Category Archives: Finance

What is the Best Way to Roll out a Business Opportunity? Six Suggestions

Situation: A CEO is reviewing options for introducing a new offering. The target customers are small companies or projects within larger companies. The offering includes both an initial product and follow-on services. Education or training will be a component of the offering. What is the best way to roll out a business opportunity?

Advice from the CEOs:

  • It is best to position the offering as a straightforward proposition at launch and develop proof of concept. This will provide experience and an income stream to fund more complex offerings based on the initial model.
    • It will also provide insight on how to sell the product and service in different markets – manufacturing, service, and software.
    • Leverage this experience to pursue more complex models.
  • Build a portfolio of case studies before pitching to paying companies.
    • Use companies with whom relationships already exist as the proving base. These will become references for new clients.
    • Develop data to show actual cost savings from the use of the product and services.
  • Establish a relationship with an existing company for which the offering is complimentary and cross-offer products and services on an ad hoc basis.
    • Trial the product and service with one of their clients in return for a royalty or share of the profit.
    • Ask that company to make the introduction.
  • Target start-ups – offer an initial package for a low price. Offer the product to start-ups for free and get them hooked as long-term customers.
  • What would be needed to roll the offering through growth equity firms or venture capitalists?
    • This will require some proof that the offering increases the ROI to growth equity and VC portfolio companies and funds.
    • Note that the portfolio companies of growth equity firms are larger and farther up the growth curve
  • In current economy the key message to prospects may be that the offering will help them to “right size” their company.
    • Take a closer look at the offering and determine whether it is configured appropriately for the current environment.

How Do You Shift Culture as the Company Grows? 12 Challenges & Countermeasures

Situation: A company has grown through its expertise consulting for other companies. For its next growth step the CEO and Board want to shift to a project basis. This entails several changes, from compensation to organization and focus. How do you shift culture as the company grows?

Advice from the CEOs:

  • Risks & Challenges
    • Biggest risk – dissatisfied employees who see less billable income per hour and may not see the “more hours” part of the picture.
    • The biggest personnel challenge will be those who have been with the company for many years, and who will see the most change – maybe not to their specific practices if they can bring in business, but on the project side.
    • Communication is a critical challenge, and also the best way to avoid landmines. Put a velvet glove on the presentation of the opportunity: “This is good news – we know that the low hanging fruit is now mostly gone, and that the remaining fruit is higher; to counter this we now have more options.” Carefully prepare communications to both management and consultant team members.
    • Another potential landmine – the impact on the company’s reputation if it blows up after a year. Set appropriate expectations – the company is introducing a new program rather than a wholesale rebranding.
  • Countermeasures to Mitigate the Risks
    • Maintain a structural option that preserves the old model for those who can bring in new projects and who prefer this model. For them, the new model is just an option that can help tide them over if there are gaps between the projects that they bring in.
    • Present the project option as new opportunity. Give more senior and experienced consultants priority in choosing whether to participate or not in new project work.
    • Plan and create the ability to assess the old consultancy model vs. the new project model. This will be especially important when individuals are spending part of their time in each area.
    • Create a set of metrics for each business – the consulting and project businesses – to measure whether they are on track. Identify and monitor the drivers for each business.
    • Keep the title Consultant on consultants’ business cards – Consultant, Sr. Consultant, etc. Allow them to continue to take pride in their role.
    • Move to the new model through a planned phase-in but retain the option to adjust the speed of transition between the old and new models. This will allow sensitivity to changes in the environment.
    • Don’t consider an immediate and complete rebranding – think in terms of introducing a new product under the company’s well-known brand. Plan a gradual transition of business to the new model. Introduce the new product as a new offering. As it picks up steam, gradually move brand identification and promise to the new model.
    • For the new project model, create incentives for project performance. Show team members that while the hourly rate may be less, if they perform as a team they will share the upside through project bonuses.

How Do You Improve Your Company Presentation? Four Points

Situation: The CEO of a specialty company that is a leader in their market asked the group to review the company presentation. The members of the group were asked to put themselves in the place of a potential customer or investor. How do you improve your company presentation?

Advice from the CEOs:

  • Don’t assume that the audience has a sophisticated understanding either of the company’s market or its technology. In any pitch either to a new prospect or for funding there will be individuals in the audience who are not experts. The pitch needs to deliver a message that any listener can easily translate to any colleague.
    • Give brief examples from the experience of current customers to make the technology and its advantages concrete.
  • What is the problem that the company solves?
    • State up front: What is the pain – why is it there? How does the company’s solution address this pain? What’s the impact?
    • Show market potential and explain why the company’s solution will be a home run.
    • What makes the company’s solution unique and gives it a sustainable advantage?
    • Assume Ignorance – KISS – Keep It Simple Silly!
    • The presentation should be high level, easy to understand, and crystal clear in 5 minutes.
  • Establish credibility by summarizing current success and list the names of current customers.
  • For presentations to investors have ready answers for the following questions:
    • How the funding sought accelerate development, and what is the expected return that this will produce?
    • Assure that timelines are realistic, particularly for a ground-breaking technology.
    • Do not be vague in answers to questions like “what is your market share?” Answers must be crisp and believable. If additional documentation is required to validate company estimates have a back-up slide in the presentation to address this. Keep the explanation in the back-up slide simple, even if the analysis is complex.
    • Add an expectation of return on investment. What equity will the company give for an investment of $X. State the company’s pre-money valuation as a believable number. Then give an estimated 3-year post money valuation with $X investment. Investors will discount anything number given but will not want a range.

How Do You Plan for Patent Expiration? Six Suggestions

Situation: A company is facing the expiration of the principal patent for its main product. There are subsidiary patents which still have life. Currently, there are no competing products, but several companies understand the technology. How do you plan for patent expiration?

Advice from the CEOs:

  • Think of this as a two-step process:
    • Step 1 – Step back and look at what the company has:
      • Patents – including the claims that have been awarded on all company patents.
      • Facilities – capable of manufacturing current products, but also additional products, perhaps with a minimum of additional equipment.
      • People – competent staff running manufacturing operations, and tight office operations.
    • Step 2 – Loot at where the company could go and evaluate the markets where the existing technology is applicable:
      • Work with outside, imaginative people who can take a fresh look at the options.
  • Looks carefully at the claims in all the company’s patents.
    • What do they cover?
    • Is there an opportunity to extend current claims through process patents?
    • Caveat: a company can file for a process patent on anything that has been for sale on the market for less than a year. However, if they have been selling a product covered by this application for more than a year, they cannot.
  • Look at other markets – companies that could license the company’s technology, or with whom the company could partner to provide new consumer-oriented products:
    • Is there inexpensive, affordable equipment that would enable the company to produce additional products in the current location?
  • Think outside the box: what business is the company in? Think more broadly than the current market about where high value opportunities exist. These can be low to medium volume, high price/margin or high-volume lower price/margin.
  • Patents are not the only protection – trade secrets also work. 3M’s primary IP strategy, particularly on their adhesives, etc. is through trade secret – both for low and high-volume products.
  • “Product” patent extensions have limited utility. They are easy to design around. “Process” patents have more utility. These can be licensed at low cost per application in high volume applications and provide a nice royalty reserve stream.

How Do You Respond to a Price Increase from a Supplier? Six Points

Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?

Advice from the CEOs:

  • This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
  • Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
  • Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
  • Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
  • Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
  • Start building relationships with alternate suppliers.

How Do You Construct a Business Acquisition? Five Essential Points

Situation: A CEO has an option to purchase another company with whom they have a long and good relationship. A smooth transition will be important. The owner’s relationship with their customers is central to their success, as is his employees’ knowledge of their key accounts. How does the CEO assure that these relationships are retained? How do you construct a business acquisition?

Advice from the CEOs:

  • Based on the CEO’s responses to the Forum’s questions, the owner of the other company needs this deal more than the acquiring company needs him. This creates a strong bargaining position.
  • The owner of the business is the business and the key to a smooth transition post acquisition. Retaining his ongoing involvement – at least for a reasonable period – is essential to gaining maximum value from this acquisition.
  • The value of this business is its people: the owner’s relationships, and both the owner’s and his employees’ knowledge of their key accounts. His employees know the inner workings of their customers’ businesses. These are the relationships and the knowledge needed to assure that the acquisition is profitable post-close. Retention clauses and penalties must be part of the agreement.
  • If the owner wants 50% of the net income generated from his piece of the surviving company during a transition period, this is fair. However, the financial and operational details of the transition and his share of the income must be spelled out in the agreement and the agreement must assure that there is proper follow-through to qualify for the payments.
  • The income from the owner’s accounts must support his salary. However, even with this the owner will still cost the acquirer time and energy. Plan for this and budget for it in the agreement.

How Do You Monetize a New Venture? Eleven Suggestions

Situation: An entrepreneur has created a new business offering a critical service but struggles with how to monetize it. The primary clients don’t have the resources to fund it viably. What alternative sources of funds or revenue can be found? How do you monetize a new venture?

Advice from the CEOs:

  • The venture’s brand name must carry the message – the name must describe the mission.
  • One of the core messages is reciprocity. Reinforce this theme all over the site.
  • Testimonials are critical. Testimonial videos of real users personalize the experience. These drive participant acquisition and contributions.
  • Make participants feel like they are a part of a community.
    • Consider a variety of landing pages – same database but different doors of entry.
    • Encourage even more communication within specific target communities.
  • Look at MySpace vs. Facebook to guide the model:
    • MySpace was already big when Facebook launched.
    • Facebook exploded by making itself a more closed community – all exclusive colleges and Universities.
    • Monetize via donation or advertising vs. subscription. Fees could kill the opportunity. Too many other resources are available for free.
  • The key appeal is enabling people to do something that makes them feel good.
    • Post stories from those who have succeeded as a result of the platform, as well as those who have helped on the site. This will inspire others to participate.
  • How do you recruit new participants?
    • Some CEOs joined LinkedIn because of peer pressure – after enough people asked them to join, they did.
    • Install a template to encourage people to invite new participants – allow new participants to tell their story and the need that the service fulfills for them.
  • Consider adding premium content to the site, but only for those who have made contributions – monetary or in-kind.
  • Consider Fremium to Premium. In the Fremium model include a banner ad for users, like a university Training Institute.
  • Consider creating an advice network. Post questions and ask for answers from the community. Include an option to click to become a contributing participant.
  • Online there are eyeballs vs. action – the action is what matters.

How Are Your Relations with Your Bank? Seven Points

Situation: A CEO’s company is short of cash to make a scheduled payment against a line of credit. They have been notified that if the payment isn’t made, the bank will transfer cash from the company’s checking account to satisfy the payment. This would compromise their ability to meet payroll and pay vendors. How are your relations with your bank?

Advice from the CEOs:

  • What the company needs is time, so that they can pay down the line of credit from cash flow. It is best to compartmentalize any discomfort with this situation. Remember that any bank action generally takes time.
  • Advice from the company’s lawyer is that if they stop making deposits, the bank will notice and react negatively. Given that the current interest rate on the line is low, a negative reaction from the bank could lead to an increase in the rate.
  • The company has a bargaining chip. The bank does not want to show the company’s line as delinquent. If they admit that a delinquency exists, it puts them in a bad place.
  • Develop a contingency plan to guard against the company’s biggest risk – inability to make payroll. Assure that this can be covered.
  • Use checks paid by customers to move a portion of company assets to another bank.
  • Secure a new line of credit with another bank to cover credit needs, including salary coverage if the current bank acts adversely.
  • Assure that any conversations with the bank are documented in letters to the company’s contact at the bank.

How Do You Improve a Business Model? Four Observations

Situation: A CEO is in conversation about combining with another company. One option is for the other company to absorb his company. What are the pros and cons of this option? Are there other options that will better serve both owners and employees? How do you improve a business model?

Advice from the CEOs:

  • The company has a great model today. The option under consideration looks like a double compromise – it alters both the company’s strengths and its fundamental business model.
    • The company’s strength is lean and mean – moving from a hourly/fee-based model with high utilization to a salary-based model, as the option on the table proposes, will change this. It also changes the dynamics of who will work for the company.
    • The magic of the current model is that it attracts top talent by offering them the best of two worlds: high individual billing rates with ready access to billable hours. Over the long term this has also made it very profitable.
  • Explore an alternative – how does the company transform its existing business model while retaining its strengths – lean, mean, low overhead – while transforming the model so that it builds “products,” perception, and recognition for the company?
  • A longer-term alternative is to look for a financial acquisition of the company. It has good net margins, good cash flow, and even spins out cash. This is valuable to a financial buyer.
  • What is the role of the CEO right now? Another CEO was asked “Do you have a job or a company? What happens if you leave? If the company dies, you have a job. But it may not be necessary to change much to become a company.”

How Do You Prepare for a Potential Acquisition? Three Areas of Focus

Situation: A CEO has been approached about a potential acquisition of his company. The offer was a surprise, and the team within the company is split on whether they are interested in a sale. They are currently very happy with what they do. How do you prepare for a potential acquisition?

Advice from the CEOs:

  • How does a company best position itself in advance of discussions?
    • Rebrand the company to boost the value proposition. Make what the company does best the focus of its value proposition. Position the company as the “experts” in this area.
    • Look at a series of possible scenarios that could develop and determine who on the team can best contribute each scenario. This will help to evaluate the implications of each scenario and to rank them in terms of favorability on the company’s terms. It will also help to quickly exclude certain scenarios if they come up during discussions with acquirers.
  • What research should the company conduct on the acquirer?
    • Do a deep dive into the potential acquirer. Research is simplified if the acquirer is public. Go online and look at their SEC and public filings. Look at their revenue trend as well as their profitability or losses.
    • What is the acquirer’s history of acquisitions? Interview people from companies that they have purchased.
    • Don’t pitch anything to the acquirer until you understand what they want to buy – this is critical so that the company positions itself well.
  • What is the best approach to take once the conversation starts?
    • Quick first step – send the company’s financials to the acquirer with a 3-year projection. Ask them, based on this, for a price range that they would consider for the company. If the range is outside of expectations, the conversation is over.
    • Determine whether this looks like a strategic vs. a financial buy. A strategic buy yields a higher price.
    • Cut a deal structure with a bonus tied to success post acquisition. This means a reasonable upfront payment with big payments for future success. This creates golden handcuffs to motivate the company’s staff to stay post-acquisition.
    • There should be multiple options on table – addressing both financial considerations and the future of team.
    • Always be ready to say no!