Situation: A company has built a very successful specialty manufacturing business in the US. Their manufacturing operations are labor intensive, with manufacturing practices optimized using motion studies and sharing best practices developed on the production floor. The CEO is evaluating whether it makes more sense to expand production in the US or to explore international options. Do you produce domestically or internationally?
Advice from the CEOs:
There are trade-offs between domestic and international production. Quality labor is available internationally at lower costs than in the US. However, risks include potential loss of quality control and higher levels of waste.
While investigating international production options, focus first on less critical operations where savings from lower labor costs outweigh the potential cost of wasted material.
Do not try to move highly controlled operations. These will include critical operations which require both an elevated level of operator skill and close supervision.
Before evaluating international options, break down the steps of manufacturing or processing to identify specific subcomponents or subprocesses that could be outsourced at reasonable risk.
For example, look at high volume parts where quality and variation in tolerances is less critical. These will be the best candidates for production in a lower cost, potentially lower quality environment.
How critical are trade secrets or patented IP to production? In the US and Europe there are strong protections for IP. However, these protections are not as strong in all countries. If production is outsourced to countries with poor IP protection, this may enable IP theft and create future low-cost competition.
Situation: A CEO is evaluating a horizontal market development opportunity to markets related to their current market. There may be branding implications. The new opportunity focused on a different sector and can add business unrelated to current customers. However, the new opportunity will stretch current resources and potentially impact current business and service delivery. How do you expand into new markets?
Advice from the CEOs:
Because the new opportunity utilizes known capabilities the company should be able to segue into the new market relatively easily.
Because the company is already familiar with security and other issues relevant to the new market, compliance should present no challenge.
Consider the impact on company time and resources. Building any new business will challenge current priorities and will require a careful balancing of efforts to assure that both current and new customers’ needs are being met.
Build workload and service schedules for both existing customers and the effort that it will take to develop the new opportunity including the time needed to create and build new customer relationships. Take your best estimate of resource utilization for the new effort and double it, then ask whether your current staff and capacity can handle both markets. If the answer is positive, then you can be more comfortable with the decision to expand into new markets.
As you evaluate the new market opportunity, look at both anticipated and unanticipated but predictable challenges that customers may face over the next five years.
For example, is there misalignment between future challenges likely to be faced and the current expertise and skill sets of managers who will be tasked with addressing these challenges? If so, tailor the sales pitch for new capacities to address these challenges.
Are there existing mismatches between products and services currently offered in the new markets, and do proposed solutions help to address these mismatches? If so, there may be significant opportunities in addressing these mismatches across multiple customers within the affected markets.
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.
Situation: A company has clients who are interested in projects for which the company’s partners already have partial designs. There is an opportunity to leverage these partial designs into development of full solutions for their clients. How should the company approach this in a way that satisfies their customers and is fair to their partners? How do you set up co-development partnerships?
Advice from the CEOs:
Given this opportunity it is no longer important who performed what part of the development. As long as your partners have quoted you what they believe to be a fair price for their development pieces, you are free to accept their price, complete development to your clients’ specifications, and sell the full solution to the client at market prices.
What you bring to the table is the opportunity to rapidly monetize the technology. This is something that your partners can’t do, so by filling this role you are acting in the interest of all parties.
What you charge for your work and the full solution depends on the potential value to the client. Time is money, and delivery now is worth a premium price to a client who needs your solution and wants to release their product as soon as possible.
This strategy is particularly applicable to early stage companies who need to release their initial products and start generating revenue.
Take a note from Bill Gates – sell the product for a good price and then buy or acquire the supply.
Situation: A company has been approached by a foreign company that is interested in their expertise. The foreign firm says that they are only interested in their own domestic market, and want the company’s help developing new products for their existing domestic clients. How do you develop products with a foreign firm?
Advice from the CEOs:
There is great variability between companies in different locales and on different continents. Before proceeding with negotiations, get references from the company and check them carefully. Research the company and its local market.
Relationship will be critical. You want to meet with their CEO. This is an important factor working with any company. Watch the commitment level of the CEO and top staff. Take an expert with you – someone knowledgeable about local mannerisms who can read the body language in meetings. Position this individual as someone who is assisting you in the negotiation.
If you proceed with negotiations toward an agreement, make your enforcement jurisdiction either the US or a neutral country with a western judicial system. For example, if the company is Chinese, make the enforcement jurisdiction either Hong Kong or Macao.
Will intellectual property be a factor? If so, get an IP attorney knowledgeable about both the market of the other company as well as your preferred enforcement jurisdiction.
Could this help you to augment or fund your own development? If so, ask for rights to produce and distribute products developed through the collaboration in the US and other markets outside of partner’s domestic market.
Situation: A company has run out of space and is planning a move to a new and larger facility. The biggest challenge is that they maintain a live online data center upon which their clients depend. How do you move a live online data center?
Advice from the CEOs:
This is not a rare event. Many companies with live online data centers have to upgrade their systems on a regular basis as equipment and software technologies evolve. Maintaining service during a move is not significantly different. Research what steps these companies have taken to minimize disruption during upgrades.
Don’t try to do it all by yourself. Seek outside expertise to help you plan the move, and to develop options that will minimize both downtime and service interruption.
Ask a trusted data center resource for a 3rd party audit of your move plan.
When one company moved, they overlapped their leases by one month, and their Internet connections by 2-3 months. This gave them breathing room as they completed the move and allowed them to stay live uninterrupted through the move.
Another company increased their back up servers and service. They also planned their move to occur during what they knew would be a low demand block of time. As a result, they were able to complete the move, plug in the servers and were only down for 30 minutes.
If it is feasible, consider leaving your old center in place as a back-up data center.
Conduct a number of practice shutdowns and restarts to test your systems.
Situation: A company is introducing a new technology. They are evaluating an OEM licensing model. They have been advised that if they go forward independently they will be perceived as a threat by OEMs, and this may inhibit their ability to form key OEM partnerships. How do you reduce risk in OEM agreements?
Advice from the CEOs:
Consider moving forward with a mixed model – both seeking OEM relationships and also selling direct to the market. Because you will be actively entertaining OEM relationships the risk of threatening them will be reduced. In addition, this will help you convince OEMs that your market opportunity is real.
A purchaser of intellectual property (IP) will always try to go around your only offer is an IP license. They would rather own the IP than pay licensing fees. Therefore pursuing your own product applications makes sense to convince the market that you are more than just IP.
There is a risk to this strategy – being caught in the middle. You can end up seeking two clients, your own end users and the OEMs. They aren’t the same and don’t necessarily share common interests. Just be aware of this.
You must be able to succinctly explain your value proposition to client audiences, whether these are OEMS, end users or potential funding sources. In the case of the latter two, they also need to easily understand the critical value proposition to the end user, as well. This value proposition will be your 30 second elevator speech.
Situation: A company faces a question branding a new product – what should lead the branding focus: product design or product attributes that will be an eventual part of the branding strategy? Which should lead in building brand focus?
Advice from the CEOs:
There are two areas of focus – each an important part of the overall trademark and branding strategy:
A distinct name or symbol, for example Amazon.com or eBay, will gain the right kind of attention and be easy for potential customers to remember. The prime risk here is stepping on someone else’s mark.
Your overall branding strategy. The point here is not confusing your customers. Marketing people will advise you to KISS – Keep it Simple Stupid! One tack is simplifying the complexity of technology.
It is important to develop a consistent set of product attributes – one that you know through research will resonate with your client base – before your Alpha launch. It is dangerous to conduct an Alpha launch without clarity on this point. Subtleties of the eventual brand do not need to be finalized, but the overall framework of key product attributes should be consistent and clear from the beginning.
Design and the development of important product attributes ideally take place in synch with each other. Positioning will depend on your audience, and the unique needs and expectations of the audience.
The name itself could be important. Being clear and easy to spell may be important. Test alternative names for this trait.
Situation: A company has a successful product, but the market is changing. Previous customers were savvy, but the market is shifting to more naïve customers who don’t understand how to use the product. How so you respond when the market for your product changes?
What you are seeing is a typical market evolution. (See Clayton Christensen’s book Crossing the Chasm.)
When a new product is introduced, early adopters are typically savvy users who quickly grasp the utility of the product. They don’t mind some inconvenience provided the product is useful.
As the market matures and starts to attract mainstream customers, new users will not be as sophisticated and expect the product to be easy to use.
If you don’t adapt to these new customers your product will languish as new competitors enter the market with user-friendly adaptations.
The path is clear. Figure out how to make your product easy to use. If you use a GUI (graphic user interface) make the GUI intuitive. Allow customers to get what they need with as few choices or clicks as possible.
These changes may alienate more sophisticated customers, but they usually only represent a small segment of your potential market.
Add a customer-friendly service component. This builds a service income base around the product. You have different options.
Align the customer with appropriate level of resource – you may not require high level resources to assist the customer, particularly if the product is one where the service consultant only needs to be one page ahead of the user.
Outsource the service component to a partner or use independent contractors.
Consider a remote monitor system:
A dashboard interface with easy to read visuals or messages that tell the customer when service is needed. This will enable them to perform simple maintenance using your tools, or alert them when they need to contact you for service.
An example is Norton’s evolving system of products that enables an unsophisticated home computer user to either use Norton tools to perform routine maintenance, or directs them to the Norton web site for assistance or more sophisticated solutions.
A company manufactures components for an important large customer. That customer now specifies that all components need to be manufactured under clean room conditions. The company can’t afford to lose this customer but is at a loss as to how they should respond. How do respond to demands for expensive process upgrades?
Advice from the CEOs:
Start with a discussion. Ask them exactly how clean production must be, and what their concerns are. You can also offer to perform destructive testing (at the customer’s expense) to demonstrate that your current processes meet their specs.
Look at the overall cost of the clean room conversion versus your anticipated profits on the job. Make sure that your profits justify the conversion.
Increase your prices to the customer based on the new requirement, and make sure that the increased price pays for your conversion at a minimum. If they ask why your prices have increased, explain that the process that they now demand is more expensive because of the costs of operating under clean room conditions.
If the customer is a very large player and is doing this because of demands placed on them by their customers or regulators you may have little bargaining room other than complying and adjusting your prices accordingly.
Consider a prefab clean room. Especially in high tech areas like Silicon Valley you may be able to find older rooms at a bargain rate. If you don’t have space in your current location or upgrades will be very expensive consider leasing new space for this job.