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.
A CEO is concerned that her company does not have enough new prospects or
business on the horizon. New business opportunities appear sporadically but not
predictably. She asks how others schedule their time and effort to bring in new
clients. How do you maintain a robust pipeline?
from the CEOs:
Devote a regular amount of time to business and relationship development. Even when business is busy it is important to have the discipline to devote 4 to 6 hours per week to new business development. Schedule this time and fill it with activity. Occasional networking doesn’t work.
What differentiates a company is its brand. If new business comes from referrals, turbo-charge this by becoming the information hub for the referral group. Make it easy for others to make referrals.
There is a hierarchy of things to do.
Stay on potential referrers’ radar screens – monthly or quarterly awareness marketing to referral sources.
Spread awareness of best practices in areas where the company has expertise.
Make best practices relevant with situational stories.
Think in terms of a target.
Where do most referrals come from? This is the center of the bull’s eye
2nd Ring – 2nd level of referrals
3rd Ring – 3rd level of referrals
Network more with contacts at the center of the target – they know clients in need of help.
There is a lot of information in the cloud that is relevant to the business – personnel moves, hiring, firing, etc. If you it is possible to track this, it can help.
LinkedIn can help. Look for 1st and 2nd degree links to individuals of interest. For example, you want to meet a CEO who on LinkedIn is a 2nd degree link. Request a warm introduction from a 1st degree link between you and the CEO.
Think of LinkedIn in terms of rifle shots, not a shotgun approach. This makes it both more manageable and more valuable.
A company has been approached by a larger company that is interested in
purchasing it. The purchaser wants to fill a niche that they don’t currently serve,
but which is important to their growth. The CEO is concerned about what will happen
to employees following sale of the company. How do you respond to a purchase
from the CEOs:
Questions for Preliminary Stage Research:
What valuation is the tipping point for an attractive offer by the buyer?
Determine the nature of the purchaser’s interest in the company and how it fits into their broader strategic picture. If their plan will dramatically change the market the company’s current market value may go down later relative to doing a deal with them today.
If the acquirer has a history of buying other companies, look at who they’ve recently bought, what they paid, and what kind of impact they had on the staff and culture of the companies purchased.
Check out the purchaser’s P/E ratio. If it is in the range the company’s desired multiple on EBITDA, a good deal is possible.
Temper the company’s response and approach to get the most from this experience.
Currently, assumptions about the acquirer make the offer appear unappealing. Ask questions to validate or challenge these assumptions.
Be open-minded so that the purchaser reveals more about themselves and the market than they would if they sensed a lack of interest in an acquisition.
How does the company protect itself during the inquiry and due diligence process?
Keep staff numbers and individuals, and customer lists close to the chest.
Have an LOI and ask for a breakaway clause before sharing significant information.
Breakaway clause: if the two companies get into discussions and the potential acquirer decides to abandon the discussions, it will cost them $1M.
The potential acquirer may not agree to this, but it demonstrates that the company is serious both about the discussions and about preserving the confidentiality of its business information.
More Advanced Stage Questions and Research:
This looks like a strategic interest. If so:
Get assistance from an investment banker.
Look at what other alternatives may be available to the acquirer to assess the company’s potential value.
Any offer other than a high-multiple strategic valuation and offer should not be of interest to the company.
What restrictions will the acquirer put on the company?
For example, if there is an earn-out value, will they give the company the freedom to operate to maximize this value?
Be careful with employee communications and how employees are informed of an outside interest. This can be difficult during due diligence.
If the founder remains with the company post-sale this could help lock in the value of the exit and assure the employees’ future.
Make the most of this opportunity.
Are there ways that the company can become better and smarter working with the acquirer?
Is there a relationship short of acquisition than would benefit the company like a collaboration or partnership?
Can a relationship short of sale enhance the company’s market presence and help the company to achieve national status more quickly?
An early stage venture which focuses on a humanitarian mission needs funding.
The founder is more interested in providing a peer-driven platform and service
than in producing profits. She envisions most of the funding coming from
donations rather than investors, at least near term. How do you fund an early stage venture?
from the CEOs:
that the venture is focused on building a peer-driven software platform, it is
possible that it may be of significant value if the venture was to be sold for
its technology or audience. Facebook and similar platforms could have a
distinct interest as the venture attracts a significant audience. Is this a
potential conflict with the original vision? The answer to this question will
impact funding choices going forward.
are several resources available to assist in fund raising:
for local groups that assist with fund raising.
Foundation Center (www.foundationcenter.org)
specializes in helping organizations to secure funding for non-profit ventures from
foundations. They have online facilities as well as locations in New York,
Boston, San Francisco and other major cities. They also provide training in
raising funds from foundations.
the founder’s network to find people with an interest and contacts in
with local churches and synagogues which also excel in fund raising. The
congregations may be smaller than the mega-churches, but the members are often
very connected. Because of the humanitarian nature of the new venture, churches
and synagogues may be natural partners.
Situation: A CEO is struggling to manage conflicting demands from a key foreign client. The client frequently changes targets and priorities; however, the performance contract with the client does not allow variations from plan. In addition, the CEO and client have different expectations concerning ROI. How do you manage conflicting demands from a client?
from the CEOs:
or access expertise from an individual who knows both cultures to coach you on
intercultural communications. This will help you to avoid inadvertent miscommunications
where your well-intended queries are negatively interpreted by the other party.
interpretation is an increasingly important factor for multi-national business
there elements of the client’s structure and the agreement with the client that
offer significant benefit, but which are underappreciated by company staff?
to funding or allowance on expenditures that allow the company to increase
staff to meet company demands?
that staff are aware of these benefits and how critical these can be to the
company’s, and their future growth and income.
with the client’s leadership to outline the conflicts that the company faces
meeting the client’s needs and demands. Explain to them how these conflicts are
compromising the company’s ability to meet their needs. Once the conflicts in
priorities are clearly expressed this may help the client to understand and
resolve the conflicting demands.
may involve a considerable personal risk and cost to the CEO. However, if the
effort is successful it will, in the long-term, benefit both companies.
Situation: A family-owned company has built a sustainable and modestly profitable business. They have built high quality, referenceable collaborations. The CEO is ambitious and wants to become a world-class company. They now seek limited partners as investors to grow the company. Which is more important – cash flow or value creation?
from the CEOs:
Both cash flow and value creation are important. There are several sub-questions to the question:
First, what is the fundamental business model?
Second, the CEO is the company’s charismatic leader. How best to follow his energy?
Finally, and most fundamentally, does the current business model make sense? Can it be simplified it to improve its scalability?
Currently there are three divisions, each with a different objective.
Operations – to be sustainable.
Services – low profit and low percentage of company revenue but also low overhead.
Investment – to achieve an acceptable rate of return.
How does the company get the best valuation?
Currently, the company is organized as a conglomerate.
Conglomerates are too diffuse and difficult to optimize to attract investors. Pure plays do better. Consider refocusing the company around its key strengths.
The family business model is fine. The question for the family – how does the CEO keep and attract the key staff like that makes this business work? Salary alone doesn’t do it. What are the future rewards for key personnel? Consider deal participation to incentivize key employees.
The investment and operations divisions are different companies – this is fine. Optimize both.
To attract the best LPs, the business model should evolve from a family to corporate model. This will make more sense to investors and improve their ability to participate in future growth and profits.
A CEO closely watches company cash flow so assure that it is enough to fund the
company during both upswings and downturns. The company is doing well, but the
CEO is concerned about a near-term potential downturn. Where so you find
sources of capital or savings?
from the CEOs:
anticipating future cash flow needs, planning to breakeven may not be enough.
Anticipate contingencies and cut enough to be profitable. This is particularly
true if a downturn is longer than anticipated.
a close look at operating capacity.
current capacity based on staff count and average billing rates.
best – worst case scenarios given market trends. Compare each against current capacity
and evaluate the gaps. This will help set staffing levels to assure that the
company is not overcommitted in case of a downturn.
future cash flow for non-payables based on experience. This may indicate the
need to cut expenses deeper to assure that the company survives an extended
a recovery, pull back those who were let go.
there is underutilized time from the team, pitch this to investors to obtain
equity financing for new IP.
selling a key customer on a royalty model. This can be a small royalty – maybe 1-2%
of products sold based on the company’s contribution. This is pure profit to the company, and provides
an annuity revenue stream, even if small.
at banks which are aggressively expanding in the region. If they are hungry for
new clients they will offer attractive rates.
are better sources of funding than investors. A good client can become a strategic
partner. Do some homework before first before making the call to a key contact.
the level of financing that is needed.
where it would be used and what kind of return the company can yield on the
A young company that focuses on personalized solutions needs to generate near-term
revenue to meet expenses. There are also options for debt or equity financing,
but the terms for each will equally depend on near-term revenue potential. How
do you generate near-term revenue?
from the CEOs:
in terms of the referenceability of early customers. As a new company, the first five customers
define the company to future customers.
core values of the company will help clarify how to make early choices.
just go for the easiest closes.
a chart of potential customer prospects:
potential prospects into groups.
is the deal model and key value proposition for each group?
a video and communications package to demonstrate the company’s benefit to each
are trade-offs between the different deals that the company will pursue:
fast deals are most likely to meet immediate cash flow needs.
biggest deals may involve the creation of LLCs. These will involve both more
time and additional legal fees.
sure that early deals align with the company’s core brand.
outsourcing to speed the provision of services to early clients. Build this
cost into your billings. Assure that the funds from early deals flow to or
through the company. This will improve the financial story to additional
serving special interest groups. Their potential value is that they work for
their passion more than for money. If the company chooses to work with one or
more of these groups, assure that customer selection aligns with company values.
current focus for near-term monetization is on merchandizing. As an alternative,
consider charging a separate fee for the use of company IP. This may give clients
additional incentive to utilize company technology to monetize their
Situation: The founding
CEO of a technology company is considering options for the future. The company
is doing well, with two options for future development either within or outside
the company. How do you choose between strategic options?
from the CEOs:
expertise is less important than business experience, P&L experience, and fund-raising
success. A diversified background and successful experience as a CEO are as
important as specialty industry experience.
to pursue all options for the time being. See how the new opportunities mature
before making final choices, and either split time between the options or
assign good managers to oversee each.
agreements should be based on cash investment of the parties – not time and
#1 – Focus on the primary company.
challenge is that most of the Board members just see the numbers, not the
dynamics of day-to-day operations. They don’t know the CEO’s contribution.
that the Board understands the CEO’s contribution and is rewarding the CEO appropriately.
#2 – Focus on New Opportunity #1.
this option more like a product or a company?
this option as a product incubator rather than a single product company –
producing and spinning off a series of ideas for development.
can be done either within the primary company or as an outside effort.
#3 – Focus on New Opportunity #2.
development can be self-funding. Compared with manufacturing, software is
inexpensive to develop and requires little investment to scale and sell once
the code is written.
trick is to rigorously focus on market opportunity while minimizing cost.
staffing commitments. Use scarce resources to lock up irreplaceable
capabilities. Hire or offer equity only for significant contributions such as
IP development. For labor, use consultants, independent contract arrangements,
or look for what can be outsourced.
Option #2 this can be done either within the primary company or as an outside
A CEO struggles to balance time and responsibility commitments to his business
with demands of his family. This is not an uncommon struggle for executives.
The question is: what strategies are effective to address the needs of both.
How do you balance the demands of work and family?
from the CEOs:
Member: It takes a plan to find a solution.
what you want and write a business plan to get there.
relationship do you want with your soul mate? Make this part of the plan.
a conversation and test whether your and your spouse’s long-term visions are
take on additional work – this is good both for family relationships and the
role as CEO.
Member: My spouse and I talk about this a lot – particularly around time.
have agreed on how the week is carved out – family time/work time.
agree to honor each other as we are – not how we want the other to be.
work commitments because – long-term – your spouse and children more important
and more lasting than work.
Member: I’ve lived through the same issues.
probably erred on side of family vs. career. The benefit is that now, I can’t
get enough time to play with my kids. It’s great!
to children is very important during the early years. While infants are not as
capable of communicating as they will be later, the basic emotional and
learning patterns – as well as affection patterns – are created early in life.
It’s like the foundation of a building – not much to look at from the street,
but it allows the whole building to stand.
same mind that developed your business can solve this.
open to solutions.
is uncomfortable, but not bad. The struggle proves that you care.
your spouse as somebody who cares enough about herself so that she thinks she deserves
a class act from her mate. Isn’t this what you want in a mate?