Situation: A company was created from IP originally developed by the founder at a large corporation that was not interested in commercializing it. The new company has now become successful and visible, with the large corporation as an important partner. The CEO wants to make sure that she has all bases covered to secure the future of the new company. How do you manage a key partner relationship?
Advice from the CEOs:
There must be clear agreement between the company and partner on ownership of the original IP – a legal document signed by both parties. You can bet that should a conflict arise, the lawyers representing the larger company will argue that their client owns the IP. Once this is secured, focus on developing and licensing software that you clearly own.
Develop contingency plans should the key partner decide to exit the business on which your relationship is based. Identify what other companies could replace lost revenue. Start to build these relationships.
If the partner helps to fund current development, take the money that you save and develop your own IP, independent of the partner relationship. As an alternative, at least develop critical components of the software as your own IP, without using the partner’s funding.
This will free you to develop other customer segments to broaden your business base.
What concerns does the partner have? Strategically, large corporations can be uncomfortable if they feel dependent upon a much smaller company. There are two things that you do:
Makes a concerted effort to assure that you are essential to the large corporation’s overall business.
Make change as painful as possible.
How would you get paid if the large partner exited the relationship?
Negotiate a contract with a 2-year window to any change that partner wants to make. This will provide you with the room to develop new clientele should the partner exit.
Have contingency plans to rebuild capabilities that might be lost and sell it to other clients.
Customize your software by client. In the process, you will develop new methods to keep your edge over competitors.
Keep critical parts of your processes “manual” so that they are essentially trade secrets and not easily replicable if the partner were to try to take over the IP.
Situation: Start-ups and early-stage enterprises are typically both resource and talent constrained. The CEO of a start-up asks how others successfully outsourced infrastructure cost effectively and when they were early-stage so that they could focus on critical success factors and improve their opportunity to succeed. How do small companies outsource infrastructure?
Advice from the CEOs:
In the early stages of company development, outsource everything possible and focus our efforts only on the key functions.
In order to focus on the most important things first, decide what must be accomplished and when. Set priorities, establish key milestones and create a timeline to measure achievement. Celebrate your successes!
Identify the most important strategic foci within your business model and outsource everything else.
For example, use outside data centers instead of developing these yourself.
With the increase in Cloud-based options, early stage companies can do without the IT infrastructure that they used to need. Just be careful to safeguard your intellectual property!
Attend relevant meetings and functions to learn about existing and available capabilities. Look for local networking opportunities relevant to your market.
Incubator sites have developed in a number of high tech centers. These are designed to cover infrastructure needs at a reasonable cost so that founders can focus on product and service development.
Hire a virtual assistant – you can find these locally using a Google search.
Take advantage of lower cost labor and enlist younger, less experienced labor to manage databases and clean records.
Set up a wiki for information. This exchange is free and you can tailor it to your needs. It is permission-based; you can find it at pbwiki.com.
Situation: A company has goals and objectives in place for the whole company. The challenge is that they need to focus top managers on effective processes and not just on their team’s objectives. In particular they want to increase focus on cross-functional processes. How do you focus managers on process?
Advice from the CEOs:
Start by identifying all critical processes. Once this is done, build an in-house system to track these.
Make contingency decisions dependent upon sticking with the processes.
Consistent follow-through is essential – talk through the blocks as they arise.
Don’t become a slave to your own system. Stay flexible and allow appropriate non-prescriptive behavior/solutions where it makes sense. This helps to feed creativity in the organization.
Be an advocate/cheerleader for the new culture. Employees need ongoing encouragement as they shift focus to the new regime.
Build an underlying culture to support your processes. This takes time and persistence.
If you are growing, as you hire new people, select new employees who fit the new culture. This helps to create lead models for the rest of the group.
By definition, growth means increasing infrastructure, which in turn means more restrictions and rules. Keep it fun. For example, create a wine penalty for missing deadlines.
If you’re late on your deliverable you have to contribute a good bottle of wine, with your name and the month that you were late on a tag attached to the bottle.
Contributed bottles of wine are shared at the company Christmas or holiday party.
A late stage private high-tech company wants to know what questions are most critical for managing the next stages of growth. This includes factors that can help differentiate good opportunities from poor ones. What questions would you ask about managing a late stage private high-tech company?
Advice from the CEOs:
Never compromise on your team. Is this a team of individuals who will be effective together, and can you make changes where necessary to build and manage the team that you need?
There is no room for someone who is not a cultural fit – do the team members work well together and does everyone see and support a win?
Who are the key stakeholders, and what drives them? Are these drivers compatible or in conflict? Can you bridge potential conflicts, or will they defocus your efforts?
Market & Strategy
Are your market projections realistic or fluffed?
Will your value proposition appeal to a large enough market to justify the investment of time and resources?
Is there a strong, realistic plan?
If you do a full SWOT (strengths, weaknesses, opportunities, threats) analysis, is the net positive?
Finances & Capital markets
Are the revenue and financial projections done correctly and achievable?
Raise money when you can, not when you need it – will the timing of your deal or opportunity, given existing financial markets, allow you to raise the funds necessary to bring the opportunity to fruition?
Is there openness to all potential capital or financing options? Financing is a personal relationship – how strong is the relationship?
Boards & Governance
Investors are investors; don’t overestimate their industry savvy. Are they aligned or in conflict? Are they fresh or tired? Will they support your efforts, and do they have the ability to generate extra funds as required?
It is impossible for a CEO or deal to be successful without the full support of the board – will you have full board support for your opportunity?
Is there clear differentiation between governance and management?
Looking over these questions, is the balance positive or negative? That balance will help you to accurately assess whether a given strategy or opportunity makes sense for the company.
Situation: A company lost money last year, but turned the corner with a profitable final quarter. One of the company’s divisions continues to lose money, though the losses are small compared to the total picture. The CEO is considering cutting this business. What factors should the CEO consider in making this decision?
Advice from the CEOs:
What expense factors contributed to the loss?
The biggest factor was allocation of vehicle and space expense. This division has seasonal revenue but carries the allocated expenses for the full year.
Make sure that your allocated expenses are fair to the business. Do overhead allocations reflect utilization? Unless closing the business eliminates vehicles or space, if you terminate this business these expenses will be borne by the rest of the company.
Study your allocations by shifting the allocation made to this business to other businesses. What is the impact on their profitability?
If you find that the current allocation does not reflect utilization and adjust accordingly, does the business still lose money?
If this division covers its direct expenses along with most of its allocated expenses, a small loss in this division may be preferable to a reduction in profitability of other businesses from closing the division.
How strategic is this division to the overall business mix?
Is this business essential to your product/service mix or just a customer convenience? If you terminated the business will customers be upset?
Do competitors offer this service, and would you be disadvantaged by discontinuing it?
What are the alternatives?
Can you raise prices to increase profitability and refuse business that does not meet this pricing?
Can you restrict the offering to less price sensitive customers?
Can you refer customers to other vendors or sub out this business?
Can you reduce the scope of the offering while adjusting pricing to enhance profitability?
Can you source other labor alternatives to reduce cost?