A CEO is concerned that all her key personnel are over 50. This includes software
engineers who are experts in languages which remain at the foundation of many
customers’ databases, but which are no longer formally taught. How do you
replace aging talent?
from the CEOs:
at which areas potentially limit the company’s growth. Is it technology and software
expertise, or marketing and sales? Based on this assessment, rank the critical
positions to be filled and start hiring staff who can grow into the most
a cue from the Japanese. For years their aging workforce was predicted to limit
the country’s growth. Instead, they chose to retain employees through their 70s
and this has helped them to maintain both productivity and employment.
Baby Boomers are finding that they don’t have the savings to retire and are
working well past the historic retirement age.
Baby Boomers retired but found themselves bored after a productive career and have
returned to the labor pool.
factors may delay the company’s need to replace aging talent.
bigger question is what to do if a key player is lost. Focus on hiring back-ups
to key personnel and allow several years for them to come up to full speed. Current
employment trends suggest that numbers of experienced people are returning to
the labor pool. Look for a few good people to add to the team.
are the plans of the company’s key clients? Do they plan to stay with the
company’s products and expertise, or to sunset these and replace them with new
technology? Adjust operational objectives, as well as the exit strategy, to achieve
desired growth given customers’ timeframes.
the grim reality. In volatile markets, forecasts are meaningless. Instead of
fretting over forecast accuracy, focus on increasing billable rates and
generate additional revenue per project, add a flat percentage charge for
project management on top of time and materials. This is often treated by
clients like a sales tax or a gasoline cost adjustment and may not penalize
it possible to build a sustainable revenue source to resolve profit lumpiness? There
maintenance projects. After building a box add a provision for maintenance/upgrades
as new capabilities and technologies are developed. This can cost-effectively
extend the life of the box and long-term profitability of the product that the
box supports, while gaining an annuity revenue stream.
a maintenance add-on service to leverage the company’s core competence on an
ongoing basis. Provide technology upgrades through a maintenance subscription similar
to software companies adding optional access to all new releases over the
course of a year for a fixed subscription cost. The cost to the company for upgrade
downloads is essentially nothing, but it gains an annual annuity revenue
a help desk service to sell via subscription to small companies. Most clients use
less than they anticipate; however, they prefer the security of a flat price
additional info can be gathered through sales to better drive sales forecasts metrics?
Look at the past several years: is there any seasonality in a multi-year
analysis. It may not occur every year, but if you there’s a pattern it may
enable the company to proactively reduce costs where there’s a predictable dip
in project demand.
sales people responsible for both maintaining client relationships and creating
new business? Most companies split these
functions because maintenance is like farming while new business development is
hunting – few sales people excel at both.
in development, the company develops IP, can this be used? When there’s
down-time can capacity be leveraged to develop the company’s IP portfolio? Look
at IP licensing opportunities. This provides an additional potential source of
it is important to figure out an annuity revenue stream, the principal lesson
from the discussion is that most CEOs say that margins are better on fixed
price projects than on time and materials. The key is to control to client
requests for add-ins or adjustments and to include provision for these in
Situation: A CEO and his COO find it difficult to focus on core tasks when business is booming and everyone is busy. The company is small but has been very successful. However, the pressure of simultaneously attending to key customer relationships, training new people, and formulating plans is overwhelming. How do you stay focused when it’s busy?
from the CEOs:
If the CEO and COO are doing a mix of corporate and project tasks, the first step is to delegate so that top staff focus on strategic areas rather than execution.
Over the next week, keep a record of what the CEO and COO are doing. At the end of the week sit down and determine which activities were corporate activities, and which should have been delegated to staff.
As an example, training of new personnel should be a key role of someone else. The CEO and COO will be involved, but only tangentially. The bulk of onboarding should be handled by staff.
Similarly,restrict sales activity of the CEO and COO to high level discussions and decisions.The rest should be handled by sales staff.
What must the CEO and COO be involved in? Intellectual property development, high level decisions about new service offerings, high level decisions on business expansion opportunities, and occasional oversight of company operations.
It is important to focus. The first priority should be the company’s principle revenue stream.
The second priority should be new service offerings which are central to efficient delivery of the primary revenue stream.
Meet with top staff and develop a five-year vision. The order of priorities that are developed will determine where to focus.
In the process of developing priorities, ask the following questions:
What do you love and what do you need to love?
Analyze the comparative importance and urgency of each activity of the CEO and COO. Which require top level input, and how much? Which are better delegated to staff?
Situation: A company is developing a companion application that simplifies the use a major company’s software. The CEO is considering how to show this application to the major company as well as at their user group conference. How do you market a companion application?
Advice from the CEOs:
This is an interesting situation. If the major company likes the companion application, the principal question is whether they will want to attach an additional license fee if the companion application is marketed through them. This presents three options:
Research other companies that have developed front end or access products for this company – what was their experience with the major company and did that company demand an additional license fee payment. If so, how did they handle this?
Be up-front with clients, and if an additional fee is required pass these through to the clients. It may be cheaper for clients to pay license fees through this route than to purchase and pay license fees for the major company product.
You may want to take a wait and see attitude while conducting your own research on the situation. See when and if the major company asks for a license fees, and if so, find out whether they are willing to negotiate.
Large companies are often focused on their own offering. Forget the idea that they will market another company’s companion application or front end. Instead focus on your own contacts within the industry and your client base and start talking to them about your application. Generate some experience and traction on your own.
Situation: A software service company wants to expand operations. Their business model is to build clone offices that operate like the home office in new markets, much like a franchise operation. The founder CEO is struggling to identify key managers who can manage remote offices. How do you identify key managers?
Advice from the CEOs:
The key managers must be individuals who are business savvy, not talented engineers. The key managers must understand:
Management – with a proven management record;
Recruiting and hiring;
How to manage an office;
A bonus will be experience in a similar field, but this experience does not substitute for the above four critical requirements.
Looking at current employees, is there the bandwidth within the current team to help bootstrap new remote offices?
For example, is there a key senior manager who can become Director of Franchise Operations? In this role, the DFO will serve as a resource to the individuals opening new offices.
As this individual’s focus switches, an important question will be who replaces this individual in their current role?
It will be beneficial if the individuals who are chosen to lead new offices have at least some experience in sales. This will help to quickly build new customer bases for the remote sites. However, a new site manager must have balanced experience. While sales will be part of the responsibility these individuals must also be able to build and oversee the other critical functions necessary to build viable remote sites.
Situation: An information services company wants to launch a new product in an existing market. Their current brands are well-recognized with excellent reputations. Should they tie the brand to the company name or current products? How do you brand a new product?
Advice from the CEOs:
Brand specifically for each product or market – just as consumer product companies brand the same product with unique names for each consumer or commercial market.
A brand name is not the company’s identity – Apple as a company has created separate brand identities for computers, iTunes, iPods and serves multiple markets.
Attend conventions and survey the target market and current providers. Network to meet people and ask questions about what is important to them and to their buying process.
Think about the marketing funnel. The first element is awareness.
What are the company and its current brands now known for?
Build a brand with value that leverages the reputation and expertise currently valued by customers.
Define the current and planned market segments and tie branding to them.
Who are they?
How do they do it?
How will the new product fit?
Look at ROI for each market and create a strategy for the optimum combination of speed and profitability of market entry.
Tying meaning to a name can be a mistake. When one CEO named her company and service around a specific capacity, she limited the way that it was perceived. She is now considering a complete rebranding to open new markets.
Hire expert consultants with experience in developing brands. While this is an investment at the outset, these individuals are better, cheaper, and faster than doing this yourself.
Monitor the consultants to assure that they are spending the company’s resources wisely and addressing the company’s needs.
Hire someone with a network to gather the data necessary to support the branding exercise, a project manager. Use more expensive resources to plan and manage the exercise, and less expensive resources to gather the data.
Situation: A technology-based company has a very successful product in a niche market. The team has been brainstorming about additional markets into which the product could be introduced. The only experience that the CEO and team members have is with the existing market. While other markets are appealing, they lack the experience and contacts to penetrate new market opportunities. How do you introduce a product into a new market?
Advice from the CEOs:
Hire someone, either an employee or a consultant, who intimately knows and can introduce you to the new market. If you have more than one good candidate consider hiring them both.
Start with clients that you already serve in your current market but who also serve the new market. This can provide quick wins and proof of concept. Overlap is important because you will have a shorter sales cycle with these clients.
Another company moved from on-site consulting to turn-key services. They found the purchase process to be completely different. Originally, they were unprepared for this, so the transition took longer than it might have.
Talk to existing customers and learn about their companies’ purchasing processes to organize your fact gathering and strategy.
Read case studies of other companies’ experience moving a single platform between markets.
Another company moved from niche photography – holiday photos – to photos for Fortune 500 companies. This was the same expertise, but the market and decision processes were different.
Key to the successful move was understanding the people in Fortune 500s who were making the buy decision and the structure of their decision process. The CEO of this company registered for conventions attended by client prospects. This provided a quick way to meet and learn about key people and their decision processes.
Situation: A company has multiple locations from which it both sells products and provides services. One location has been in place for several years and produces good revenue but consistently fails to be profitable. The CEO has met with the managers in charge of this location and has set broad objectives to demonstrate a trend toward profitability. However, she is concerned that these objectives won’t be met. How do you manage for profitability?
Advice from the CEOs:
To be effective objectives must be specific, measurable, and timebound. In addition, there must be clear consequences for failing to meet objectives.
If a business is not covering its own costs, there are three alternatives: increase prices, reduce costs, or both.
Calculate the revenue impact of a 1% cross-the-board price increase at the location or across the company. Is this enough to cover the loss? What about a 2% increase? What is required to produce profitability?
Historically, have the location managers been responsible for business results? If not, does it make sense to continue with these managers and to expect different behavior or results?
While the managers may be well-intentioned, do they possess the necessary business skills? Would training or education assist?
Once objectives are set and incentives are changed to make the managers’ pay dependent on profitability, the CEO may be surprised at their ability to comprehend and tackle the situation – with the CEO’s oversight.
How do you change pay and incentives without sending a negative message?
A person who is paid hourly has the incentive to maximize hours worked, not productivity during hours worked. If the manager is shifted to salary at the same level he receives now or lower, with the potential to more than make up the difference through regular incentive bonuses, it becomes easier to direct him to make efficient use of his time.
How do you change the roles and focus of the managers?
The customer development manager is the only one who can impact revenue – by bringing in more business. Bonuses are based on both new business acquired and total revenue received.
The operations manager cannot contribute to revenue within his current responsibilities but can look for places where the cost of operations can be reduced. Bonuses are based on cost savings achieved.
Situation: A company is transitioning from a service model to a product model. A major challenge is meeting funding needs during the transition. Funding sources perceive the current service model as heavy on cost of sales vs. implementation and this hinders acquisition of funds. The CEO sees this as a short-term problem as the company will quickly start to generate more cash through the product model. How do you transition from service to product?
Advice from the CEOs:
In a competitive funding environment, it is important that the offering be credible. While others may be offering similar solutions, believability will prove to be a strong differentiator.
Where to focus over the short term?
Create a hybrid model as a transition between the current service offering and the planned product offering. Demonstrate that current customers have responded favorably to the product/hybrid opportunity.
Test this concept with an investor. The story is that the company needs funding to get to a saleable product model.
What is the message to investors?
Helping the company to achieve a short-term and very feasible objective gives the investor the following advantages: purchasing at a lower valuation, getting a larger share of the company for less, and at a low risk.
As the valuation of the company increases, the earliest investors will get the best deal!
During meetings with investors, ask them for advice on the current and following rounds and financing, and what they will find most appealing.
How do you mitigate the risk to the first investor?
Have a solid business plan and projections that have been vetted by others.
Have a list of referenceable clients.
Utilize the current service model and demonstrate the product/hybrid Package. Build a case on the advantages of the hybrid model including the financial case. The company is always there to provide back-up assistance to meet customer needs in the hybrid model.
Demonstrate flexibility – the customer can always choose the service model or convert to this if they wish.
A Key Point: You are selling yourself as the trustable resource, not the product or service.
Reference previous investment including founders’ investments. The founders did not invest to fail!
Situation: The CEO of a consulting company is frustrated by lumpy revenue and profits. From quarter to quarter it has been difficult to predict either number. Unpredictability reduces options in valuation and exit exercises, as banks and acquirers favor predictability. How do you generate a predictable P&L?
Advice from the CEOs:
The objective is to construct a revenue base built on predictability, even if this is at lower margins. Given a predictable base, the company can complement predictable revenue and profits with higher dollar and margin opportunities as they arise.
Analyze the projects that the company contracts for both revenue and profitability. Some projects will be bread and butter situations which are more common and predictable, but which generate less revenue and profit per project. Others will be customer crisis driven. These latter projects will have higher revenue and profit, particularly if the company is the vendor of choice; the tradeoff is that the frequency of these contracts is unpredictable.
If the objective is predictability, the company’s base should be built on bread and butter projects. As the company grows, focus on this base. Customer crisis projects can then be added as they arise to bump both revenue and profit.
The objective will be to become one of the top 2-3 outside vendors of the choicest clients. Target projects may be ongoing maintenance of older projects in the client companies’ portfolios.
How would this model be pursued?
Focus on the company’s top 5 customers. Reduce risk by optimizing customer leverage as a proven entity and offer them strategic deals.
The focus is long-term project based with guaranteed delivery at lower cost.
Identify the fear or insecurity that exists within the customer and provide sleep insurance.
This model works well in the new economy – get lean, manage infrastructure size and cost, and grow with the economy.
Alternately, identify an area where the customer may not have enough resources and provide a solution that allows them to address this without adding additional personnel or by using existing personnel more efficiently.
Another option is to develop a virtual office model. Provide resources for $X per month, with an evergreen provision.