Situation: A CEO is
concerned about long term trends versus short term volatility. While the
business has done well over time, short term volatility has made it difficult
to project both personnel needs and cost. As the company expands geographically
these issues are becoming more critical. Which is more important – long or
from the CEOs:
the company find that capabilities are not fully understood until they get into
development? In this case, is the problem with variables of schedule, budget or
capability more important?
forward, evaluate each of these variables to determine which is having the greatest
effect, positive and negative, on project performance and profitability.
the problem is time constraints in the project planning phase, assure that
sufficient time for project iterations is allowed in both the schedule and
budget. It may be that the clients are not sure of what they want until they
see a model, and that several iterations are required to assure that clients’
needs are satisfied. Plan and bid for this.
fixed costs impact margins during dips between active projects, assure that enough
fixed cost coverage is built into project bids to cover dips.
geographically remote offices is the company’s issue a question of volume or
resource cost or is it a pricing issue?
it’s a pricing issue to stay market competitive focus initial activity where
this issue is minimized. As market presence expands, add additional capabilities
in phases according to the ability to cover costs profitably.
it’s a resource cost issue use the same solution, adding resources according
ability to cover costs profitably.
the company’s sales and marketing structure in phases while expanding into new
markets. If sales compensation is base plus commission, vary commissions paid
according to resource rates negotiated. This will tie sales incentives to
negotiated resource rates and will help to assure that costs are covered.
with short term issues effectively will improve long term planning and profitability.
A CEO is considering her exit strategy between five and ten years out. She
wants to do what is best both for her, the company and her employees, assuring
that both personal and company needs are met and the company is ready for
transition. What are your five- and ten-year plans?
from the CEOs:
personal side and the company’s future are closely linked. The solutions and
strategy must fit both the CEO’s priorities as well as those of the company. By
looking at the CEO’s role, the current and future needs of the company, and any
changes that need to be made, the CEO is preparing for an eventual exit.
CEO must decide what lifestyle she wants – both as she prepares for eventual
exit and as she prepares the company to continue under new leadership.
must decide what she wants to do with her time in an ideal world. What will
make her happy as she prepares for the future?
must be considered both for herself and her business partners. Have conversations
to align both business and personal expectations.
a strategic planning retreat on the future of the company as well as the
transition of leadership.
a talk with significant others to align personal expectations.
changes in leadership are necessary to implement the plan? What are the key
roles and who will fill them? What is the succession plan for each key role?
Are current personnel in place to fill these roles, or is additional hiring and
an ESOP or a virtual stock program to enhance employee incentives and sense of ownership
in the company’s future.
what exit means on a personal level.
from founder to leader gets the CEO more involved in the company.
on priorities and engage in ongoing discussions with key personnel to jointly
plan the future.
A CEO wants to significantly grow his company, either to prepare for an IPO or
to become an interesting takeover target. However, he struggles with
delegation. When responsibilities are delegated, the job isn’t done to the
CEO’s satisfaction and he ends up doing the work himself. He asks: what is the
CEO’s job? Is it for me?
from the CEOs:
order to grow the company to the desired level, it is necessary to hire
competent people and delegate. The most important position will be a COO with
deep experience organizing people and functions.
CEO’s role is to provide the vision and strategic objectives for the company.
The COO’s role is to assure that the right people are in place or hired to do
the work necessary to realize the vision and operational objectives.
CEO-COO relationship will be pivotal. If there are specific ways that the CEO
wants to see things done, these must be clearly delineated in discussions with
role of the COO will be to organize the company to reach the growth objective.
a competent, talented HR person to plan the organizational development road
map, and the positions that must be filled in stages to reach the goal.
growth plans of the company are ambitious. Absent significant change, growth
will be limited to a fraction of the current objective.
with the COO and HR person, build the organizational chart for the size company
that the vision imagines. Fill the chart with current personnel where the fit
is appropriate. Determine where the gaps exist and build a plan to hire these
people in stages.
E-Myth Revisited by Michael Gerber provides an exercise to accomplish this.
a high-level assistant to help in areas where the CEO finds it difficult to let
go. This will be another key relationship and will be important to learning how
to let go.
a CEO coach.
will likely be an individual with significant experience who has achieved the
growth envisioned by the strategic plan.
CEO Coach will help to draw lines between delegating and micromanaging and will
help the CEO to learn to effectively delegate to qualified people.
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
A company delivers specialized consulting services. The founder CEO is also a
lead consultant. As the company has grown, the CEO has struggled to prioritize
her time as she shifts from consultant to leader. How do you reprioritize your
from the CEOs:
at the skill sets required to run the company and compare this with the skills
of current staff. While the company has excellent consultants, do some of these
people also have experience in business development or management?
the skill sets needed and focus hiring efforts on those that can’t be filled by
the CEO is also the chief rainmaker, then a top priority is hiring a manager/leader.
The next level of development within the company will require a level of
that the company can’t get an A+ grade on every project or detail. Learn to
accept a B when this is enough. It will do.
that as priorities shift, vacuums will develop. Identify what will be missing. For
job descriptions for the roles.
the leader’s roles with flexible teams instead of individuals.
financial resources to fund the transition as incentives for individuals to take
on new work and responsibilities.
at profit-sharing models. Use profit sharing to facilitate the shift in priorities
by adjusting payout incentives.
the risks within the plan. Think through these thoroughly and develop
CEO, you will not be able to do everything that you do now. In your new role you
won’t want to do everything you do now. Your view and responsibilities will
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 CEO is contemplating retiring in the next two years. The company is profitable but is primarily dependent upon a single large client for whom the CEO is the primary contact. Compared to national averages the company’s profitability is very favorable. The CEO questions whether his valuation of the company is reasonable. What is a favorable exit strategy?
Advice from the CEOs:
The principal question from the group is whether the anticipated valuation on exit will yield the financial rewards that the CEO requires.
The buyer will discount the value of the current business because the CEO is too important to the business, and because they will not assume that there is ongoing value to the current business beyond 2-3 years.
The best option is to sell to a buyer who wants entry into the key client. They will have reasons beyond the value of the company to pay a premium for this access.
For planning purposes put the value at 2-3 years of the cash that the CEO takes out of the company, discounted to present value plus some premium for the entry that the buyer seeks. Look at the dollars that this will yield and decide whether this sum is a satisfactory payment.
Concerning the company’s relationship with the key client:
The company’s reliance on the key client is two-fold – they are the key customer, and they drive the market which yields a premium price for the company’s products.
Purchasers do not like to be dependent on a single supplier. Their purchasing department will always be looking for alternative sources.
During the exit window it is critical to develop new customer relationships to sustain the company’s growth and reduce reliance on the single key customer.
If the key client is #1, who is developing technologies that will compete with the key client?
What are their markets?
Where are they going?
How are they trying to exploit the chinks in key client’s armor?
What can the company do to secure a vendor relationship with the companies who may replace the key client?
Situation: The CEO of a family-owned company has struggled to align family members with the business plan. When difficult decisions must be made, established personality patterns and family history hinder consensus on what should be done. The CEO seeks advice on whether the addition of one or more outside Board Members can help to build consensus. Can outside Board members help a struggling company?
Advice from the CEOs:
The CEO of another closely-held company brought in an outside Board member two years ago. This has added considerable focus to the Board discussions. The addition of a fresh and respected perspective has helped to clarify decisions and reduce conflicts among the founders.
First, have a conversation with the team. Give them the opportunity to straighten out things themselves. Present the addition of an outside Board member as an option. Get their support. This will make the addition of an outside Board member a company decision, rather than the CEO’s.
The experience of other companies is that compensation can range from free – a retiree who wants to help – to expensive. Arrangements and expense will depend on what the company leadership wants to achieve.
Investigate SCORE – a well-established source for outside board members for small and family businesses.
Situation: A company has been looking at alternatives for expansion but would be willing to stay in their present site if the landlord is willing to lower their rent without requiring more time on the current lease. Another option would be to purchase a building and lease out extra space until they need to expand. The CEO seeks advice on how to move forward. Do you more or negotiate a lower rent?
Advice from the CEOs:
Much has to do with the current real estate market. If the market is slack, there are more options whether the decision is to move or renegotiate the rent with the current landlord. However, if demand for space is high then landlords and sellers have the upper hand. This is a classic demand-supply situation.
Investigate lease buy-out options if the decision is to move. Better yet, if the decision is to move ask the new landlord to pay off the old lease.
For the money required to move an operation of substantial size, why not buy? In this case, the decision is balancing the size of the down payment with the company’s current cash position.
If the decision is to buy, consider creating an LLC to purchase the property and fund the purchase through a Small Business Administration loan.
The Devil’s Advocate Perspective while you make the decision: don’t worry about the least until it runs out. Instead focus on making as much money as possible and prepare for a move closer to the end of the lease. Renegotiating a lease and looking for a building at this time can consume a lot of time.