Situation: The CEO of a service company needs to expand its market base due to concerns that a significant service and referrals partner may decide to stop working with them. A break-up would have significant impact on salaries, effort and focus. The company’s priority is to expand client growth to minimize the impact of a break-up. How do you expand your market base?
Advice from the CEOs:
To expand or build a market requires a champion. Someone like the company’s founder who has the passion and contacts to build new business.
Second, incentives must be established to reward success bringing in new clients. These incentives must have teeth – no success, no incentive. No safety valves.
Third, create a plan to support the new business development – including marketing, event attendance, etc.
Initially, be selective and target just a few highly desirable new clients to test and refine the client attraction model before expanding to the broader potential client audience.
Build a set of case studies of services and results for new clients.
Track and prove out the profitability and workability of this model.
How should the effort to expand the market base be constructed?
Start with preparation. Research the current prospect list to assure that they are good prospects. Also look at the current company culture – do the company’s strengths align with what is needed to attract and serve new clients?
If the research shows that a significant number of prospects are different from current clients, think of this as a new channel. Create a different business unit to specialize in serving these clients. Hire a team to focus exclusively on the new client group, with proper incentives tied to achievement with these prospects.
Another company had a similar choice. They created a program to increase their market base and went after it with full focus. It took five years to accomplish vs. the two years that they had planned. Nevertheless, the results have been worth the effort and expense. If the company believes in the model, invest in it.
Situation: The CEO of a specialty component company wants to standardize documentation of company procedures covering sales, production and ISO documentation. This will take time and effort, and employees are concerned about accountability for poor results. How do you incentivize employees to document SOPs?
Advice from the CEOs:
Are employees are being asked for accountability without being empowered or rewarded for performance? Currently, there is nothing about employee performance that is directly tied to:
Dollars in raise, or
Share of the bonus pool.
Everything is determined at the CEO’s discretion.
Why would anyone want more accountability if they feel that they have little control over their jobs or future at the company?
To increase accountability and drive, employees must be given control over the factors tied to retention, pay and bonuses.
To create an effective system for employees to document standardized SOPs they need:
Incentives that are under their control to achieve the objective – creating standardized SOPs.
Objectives that are achievable with clearly stated rewards for performance.
Performance evaluations tied to clearly stated objectives, discussed with and agreed to by each employee, which drive raises, bonuses and rewards.
The messaging about these changes must be delivered with energy and passion. Employees must feel excited by this opportunity.
Understand that this may cost 10-15% in increased overhead but will boost the value of the company way beyond the cost.
Employees need to know the vision for the company and must be empowered to achieve the results to fulfill this vision.
The why behind the desire for standardized SOPs is just as important as the incentives created to achieve them.
The why must be clear, simple, and must be understood by the employees for everything to work.
To further motivate the team, involve them in designing the incentive program.
Ask what they want. Maybe it’s something as simple as a fun day with the team.
If they aren’t asked, the danger is that they will not respond to the incentive offered. Money is not the only, and in many cases is not the most effective incentive.
Situation: The CEO of a successful small software company is snowed under by day to day tasks. She wants to focus more of her time on business and infrastructure development. However, the company’s departments are not strong enough to run without her supervision. How do you free up more of your time?
Advice from the CEOs:
The first priority is to develop infrastructure that will allow the CEO to focus on strategic development.
To build this the company needs the right people to do the work.
Look at the daily task list and develop or hire new managers to oversee day-to-day non-strategic functions.
For example, offload payroll and back-end accounting to a bookkeeper.
Look at the gaps between where the company is now and where you, as CEO, want to be in terms of your time and responsibilities:
In addition to a bookkeeper, hire an experienced executive assistant – to keep you focused as CEO.
The company is growing rapidly. It is time to hire a human resources manager.
The company’s cash flow projection for the coming year indicates a substantial surplus.
Use this surplus to hire infrastructure.
In front of key clients, keep the impression that you are available to them; however, this is primarily for client relations. The CEO doesn’t have to do all the work demanded by clients.
Use the lawyer / rainmaker model. The rainmaker maintains key client relationships; however, the rainmaker has staff do 90% of the work.
The 7 States of Enterprise Growth Model indicates that the company is now in what’s called a Wind Tunnel. The critical activities in a Wind Tunnel are:
Letting go of methodologies that no longer work and acquiring new methods that do work, and
Situation: The CEO of a service company continually finds the company short of cash. They have just hired a new accountant, but it will take time for this individual to understand the financial situation and to generate recommendations to improve cash flow. How do you keep a company afloat short-term?
Advice from the CEOs:
Point #1: This isn’t just a question of controlling costs; the company needs to build the infrastructure to succeed.
If there isn’t someone on the team in a position of authority, who the CEO can trust completely, hire this person. The CEO can’t control all risks.
While the company has shrunk over the last two years, it is still a substantial company and needs professional management. To grow effectively, professionals are required in key leadership positions. If necessary, hire experienced outside talent
Look for teachable moments as challenges arrive. The CEO, instead of solving a problem, should work with employees and mentor them through discovering and implementing solutions.
How to communicate this to current staff?
Put the story together. Be able to make a clear statement to them, including the current situation and future possibilities for which the company must prepare.
Generate charts and metrics to support key points.
Use senior staff as the mouthpieces to present the story to the rest of the organization. Once they are onboard, have them help craft the message. Don’t underestimate the CEO’s authority. This is business, not a popularity contest.
Let others make mistakes – it is part of the learning process – no matter how critical the situation.
Point #2 – Return to the company’s roots.
The faster everyone accepts that a focused approach is the only way to survive, the faster the company will turn around. Reestablishing company presence in key markets with a new model that speaks to their desires makes a lot of sense.
Be very clear as to what flat-rate service pricing covers. Include this in the signed customer agreement. Don’t allow costs to creep up or it will kill the profitability of flat rate jobs.
Create an infrastructure nimble enough to adapt as market conditions change. Identify what really works and focus on this.
Situation: The CEO of a small technical company is in the process of handing off responsibilities to a new President who lives in another state. The CEO and President have known each other for a long time and have a strong relationship. The CEO will hand off several key responsibilities immediately, while retaining financial and HR because of the President’s location. How do you transition to new management?
Advice from the CEOs:
Most of the current hand-off plan concerns non-technical areas. The next logical area to delegate is Customer Support.
Establish a trigger process for new requests for support that keeps key parties informed and meets customer needs on a timely basis.
Think about bumping up Customer Support to a more proactive Customer Relations function. This is important during economic downturns when trade show attendance is low.
Next in line are Installation and Installation Planning, since the new President will already have Installation Support.
Think about Technical Support. This could be combined with Customer Support and makes sense because many customer support questions come through technical support.
Beef up the financial function to support future growth. Growth brings new complexities into the picture. Consider handing this off to a part time professional who can provide regular updates of the company’s financials. A professional can also look at the structure of the books and suggest changes that will provide more insight into company operations, opportunities for savings, and sources of funding to support planned growth.
Situation: The CEO of a family business faces his most difficult conversation. One brother, who makes more than anyone else, is not living up to his responsibilities. A long-term key employee currently handles most of this brother’s responsibilities at a modest salary. The CEO is intimidated by this task. How do you prepare for a difficult conversation?
Advice from the CEOs:
Call a meeting of the three brothers and the key employee. Propose putting all four into a pool. The key employee is treated like a brother. Ask: what is a fair way to split the pie and to build incentives so that each makes what their father, who built the company, made? Make it clear that all four members of the team want the same earning potential and that one team member is not more equal than the others.
Prepare and script this meeting ahead of time.
Don’t allow the under-performing brother to play the others off against each other.
Know what must be said if this brother says he will leave.
The CEO must stick with the message. If the underperformer doesn’t like the message, he is not indispensable. A replacement could be hired for far less than he is currently being paid.
What are the key points for the conversation?
Turn the question around – the brothers all joined a company model that no longer works – the three brothers, combined, make less than their father made.
Ask the underperformer – what are the proper incentives? What is fair? Is it fair that for years, he has made more than anyone else?
It’s time for each member of the team to work together to figure out how to make what their father made in this business.
The brothers have supported the underperforming brother for years. Any old debts that were owed have been paid.
Ask the underperforming brother for his voice in how to expand the company and make it more profitable.
This is a new game. If all members pull together everybody wins.
A company is looking at options to fund growth. These include selling a stake
in the company, bank financing, organic growth. or partnering with another
company. There are trade-offs to each option. How do you fund business growth?
Advice from the CEOs:
There is a question that should be answered before talking about funding: what is the vision for the business?
Think about building the business that the founders want to run. What size company feels comfortable from an operational perspective? What does it look like?
Does the company have the right people and infrastructure to support planned growth? Are current direct reports capable of taking on additional projects and monitoring both current facilities and additional sites?
As the company grows, can the bottom line be increased as fast as the top line?
Commit the 5-year plan to paper. Before deciding how the company will grow, determine the vision, the growth rate to support that vision, the organization required, and the strategic plan to get there.
The funding decision is an investment decision. What’s the return for a multi-million-dollar investment? What incremental revenue and earnings will it produce?
Estimate how much revenue the investment will generate in 5 years. At the current gross margin, what is the incremental gross margin per year.
Given this estimate, what is the projected EBITDA? Does the annual EBITDA represent a reasonable rate of return on the investment?
The investment ROI must be known – both from the company’s perspective and for any lender or partner who invests in the planned expansion.
How high do the company’s relationships extend in key client companies? Do client upper management realize how critical the company is to them?
If the answer is not high enough, develop these relationships. This could open new funding opportunities.
For example, if the CEO knows the right people at a key customer, let them know that the company may want to build a facility near them. The customer may be interested in partnering with the company to finance the facility.
A multi-million-dollar joint venture plant investment is a modest investment to a large customer if it gains them a strategic advantage.
The CEO of a new company is building her business. She has a business plan but
is struggling to bring in new clients. How do you create a roadmap for a new
from the CEOs:
Creating a new business is a numbers game. Draft a 3-year plan that will generate $1M in billings.
The bottom line of the plan is bringing in new clients.
Create a financial template that is driven by how many clients it takes to reach the financial goal in three years. Fill out the annual numbers including where new prospects will come from and set quarterly and monthly goals and activities to generate those clients.
Develop a marketing “hook.” For example, in the case of business services:
Fixed cost business tune-up – a low-level retainer with limits on time and services offered (up to x hours work per month or quarter on y projects)
Fixed fee in-house service for small business – again with limits on the services offered
Additional services beyond the limited services will be at the company’s normal rates, possibly with a discount to those on the basic retainer service.
Create a list of desirable new clients – the company’s sweet spot. Next look for people who can connect the company with these clients.
How to get to the target client?
This is a funnel question. To build the funnel take three sources of clients: referrals, current business contacts, networking. How many contacts are needed from each source to generate 10 new clients per year?
Make presentations to groups which may produce clients or referrals.
Get to know the local business people who make referrals.
Write articles for magazines that these business people read. Be an expert.
To save money, use student interns from nearby colleges and universities to do some of the basic work – target client research, researching and writing articles (make then co-authors on the articles – looks great on their resumes!) This is an inexpensive win-win for both the company and the intern.
A company seeks to leverage the difference between information from traditional
media and the richer information available through social media. Their objective,
using publicly available information, is to identify individuals’ specific plans
or preferences to better target their clients’ marketing dollars. Can social
marketing leverage your competitive position?
from the CEOs:
principal value proposition is the ability to mine publicly available information
from consumers through social media and make it useful to advertisers who want
to reach those customers.
the company’s technology allows access to shared data which can be used by many
companies this is less expensive than clients’ trying to go it alone.
most important differentiation will be the timeliness of data. Many firms
collect data after the fact – for example after a key purchase is made. What
advertisers desire is the ability to anticipate purchases. An example is a
consumer’s plan to buy a house. This information is valuable to many companies.
If data is mineable, it is valuable.
essential question is how the client will make more money from data being
near-real time. If the client can use the company’s data to enhance their marketing
database, this adds value.
partnering with the agencies that B2B and B2C companies hire to advertise their
products. Even the largest consumer B2B and B2C companies work with outside ad
agencies because these companies have better access to targeted customer lists
than the companies.
a subscription model, offering access to unique, current data to many customers.
The differentiating value is the currency and timeliness of the data. A
subscription model generates an ongoing revenue stream.
A young company is in the process of hiring new employees. Good customer
service, including excellent communication skills and empathy are the most
important qualifications. Good follow-up skills are more important than
educational background. How do you train new employees?
from the CEOs:
Training new employees may be putting the cart before the horse. The first task is to solidify the company’s business model. The next task is to determine what roles and positions fill that model. Only then can the company determine how best to train employees.
Build an organizational chart for a $1 million company.
Who will the company serve?
What are the positions and roles?
This is future that the company will be building and determines how to select and train people to fill the positions.
Suggested Reading: The eMyth Revisited by Michael Gerber – a guide to envisioning the future of the company and how to build it.
A word of caution. As CEO, you don’t want to be training people like yourself. This is both difficult and risky. You may be training future competition.
As an alternative, think of a series of distinct roles or functions that make up the business, then select and train different individuals to handle each role. It’s difficult to find people who can do it all. It’s much easier to find people who can bring in new clients, establish and nurture relationships with partners, network to develop a referral base, or counsel new clients on alternative solutions to fit their needs.
Organizing this way means training and creating experts in segments of the business, but nobody knows the full business the way that the CEO does.
Each position within the company will need individualized objectives and performance evaluation criteria. What are the key metrics for each position? This helps to build efficiency.
Think about both one-time and recurring income models. This may call for different employees or at least a different sales activity to build each business segment.