Situation: The Founding CEO of a professional services company has always been deeply involved as a service provider and rainmaker in addition to his role as CEO. As the company has grown he sees the need to spend more time as leader of the company instead of being a doer. What can be done to facilitate this transition, and what expectations need to be created? How do you transition from doer to leader?
Advice from the CEOs:
Another CEO removed himself from day to day business development activity by bringing in a new rainmaker. These were the adjustments made to facilitate the process.
During the first year he worked with the new individual in a team or partnership role.
Compensation was results-based. Discussion of equity consideration was deferred until the individual proved herself.
The CEO moved himself out of the individual contributor role except as needed to support the new rainmaker’s efforts.
All of this was accompanied with clear communication to clients: “this adjustment will provide better service to you; here’s my number if you need help.”
Rainmakers are a different personality type. To be most effective, they must be able to say “my team.” Allowing this will ease the transition and improve the relationship.
Create teams to deliver solutions that have traditionally been provided by the founder.
Identify skill sets behind the roles that are being delegated.
Build an organization that will fill these roles.
Participate in team meetings, but as an advisor rather than as principal decision-maker.
Adapt role and behavior in phases to ease the pressure of the change on both the CEO and the team.
How does the CEO manage his own expectations as well as those of the company as he makes this transition?
Delegation initially takes more time and effort than doing the work yourself. Be patient and let the investment pay off.
Larry E. Greiner of USC was an expert on the study of organizational crisis in growth. Per Greiner’s model, the company is currently at stage one – moving from principal and founder to initial delegator. It may be a useful to study this model.
Situation: A rapidly growing US software company has an office in Europe. Prospects for key positions have been flown from Europe to the US for interviews. Two or three good prospects have withdrawn their applications before the company could make an offer, citing cultural incompatibility as their reason. How do you hire foreign personnel?
Advice from the CEOs:
Cultural incompatibility can be an evasive non-response. It is important to dig deeper, perhaps with the assistance of a European-based consultant, to determine what the candidates perceived as the incompatibility. Do this with the candidates that have already rejected the company. Identifying the deeper reason will help to pre-screen future candidates before flying them to the US for interviews.
It is important to have a local leader. This appears to be the individual that the company is attempting to hire. The local leader will then do the hiring for the local office. Employees work for their managers and with their peers and will decide on whether to accept a position based on their feelings of compatibility with these individuals.
Given that the company is attempting to hire the leader of the European office, review and approval of the candidate by the CEO is important. Here are options to explore:
Spend some time studying the culture of the country in which the office is located (European countries vary according to local culture) and adapt the interview style so that it is more compatible with this culture.
Hire a European that the CEO trusts to do the recruiting, screening, interviewing and selection a final set of candidates. Ask this individual for their input on the best way of facilitating a meeting with the CEO. For example, instead of flying candidates to the US, once several candidates have been identified travel to Europe and instead of conducting formal interviews, have dinner with each of the candidates. This reduces the tension and makes the interview more congenial. Consider taking the head of HR with along and both of you having dinner with the candidates and their spouses. Again, this will reduce the tension in the meetings, and you will have two viewpoints on the candidates.
If, after trying the suggested alternatives, it continues to be difficult identifying a good European candidate, an alternative is hiring an American – someone with solid experience managing offices and operations in Europe – to oversee the European operation.
Situation: A company has built a solid core business and wants to expand its product portfolio by adding new business. Core functions can serve both existing and new business, reducing overhead on individual businesses. What pitfalls must the company avoid? How do you balance core and new businesses?
Advice from the CEOs:
New business activity cannot impact core business. The core business is the company’s bread and butter. It is important to make this clear to both employees and clients and to structure the handling of new business opportunities accordingly.
From a staffing standpoint, new business opportunities cannot impact marketing, service and operations staff supporting the core business. New business development activity and operations cannot result in a pull from their focus on the core business. This separation may be facilitated by placing the staff supporting new business in separate facilities, or in an area separate from the staff supporting core business.
In the case of support functions that will serve both existing and new business, recruit and hire staff to support the new business to assure that both existing and new business receive proper support.
Hire a new person, one with experience and contacts, to develop the new business opportunities. Look for a sales person who can bring in significant new business. This will pay for the individual quickly.
How does leadership communicate these changes to staff?
Meet with key managers to identify potential concerns. These may include impact on company culture and client focus. Use the responses gathered to develop a communication plan to allay employee concerns.
As new business opportunities are added, it will be necessary to bring in new, experienced personnel. Previously, the company brought in experienced personnel to build the current business. Be open and up-front about this and explain that as the company grows there will be new opportunities for existing employees.
The company’s objective is to improve the quality of the organization and to raise the boat for all. Current owners and managers will automatically benefit from the efforts of new people to expand the business.
Building new business opportunities as separate businesses diversifies the company and reduces the risk of overdependence on existing clients and key vendor relationships. This enhances the job security of current employees.
Situation: A growing technology company is faced with several opportunities. The CEO is too busy to devote the time to analyze each of these. In addition, the CEO wants to develop her staff so that they can take on more responsibility and mature into a full organization. How do you choose between opportunities?
Advice from the CEOs:
Everything starts with a strategic plan for the company. Either the CEO or an outside consultant should coordinate a strategic planning session to develop and rank the opportunities facing the company. The ranking exercise is best done as an open departmental or company-wide exercise so that everyone is involved in the process. This helps to build consensus and commitment to the opportunities developed.
Once the opportunities have been identified assign one to each of the employees that you want to develop. Each of the employees will be the champion for that opportunity.
Ask each champion to develop a business case and plan for their opportunity. This will include a development plan and ROI analysis. Allow each champion to access all company resources as they develop their plans. Set a deadline for all champions to complete their plans.
Once the plans have been completed, reconvene the group that participated in the strategic planning session and have the champions pitch their plans to the group. The group will provide feedback and suggestions for each plan. At the end of the session repeat the ranking exercise based on the new information developed and presented.
This will provide a wonderful training opportunity for the champions as well as valuable insight into their talents and potential for future development. In addition. Because the strategic planning sessions will be conducted as a company-wide exercise, they will act as team-building exercises and excite everyone about the potential facing the company.
Situation: The CEO of a professional service company is reaching retirement age. The plan for years has been for a key field manager to take on this role; however, neither the CEO, the founder nor most employees feel that this individual is up to the job. What can be done to either better prepare the key manager for the new role, or to demonstrate that this is unfeasible? How do you transition to new leadership?
Advice from the CEOs:
For the long-term benefit of the company, it is important to create a situation that will either prepare the field manager to succeed or provide the Company with a back-up plan for ongoing leadership.
If the CEO and founder are concerned about this individual’s ability to succeed, then coordinate a plan with the founder and then meet with the key manager.
Let the key manager know that the owners plan to sell the company in 3 years.
This can be an internal sale – the CEO and founder sell their shares to the key manager – or the owners will look for an outside buyer to buy out all current owners.
See how the key manager responds.
If the key manager expresses an interest in buying the CEO’s and founder’s shares, then require this individual to make the same level of financial commitment that the CEO and founder have made.
Another CEO experienced a comparable situation with an individual who was both underperforming and a significant shareholder.
This CEO created a very public vision of what he expected this individual to achieve – in positive terms. The CEO also put an outside hire in a similar role to create a performance comparison. The result was a significant increase in performance by the inside individual and a successful transition to additional responsibility.
If the key manager is to be put on a track that leads to the CEO role there will be two challenges: assuring that this individual can acquire the skills to succeed and assuring that the individual can demonstrate successful leadership within the Company. To meet these challenges, take the following steps:
Make a public announcement of the plan to transfer the mantle of leadership to the key manager;
Raise the bar of expectations for the key manager to demonstrate his or her leadership capacity;
Define a full program of training to provide the key manager with the skills to lead the Company;
Ideally, allow the key manager to prove his or her mettle through a highly visible responsibility – like growing a key market segment – so that he or she gains the respect of the others.
Require the same level of financial commitment that the CEO and founder currently bear, so that everyone knows that the key manager has “skin in the game.”
Put the key manager on the same compensation program as the CEO and founder, as this will become his or her compensation program on becoming CEO.
Situation: The CEO of a product and service company has seen her company struggle for several years. While the overall market has turned around, her company has not. She is tired of barely staying afloat and not making the kind of money that she a decade ago. Is the glass half-full or half-empty?
Advice from the CEOs:
What keeps you from hitting the numbers? Creating a forecast, budget and objectives allows you to establish a reward system for meeting and exceeding objectives. Once there is an upside, then not hitting the numbers means that a manager misses the upside and the financial rewards that accompany this achievement. This is often consequence enough, particularly if others are hitting their numbers and getting performance bonuses.
The glass is half-full. The past few years have been difficult. Review what the company accomplished during an extended recession. Look at how the company fares versus local competitors. Review positive changes that have been made and take credit for these. This will provide energy to move forward.
Given the company’s successes, sit down with the management and show them what the company has accomplished. Celebrate. Use this opportunity to set goals for next year. A good place to start is to set a bottom line profitability objective before taxes.
To be a great manager requires more than just a revenue and profitability target. People rally around a vision and a culture that they aspire to and want to enjoy. The role of the leader is to create this vision and culture. Do this, and revenue and profitability will take care of themselves.
Two more thoughts on whether the glass is half full or half empty to check your bearings:
What is your passion? If you love what you’re doing, what else would you do?
If you were doing something else, would you be making more money or enjoying more success?
Situation: The President of a professional service company and his team are considering adjustments to their business model. The alternatives under consideration are a client-centered model and a service delivery model. What’s the right model for a service company?
Advice from the CEOs:
In the client-centered model, the emphasis is on maintenance of the customer relationship by the responsible manager, with support from the group to optimize service delivery.
Consider the service being provided and the client’s expectations. Does the client want to have a principal point of contact – a client manager – to address their needs?
This model centers on the key manager creating and maintaining an ongoing relationship with the customer, including rapid response to inquiries from the customer.
In the service delivery model, the emphasis is on a developing and maintaining a high standard of service delivery so that multiple individuals can deliver the service rapidly and reliably.
As in the client-centered model, consider the service being provided and the client’s expectations. Is the customer’s principle concern functionally rather than personally oriented – for example keeping a system up and running in the fastest time with a manageable expense? In this case, the individual technician is not as important as speed of response and assurance of a quality outcome.
The service delivery model centers on standardized and predictable delivery of a defined service, with high responsiveness to the client’s needs. Those who deliver the service are paid variably based on their skills and assigned to deliver service consistent with their abilities. A benefit of this model is that business maintenance is not as dependent on individual service providers as the client-centered model.
In choosing between these models, it is important to speak with your clients and to understand their needs and priorities. Is your model a direct business to customer relationship or a business to business relationship? Is your offering perceived by the customer as a service or a product with tangible results? Is your customer more interested in meeting short-term needs or developing a long-term relationship?
As an example, is the customer expecting a personal, customized service and desirous of maintaining a long-term relationship? For this, a Nordstrom-like model may make the most sense – a highly personalized level of service where the relationship managers on the sales floor keep detailed records of individual customer’s tastes and past purchases and will even have items pre-selected prior to the customer’s arrival at the store.
This model implies that the most important assets to client development and retention will be your account managers. A business development manager may bring in a new client and then hand off that client to “one of my best managers” who will develop the long-term client relationship. The account manager will become the principal point of contact for the client; however, they will bring in other expertise or assistance to handle specific client needs. When a customer calls in, depending on the immediate need, that customer may be triaged directly to their manager or to an individual who could, for example, perform a transaction for them. Responsiveness by the manager within a defined time frame will be an important metric to monitor.
Situation: The CEO of a specialty service company is curious about whether they have the right internal focus to drive their business. Their internal focus statement is to the most competitive, most responsive company in their market with high profit per job. One school of thought calls this focus the Main Thing driving the company. Does your company have the right Main Thing or focus?
Advice from the CEOs:
Look at the tie between your Main Thing and your financials.
Determine an appropriate measure of efficiency – for example, billable hours per field worker per day.
Look at cost per field worker versus efficiency.
Ask what will generate the profit to grow to the level that the company has established as the revenue target.
If you can boost the gross margin on services, this provides far more benefit than merely cutting expenses.
Look for market niches that support higher prices without a parallel rise in either expense or risk exposure.
Do leadership and staff have the right skills and talents to support growth objectives? What can be done to enhance skills and talents?
Consider the following – By increasing efficiency and margins from 16% to 20% on $10 million of job revenue, the company can increase the operating margin by $400,000. If certain staff cannot work within a more efficient structure, you may want to move them to jobs that are less critical to the business. Having the right staff in the right seats is critically important to bottom line results.
Look at the company’s customer selection criteria. Using the 80/20 rule – 20% of customers generate 80% of revenue and/or profits. How do you improve customer selection?
Rank all customers on measures of profitability of their business, payment time, and most importantly future business potential. Focus on customers with the highest scores, and “fire” low scoring customers.
Focus on cash flow: Look at early pay options or discounts to speed payment from large customers.
Incorporate a schedule of values in all contracts as an addendum to prompt earlier payment.
In proposals, include a payment schedule and finance the receivables through a factoring company – particularly in the case of slower paying or less desirable customers.
Situation: A company’s goal is to replace an old, established market with new technology and, by owning the technology, to reinvent the industry. Given this aggressive goal, there is a temptation to go into volume production before establishing the cost advantages to make the technology profitable. The challenge is to establish disciplined, stable, qualified, scalable and profitable manufacturing. To accomplish this, the company must decide between alternatives as they cultivate new customers. How do you optimize your pipeline?
Advice from the CEOs:
There are two sides of the market:
Mega-markets dominated by large corporations which have long lead-times and potentially huge payoffs; however, these markets present long payoff delays for the company.
Smaller, quicker markets with limited volume but which will offer rapid PO acquisition and proof of concept.
The question is how much effort to devote to which market.
Look for early customers who are cast in your own light – disruptors who can help to catapult you into the marketplace
The trade-offs are strategic vs. tactical opportunities.
The immediate tactical need is to generate cash to show that you can. This is the steak.
The strategic need is to seed a foothold in a mega opportunity – to show the potential to revolutionize the market. This is the sizzle.
Identify a killer app that will gain tactical advantage and cash and help prompt maturation of a strategic opportunity.
Another CEO shared experience landing a large client.
They used a short, low cost pilot project to prove the concept to skeptical client staff. The client was surprised and delighted by the success of the pilot project. The pilot project was then articulated into larger projects.
Over time the company used incremental steps to gain a broad presence within the large company.
Focus business development on selling killer apps.
Find low hanging fruit for quick proof of salability and to show a revenue ramp.
Small design wins exercise the machine.
Is it possible to conserve cash to raise the impact of early wins to the bottom line?
Are all current staff during the next 12 months?
Early on, the game is business development – gaining key contracts and agreements with lead customers. Sales follows, with focus on the larger market. This may be 6 months to 2 years out. How many people are needed to focus on business development?
Situation: A CEO is considering a new revenue model for his company. The existing model is profitable and stable, but not scalable. A new model, and perhaps additional locations may be needed to add scalability. How do you assess the risks of the model? What steps can be taken to reduce these risks. How to you evaluate a new revenue model?
Advice from the CEOs:
Project both the current and new models on a spreadsheet. What do profitability and return look like over time based on current trends?
Include assumptions about adding new customers within the model. Consider capacity constraints at the present location. Add start-up investment needed for the new model. Does overall profitability increase in the projections and will this adequately cover new customer acquisition costs?
Are performance standards for the current and new models different? Would it make sense to have different teams managing the models? What kind of experience will be required in the people who will build the new business? Account for personnel additions and start-up costs in the financial projections.
Critically evaluate the upfront financial exposure as new clients are signed up for the new model. Consider hybrid options which can be added to customer contracts. Examples include:
A variable flat fee model. Customers contracted under the new model will receive services up to X hours per month for the flat fee, with hours over this billed separately.
How do current time and materials rates compare with industry averages? If they are high, it is not necessary to quote existing rates to new model customers. Create a new rate schedule just for new model customers. Taking a lower rate under the flat fee model will not cover all costs and profit; however, it will at least partially cover utilization exposure and a higher rate for additional hours can make up the difference.
During the ramp up period of a new operating unit, client choice is critical. If, based on observations and responses in client questionnaires, heavy early work is anticipated, charge an initial set-up fee. Alternatively, ask for a deposit of 3-4 months to cover set-up exposure. If either at the end of the service contract or after a burn-in period some or all these funds have not been used, the client is refunded the unused deposit. This can both cover early exposure and make it easier to sign new customers for the new unit.
Draft contracts under the new model to include one-time fees in the case of certain events – e.g., a server crashes in the first 9 months of the contract, or an unplanned move within the first X months of the contract. These resemble the exceptions written into standard insurance policies. They can be explained as necessary because standard contract pricing is competitive and does not anticipate these events within the first X months of the contract. Most companies will bet against this risk. Those who do not may know something about their situation that they are not revealing. In the latter case you will be alerted to potential exposure.
Consider a variable declining rate for the new model. The contract price is X for the first year, and, assuming there are no hiccups, will be reduced by some percent in following years. This resembles auto insurance discounts for long term policy holders with good driver records.
Adding hybrid options may make it easier to sign new clients while covering cost exposure. The view of the CEOs is that most clients will underestimate their IT labor needs and will bet against their true level of risk. Provided that the new model delivers the same service that supports the company’s reputation, once clients experience the company’s service, they will be hooked.
An additional benefit to hybrid options may be faster client acquisition ramps within new satellite units and faster attainment of positive ROI.