Tag Archives: Business

Can You Pass Higher Expenses on to Customers? Six Thoughts

Situation: A company is concerned about increased energy expense as prices rise, and the impact on the bottom line. Pricing in their market is competitive. What’s the best way to recover these costs? Can you pass higher expenses on to customers?

Advice from the CEOs:

  • Businesses regularly pass on their increased gas and transportation costs to both commercial and retail customers as these costs rise.
  • This isn’t just true for gas and transportation expenses. As other expenses rise, companies regularly increase their pricing to account for increased costs.
  • Is it necessary to send out an announcement letter about the company’s intent to do this?
    • Some companies do. Others just start adding a line with a gas surcharge to their invoices. This is happening frequently enough so that most customers just pay it without question.
  • What do you do if someone objects?
    • If a customer objects, you always have the option to credit them the charge.
    • Again, most customers are so accustomed to seeing and tolerating these costs that they don’t object.
  • Look at the company accounting system. Are costs and performance trackable by business segment? Performance numbers show both the impact and magnitude of energy cost and improve the ability to manage the business.
  • If the talent is not present to either improve the current accounting system or to shift to better software, bring in part time accounting help. A good source is Robert Half International/AccountTemps. The cost of adjusting the current system will be recovered as the company gains more control over expenses by segment.

How Do You Set Goals in a Volatile Economy? Five Thoughts

Situation: A component company is struggling to set financial goals. Its sales are dependent upon purchases by large customers whose orders are influenced by the economy and demand for their products. How do you set goals in a volatile economy?

Advice from the CEOs:

  • What are the principal drivers that define the market? Have they changed? If so, how? Focusing on principal drivers creates more clarity in a volatile economy.
  • Rather than looking at the company as a producer of components, focus on the critical value add that the company’s products provide to customers. By focusing beyond the product, strive to become a key partner to customers. This can allow you to develop retainer contracts with key customers rather than working solely on a project basis.
  • The Holy Grail is predictable recurring revenue, for example on a service contract basis. The establishment of retainer contracts can help the company move in this direction.
  • The company’s customers have increasingly placed rush orders because they have been hesitant to commit to steady production. This, in turn, increases the costs to the company because they are being asked to alter their production schedule to accommodate rush orders. It’s fair to publicize and charge expedite fees for rush orders, just as delivery companies increase their charges for expedited delivery. Expedite fees will cover the cost of altering production schedules and can also add cushion to company profits.
  • A portion of the company’s business is supplying consumable parts that the OEM marks up and distributes to end users for their equipment.
    • As an alternative look at parts manufacturing/sourcing, storage and distribution direct to the customer as a separate business opportunity and take this over from the OEM – it may be a nit to the OEM that they would be willing to give up for a reliable service alternative.

How Do You Optimize Your Pipeline? Six Suggestions

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.
  • Strategy recommendations:
    • 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?

How Do You Decide Between Strategic Options? Five Thoughts

Situation: A CEO is faced with three strategic options that the company could pursue. He seeks guidance on how the company should evaluate the three options. What signs should they be watching for in their marketplace? Are there steps that they should take while completing their evaluation? How do you decide between strategic options?

Advice from the CEOs:

  • Go with what sells! Listen to the market, and your key customers. Make sure that you have ears out there that will give you early signals.
  • Until there is a clear indication from the market place as to which is the stronger strategy, keep your options open. A hybrid strategy – maintaining your current strategy while evaluating the strongest strategic option – will allow you to do this and continue to drive revenue from your existing base while the market determines dominance among the new platforms.
  • Look at the cash flow from your current strategy and each of the new options that you are considering.
    • What difference is there in upfront payments versus ongoing residuals?
    • Look closely at your cash flow needs compared to the timing of receipts from each option.
    • Are there ways that you can strengthen your cash flow depending upon which strategy you select? How will you bridge the gap between current and future cash flows from each strategic option?
  • Consider hiring a full-time manager in business development.
    • This will help you to learn more about your customers and what they will buy.
    • Select someone who has relationships with the key people in your target markets, and who knows what the insiders are doing at important existing or target customers.
    • Select someone who can give you access to new opportunities and help steer your strategic development.
  • Consider a long-term strategic partnership with a leader in your market.

How Do You Plan for Retirement? Three Strategies

Situation: The CEO of a family business is anticipating retirement in the next two years. Currently, there is no succession plan. Other family members do not seem interested in running the company. What steps should the CEO be taking? How do you plan for retirement?

Advice from the CEOs:

  • To set the stage for your successor, make sure that you are being paid adequately for your job. If you are being paid less than some of your key employees, nobody else will want your job. Raise your salary to a point where it is appropriate for a CEO, and so it is attractive enough to entice a qualified successor. This will also help attract a buyer should you decide to sell or merge the business. Raising your salary will also help your bottom line if your company is an S Corporation.
  • Once you identify a potential successor, bring this individual into the business as soon as possible so they have an opportunity to understand the business fully and can receive on-the-job training from you. 
    • Understand the numbers and red flags that give you the information and authority to run the company and the respect of your employees. Teach these to your successor so that this person has the same overview of the company that you command.
    • Look at what skills your successor needs to be CEO and start mentoring that person on those as soon as possible.
    • You may need to delay your planned retirement so that you have time to select a successor and prepare that individual to take on your responsibilities. Your current 2-year plan may not work, at least without compromises.
  • Without a management succession plan, the company may not bring in as much in a sale or merger as you expect. It is important that you improve the numbers to maximize the value of the firm if you choose to sell or merge the business.
    • Look at your current range of projects. Focus on those which are most profitable to you and emphasize these. You may be able to reduce staff and expenses by being more focused.

How Do You Manage Family in a Business? Three Approaches

Situation: The CEO of a family-owned business finds it difficult to hold family-member managers accountable. They are responsible for significant portions of the business; however, family dynamics make it hard to supervise them. How do you communicate that their responsibilities affect both the business and the family? How to you manage family in a business?

Advice from the CEOs:

  • The first issue: Why have they not been asked for accountability to date? If you don’t ask for accountability, then don’t expect them to take this on by themselves.
  • Assign one family member responsibility for developing the marketing and sales strategy for the company.
    • Change the compensation from salary to salary plus commission. Over a 6-month period, reduce the base salary to half of what this individual currently earns and tie the rest to success increasing sales.
    • Assign this person responsibility for analyzing the markets that you serve. Are there areas that the company has not tapped into yet? What can you do to make your web site up more effective at driving sales? How can you use exclusivity on select products to your advantage?
  • When was the last time that the principals of the business met to figure out what to do?
    • Set the stage: we have split the business into two divisions and have separated the financials. This gives us more flexibility as we develop the business.
    • Show them the trends of each business.
    • Show them that if the current trend continues the business will be unsustainable in X years.
    • Facilitate a discussion that will start to generate solutions.
    • If the others do not respond:
      • Tell them that you appreciate their attendance at today’s meeting.
      • Tell them that you will meet in another two days as a team. Until then you expect them to think things over and to come ready to share their ideas.
    • Do not hold the meeting in your office or conference room. Secure an off-site neutral location with a white board.
    • If you are uncomfortable facilitating this meeting hire an outside facilitator. Ask for the input of the others in selecting a facilitator and follow their recommendation. If you work with a facilitator, start with your own dilemmas to set the tone.

Must a Family Business Always be “Family”? Five Suggestions

Situation: The CEO of a business that has been in place for several generations is frustrated by the challenges of working with family members. Relatives are involved in top positions, but frequently place personal concerns above the priorities of the business. This leads to tense situations where other family members, not in the business, will intervene to support their close relatives without appreciating the conditions facing the business. Must a family business always be “family”?

Advice from the CEOs:

  • For the business to thrive, you must match skills and talent to available positions – not just the “best” family member fit for the position.
  • Understanding that it is difficult for one family member to communicate negative news to another family member, consider hiring a consultant or HR company to evaluate and be the go-between in determining best family fit, or family/non-family choices for open positions.
  • If the company involved unionized employees, and some family member employees are union members, this may complicate your choices. Seek outside non-union counsel to help you evaluate situations and navigate solutions.
  • Hire a professional facilitator to assist in running company planning meetings which involve family members. A facilitator can approach the situation from a neutral standpoint, and does not carry the personal history of brother-sister or close relationships within the company. Choose an individual with experience with family-owned companies who can build a company vision that goes beyond personal relationships and concerns. This individual can also help navigate the operational situations facing the company.
  • Look at both your organization and ownership structure versus applicable regulations and licensing requirements. This may present new alternatives for you to consider.

How Do You Revamp Your Sales Team? Seven Solutions

Situation: A company is faced with the imminent departure or retirement of several key sales personnel. This presents the opportunity to rethink and rebuild the sales team. What is the best way to take advantage of this opportunity? How do you revamp your sales team?

Advice from the CEOs:

  • The timing is good. Take advantage of this opportunity!
    • You’ve identified the next generation of sales leadership. Now determine their role building the future.
    • This is an opportunity to reset your vision for the next 3-5 years.
  • The task of the new sales leaders is to learn the products, customers, and processes. One of the best ways to do this is in the role of sales engineer.
    • Be the listener first – become the solutions person.
    • Use existing company personnel as resources to develop closer relationships with key people within the company.
    • Have existing staff can introduce them to current customers and point them toward new opportunities. Focus on impeccable customer service.
  • What are the immediate priorities for the new sales leaders?
    • Do what must be done.
    • Observe experts on the job.
    • Listen and learn.
    • Ask lots of questions.
    • It’s scary, but don’t worry – just do it!
    • Let others assist.
    • They will make mistakes – it’s called learning.
  • Be sure to build an approach and team that can support both your existing core business and build new opportunities.
  • You need to replace the capabilities of those who will be retiring, and at the same time bring in new opportunities for future growth. This includes sales hunters who are good at finding new customers and helping them define their unique needs.
  • What fears or concerns do you see in the new leaders?
    • Fear and concerns regarding short and long-term roles.
    • Focus on the near term. The President is focused on the long term. Focus now on visiting customers, being introduced to them, and learning about them.
  • Are you fully focused on marketing of your services?
    • What is your Sandbox? What is your Value Proposition? What is your Brand Promise?
    • Define these and let the definitions guide your development of the sales leadership as well as the search for additional personnel.

How Do You Build a Young Company? Four Perspectives

Situation: An early stage company is positioning itself for growth. The CEO believes that they need to adopt a new model to grow. She is focused on a new channel – an affiliate model using the web. How do you build a young company?

Advice from the CEOs:

  • Introducing a new product to a new market is very difficult, especially for an early stage business that is still establishing itself. Shifting from direct sales to ancillary services presents a new challenge and a new demographic. In addition, in your market there are low barriers to entry so it may be too early to diversify. You are more likely to be successful marketing to your core.
  • Evaluate and decide whether there is growth in your core business. If so, stick with your core plan. If not, then you either must change or decide that your core market is not what you thought it would be.
  • You offer a valuable, important service. The issue is branding and a clear vision of what you want to be. Start by identifying your revenue stream. Then assess ways that you can move from one-time sales to an annuity revenue stream without major adjustments to your model.
  • Is it feasible to build a revenue share model for ancillary services with your core business partners? Here are the steps:
    • Develop a model.
    • Talk to both your business partners and customers – test the concept. See how they respond.
    • There are two things to look for: does it turn out that that the model is easy to sell and implement, with little effort or distraction from our core business, or does it compliment your core business. If either or both is the case, you may want to pursue it.

What Incentives Do You Offer Your #2? Six Thoughts

Situation: A CEO’s “Number 2” is returning from maternity leave. He sees a role for her helping him grow the business and wants to give her an incentive for taking on that role. What is an appropriate incentive? What incentives do you offer your #2?

Advice from the CEOs:

  • Remember, first, that your #2 is a person with a new baby. Remember what it was like when you and your wife had your first child. How did your priorities change? How did your wife’s priorities change?
  • Never make her choose between child and job – you will lose. Offer her lots of flexibility. For example, allow her flexibility in hours to accommodate the needs of her child. This will mean a lot to her.
  • Find out what is important to her – what does she see as her role and goals. Be sensitive to the possibility that the birth of her first baby may have changed her priorities.
  • Here’s the message: “You’re valuable and I want you on my team. I appreciate your responsibilities with a newborn. How can we make this work for both of us?” Build a role around this – not an incentive program.
  • Many Silicon Valley and other urban families need two incomes. Work out something that works for her.
  • Have a Plan B in case it turns out that her priorities no longer align with yours.