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 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.
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 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.
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.
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 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: The CEO of a family business seeks to create a succession plan. One family member has expressed an interest in taking the reins of the company but has failed to take the initiative to demonstrate that he is prepared to take on this role. Another family member is now demonstrating both interest and initiative. How do you plan for succession?
Advice from the CEOs:
How should this situation be approached?
Do not view this situation competitively, but rather from the standpoint of what is best for the whole family because many family members stand to benefit from the ongoing success of the business.
Whatever decision is made, the successor will need support and assistance understanding both the financial and business sides of the company. This individual must also be aware of conflicts and challenges that face the business.
What else should be done to prepare for succession?
Given that there are two individuals interested in becoming CEO sit down with each individual and negotiate a clear boundary statement on what you, as CEO, can and can’t do, as well as what can and cannot be expected of you, as CEO, as the succession decision is made. This understanding should be documented in writing and signed, signifying understanding by both the CEO and the candidate. Each candidate should have their own signed agreement with the CEO.
In a family business, the CEO, as guarantor of the company, may be faced with a different level of financial risk than other family members. Both candidates for the CEO position must understand that if they accept this position, they also accept this risk.
Situation: A company wants to expand to new sites. It’s business model relies on high levels of customer service, with high customer retention and efficiency. The challenge is that the model is low margin, because only a few employees are billable. How do you finance site expansion?
Advice from the CEOs:
To evaluate profitability and start-up time create a low-cost prototype site to test the model and collect data.
Develop a template with a high likelihood of survival over the first 6-12 months when investment will outweigh income.
Consider a SWAT resource team to accelerate early success for new sites.
Key areas of focus:
Understand the value of the business. For example, is it:
Improving client operational efficiency?
Building the team?
Response time to client needs?
From experience define the most important variables for success:
What is front office, what is back office?
How important are the dynamics between key people? Is it better to hire key people as the number of sites expands or grow them internally.
Determine what is being sold, with a reasonable prospect of return – methodology or services?
Consider a franchise model. The model must show a reasonable return to the prospective owner, including the cost of franchise purchase and start-up costs.
As franchisor, it is important to know what this model looks like to a prospective franchisee; however, take care not to create a representation to which would be bind the franchisor as a promise.
A successful franchise should have a branded presence.
Offer potential franchisees a guarantee: if after one year the net costs to establish and maintain the site are below a certain level, the franchisor will credit the difference between their estimate and the actual net costs in Year 2.
MacDonald’s does not allow franchisees to choose store locations. Similarly, the franchisor can choose locations, determine the availability of key talent, select anchor clients, and develop a reasonable estimate of the value of a new franchise before selling it. This increase the value for the franchise sale and creates a more predictable ROI for new franchisees.