of employees.
    • One uses component owners as leads, with people under them. Leads are more technical than managers and aren’t expected to be superb managers.
    • They grow middle managers organically instead of hiring from outside.
    • If an individual’s plate is full, give them the ability to delegate work to an up and comer.
  • Active communication has number limits.
    • The optimal functioning group is 7-12; higher functioning teams are even smaller with 7-8 members.
    • Create flexible teams that maintain communication pathways and culture.
    • Consider using reconfigurable space.
  • When one company grew from 25 to 60, they noticed that at 30 people it became difficult to track people; they needed to develop systems and internal management tools.
    • Much more attention was needed on sales forecasting and expense elasticity. The solution was to study peaks and valleys and built a model that could function within historic peak /valley limits.
  • How do you maintain the contractor pool?
    • Keep a list and actively communicate with them about current and anticipated needs.
    • One company’s rule: consultants are 100% billable – functionally they are only able to realize 98%, but the rule keeps this number high.
  • Use contractor pools to supplement project tasks. If your primary differentiating focus is on successfully closing projects, focus contractors on ramping new projects.
  • Hire people who embody you and your culture. Hire in your own image.

How Do You Prepare for an Acquisition? Six Suggestions

Situation: A company is purchasing another company to expand its product offering. The CEO is concerned that the employees need to stay focused through the closing date. He is also concerned about retaining key employees both of his company and the company that he is buying. How do you prepare for an acquisition?

Advice from the CEOs:

  • Until the deal closes, don’t change anything about your current direction.
  • As you negotiate and move to close, be mindful of competitive bids.
    • This will help to keep the deal in place.
    • It may also open the option to put together the deal and then seek competitive bids to fund the deal through private equity groups.
  • Get three second opinions – learn what could go wrong with this deal so that you can plan and anticipate.
  • To assure that you retain key staff take the following steps:
    • Hire consultants: HR, financial, see what they recommend.
    • Offer key employers favorably priced options for a combined minority position in the company. This offers them an upside and will be an effective retention package.
  • What else can be done to retain key employees.
    • Let them know how this acquisition will position the company as the Dream Team company in your space.
    • Explain how this acquisition gets the company closer to a true exit strategy which will be financially beneficial to them.
  • If you can assure key employees that they will not experience any change in their job, title, responsibilities or compensation, retention may not be an issue.

Do You Merge, Sell or Revive a Business? Four Areas of Focus

Situation: A company is at a crossroads. They are no longer growing as they have in past years. The CEO is assessing alternatives including a merger, selling the company or restructuring. What are the essential questions to determine whether you merge, sell or revive a business?

Advice from the CEOs:

  • Do you really have the information to determine whether it makes sense to merge, sell or revive the business? The questions to ask are:
    • Is your core competency important?
    • Do you have the talent required to revive the business?
    • How much of your business is from repeat customers?
    • Is your platform still being used by a significant number of companies, and are they likely to shift their software soon?
    • If the answers are favorable, then the only remaining question is whether you have the energy and inclination to continue.
  • Having developed a profitable business model, why would you give up control or ownership?
    • Tighten up the business by focusing on the basics and turn the company around.
    • Identify where you can make money, and
    • Determine which portions of the business need to be restructured or eliminated.
    • Essential questions are:
      • Do you have a clear picture of where the profitability lies within the business?
      • Do you have a clear statement of your key competitive advantage – your “Main Thing”?
      • Can you establish a pricing strategy that pays you fairly for the value you provide?
  • Look at bench time among current employees.
    • Identify, and fully utilize the most important contributors, perhaps by giving them additional responsibilities in other areas.
    • See that all retained employees are fully utilized.
    • Eliminate those who are on the bench the most, or transform them into contractors so that you only pay for active time.
    • Utilize contractors to fill the “full service” slots that are important to your service offering but which do not contribute significantly to your bottom line.
  • Most importantly, reformat your role so that you are doing that which you truly enjoy. Your own enthusiasm and passion are the most important long-term drivers for your business, and will be the most important motivators to your staff.

How Do You Maintain Your Culture as You Grow? Five Thoughts

Situation: A professional services company wants to grow while maintaining the small company atmosphere that has been the key to its success. There is a limit to how many clients a manager can manage, and with this the reality that if the firm is to grow they will have to bring on more client managers and support personnel. How do you maintain your culture as you grow?

Advice from the CEOs:

  • To maintain your boutique atmosphere, consider hiring to fit your needs rather than to maintain a culture. Use team meetings to direct team members while communicating and instilling the culture that you wish to maintain.
  • Don’t risk diluting the strength of your client relationships. A $250K client who is fully committed to your service may have more demands than a $1M client for whom you only represent 10% of their business.
  • Service companies with the highest profit ratios rotate customer contact among several qualified people. What matters is the level of service provided, not the individual providing the service.
  • Grow by adding locations. Instead of growing vertically in the same office, grow modularly by spawning additional offices.
    • Create an optimally sized model for the level of service that you wish to deliver.
    • Design the organizational structure for this model and identify the order in which slots will be filled as business grows through each office.
    • Develop a service and organizational template with standard operating procedures, metrics, technology, and reporting.
    • Once the model is created, spawn it.
  • Focus your business. Define a niche that you can serve better than your competitors. Focus on this niche and develop a sustainable advantage over your competition.
    • Assure that your service delivery is seamless to the client and make sure that it remains seamless.
    • Offer a menu of service options and price options by the level of service delivered. Some will want to buy a Mercedes, and some will be happy with a reliable lower priced sedan.

How Do You Evaluate an Acquisition Opportunity? Four Issues

Situation: A company is considering purchasing a line from another company to complement its existing product line. They would split commissions with the current owner, and gain an additional employee with knowledge of the products to be acquired. The purchase would add to the company’s offering, as well as rights to additional products. The CEO sees this as a low risk move. How do you evaluate an acquisition opportunity?

Advice from the CEOs:

  • In evaluating a commission split opportunity, will the commissions that you would receive exceed the cost of both the additional employee which you will add, plus the support that it will require to maintain the new business? Do the new commissions cover the anticipated costs, plus a reasonable profit?
  • Have you vetted the numbers to demonstrate that this purchase provides a suitable return on investment vs. other potential investments that you could make? Is the marginal revenue that you will receive greater than the marginal cost that you will bear? Is the ROI of the new line greater than your cost of capital? If not, what can you do to improve the return?
  • Looking at your current operations, do you have your existing shop in order? Have you calculated the metrics that will allow you to understand, where you’ve been, where you are, and which provide a clear vision of where you want to go? If not, the question is whether you are ready to take on another line.
  • The bottom line question is – how do you know that this acquisition is the best use of your funds?

How do You Manage a Key Partner Relationship? Five Points

Situation: A company was created from IP originally developed by the founder at a large corporation that was not interested in commercializing it. The new company has now become successful and visible, with the large corporation as an important partner. The CEO wants to make sure that she has all bases covered to secure the future of the new company. How do you manage a key partner relationship?

Advice from the CEOs:

  • There must be clear agreement between the company and partner on ownership of the original IP – a legal document signed by both parties. You can bet that should a conflict arise, the lawyers representing the larger company will argue that their client owns the IP. Once this is secured, focus on developing and licensing software that you clearly own.
  • Develop contingency plans should the key partner decide to exit the business on which your relationship is based. Identify what other companies could replace lost revenue. Start to build these relationships.
  • If the partner helps to fund current development, take the money that you save and develop your own IP, independent of the partner relationship. As an alternative, at least develop critical components of the software as your own IP, without using the partner’s funding.
    • This will free you to develop other customer segments to broaden your business base.
  • What concerns does the partner have? Strategically, large corporations can be uncomfortable if they feel dependent upon a much smaller company. There are two things that you do:
    • Makes a concerted effort to assure that you are essential to the large corporation’s overall business.
    • Make change as painful as possible.
  • How would you get paid if the large partner exited the relationship?
    • Negotiate a contract with a 2-year window to any change that partner wants to make. This will provide you with the room to develop new clientele should the partner exit.
    • Have contingency plans to rebuild capabilities that might be lost and sell it to other clients.
    • Customize your software by client. In the process, you will develop new methods to keep your edge over competitors.
    • Keep critical parts of your processes “manual” so that they are essentially trade secrets and not easily replicable if the partner were to try to take over the IP.