Situation: A CEO is renegotiating the company’s agreement with a sales person. The sales person wants a declining residual commission on sales from past customers, regardless of who is servicing the account. A consultant who knows the industry advises the CEO to focus on new sales. What are the implications of each choice? How do you manage residual commissions?
Advice from the CEOs:
There are two types of salespeople: Hunters and Farmers.
Hunters focus on new business and generally get paid first year, then in later years only on sales that come specifically through their efforts.
Farmers focus on ongoing relationships with existing customers and are the service people for those customers. If they are paid commissions, they get paid on the ongoing sales that result directly from their efforts.
It is rare to find a salesperson who can manage both of these roles well, so companies often divide responsibilities, and any commissions paid, according to responsibility.
Decide what behavior you want from your sales person and pay for this – make the distinction between hunting and farming. Then ask the sales person which they want to be. If they say “both,” challenge this and let them know that they need to make a choice.
Situation: A company serves a market with a lot of new small entrants. Clients purchase from these other companies as well as the CEO’s company. They are continuing to call and network with their client base to retain clients and build new customers. What else should they be doing? How do you deal with cut-throat competition?
Advice from the CEOs:
Make a list of those clients who are no longer purchasing from you or referring new clients. Go talk to them. Ask why they are no longer purchasing from you or referring new clients. This may open new options. You may find something new or unexpected that you can offer.
Work with an outside service to follow up with on clients lost and won. The key question for them to ask clients is why. Learn from the responses what is most important about the clients’ purchase and referral decisions.
Consider a new service. A health/happiness outcome would be a nice value-add: a quarterly report back to referral sources on how happy the clients that they referred are. The last question on the survey should be – Would you work with our firm again? Why or why not?
Consider using an outside source to gather the data for these surveys. To get more valuable responses, don’t just ask about your company, but also several of your top competitors; this will produce a richer set of responses.
There are two ways to compete: either you are low cost or have established a unique value proposition. Whatever this is, sustainability of your critical point of differentiation is essential.
Health care legislation is now in flux. Whatever the outcome, it will have an impact on your market. Become an expert resource on the implications of various outcomes.
Look at social media resources – feed valuable information to your audience via blog.
Situation: A small company wants to reduce costs by consolidating accounting and operational communications between remote divisions, with home office coordination. Can you more effectively reduce costs by consolidating services or is it better to set up parallel but complimentary accounting and operational communications in each division?
Advice from the CEOs:
There are a number of things that need to be considered, including:
Whether the existing legacy system is off the shelf with modifications or was custom designed for your operation.
Does the current system meet your needs, and do operators understand it? Is operational understanding diffuse or can only one or two people operate it?
How similar are the divisions in terms of product, customers and operations?
Do divisions serve distinct, non-overlapping customers with different product lines?
Are there important operational differences, for example are some divisions union, and others non-union?
On an ongoing basis, except for accounting, do divisions function as complimentary or distinctly separate businesses?
How complex are the product and pricing offerings? Could you consider a simple solution like QuickBooks or are there are complexities to your business model and accounting that the off-the shelf or web-based systems can’t address?
How much historical data from your current system is needed to support ongoing and future operations?
The simplest solution may be to run your current system off of a server, with multiple nodes connected to the system – a direct connection at your home office, and point-to-point lines connecting your remote offices. This will solve both your data transfer and communications needs.
Hire a computer consultant to set this up and assist you in establishing a link. It will cost some money, but will save you time and money in the long-run.
If you decide to change your accounting system, do so at the end of your current fiscal year. Trying to change accounting systems in the midst of a fiscal year creates an accounting nightmare for a small business.
Situation: A company wants to grow by acquiring companies in similar verticals that have different but complimentary offerings. The targets will most likely be boutique operations. How should they target and prospect candidates?
Advice from the CEOs:
Before you think about either targeting or prospecting an acquisition do your internal homework. Establish your strategic plan, including strategic capabilities that you want to develop. Look for synergies within your plan, and assure that any new capabilities complement these synergies.
Will current customers be interested in the new strategic capabilities, or will you have to build or buy access to new customer segments?
Determine the leveraging factors. How much incremental business can you expect to gain compared to current business? Look at both top and bottom line impact.
Do a build/buy analysis to determine whether the capability is more effectively built using your own resources or purchased.
Leverage both internal and external resources to develop a target list. Ask what current employees may be knowledgeable of potential candidates.
Use your industry network to identify and gather information about candidates.
Retain a firm to assist you in identifying candidates. They can approach candidates from a neutral position to assess interest in acquisition.
It is critical to negotiate a deal that retains key talent. Founders and key staff of the acquired company must see the combination as a means to facilitate and expand their own vision. In many successful acquisitions you will see the following traits.
The acquiring company did not change management, accounting methods, or operational procedures of the acquired company.
They acted as a bank to facilitate pursuit of the acquired company’s dreams and already successful strategies.
They took a “hands-off” approach with the acquired company and did not try to force cultural change.
Situation: A company is considering a merger. The other firm competes with customers who account for 25% of the company’s current revenue. How do you maximize the value of this merger to the company while mitigating the negative impact on current business?
Advice from the CEOs:
The maximum risk from the combination is loss of 25% of current revenue. The merger makes sense if you believe you will gain upside which more than counters this risk.
Both companies have brand equity. Maintain both brands and to continue to promote them. Maintaining both brands will buy you time to replace business which is potentially at risk.
Talk to customers and get their perceptions of the pros and cons of the potential combination. Ask about any concerns that they may have. Understanding the pros, cons and concerns will help you to mitigate negative fall-out.
Legally, in a 50/50 split, the Chairman will call the shots. You will have little recourse to counter the Chairman if he decides to fire you. This individual has built his company through previous mergers. Visit and break bread with those who were principals of these companies at the time they were merged or acquired. This will tell you a great deal about the individual with whom you entrusting your future. You will also learn what the others did during their mergers to help plan your own moves.
Give yourself a back door or Golden Parachute after six months if the merger does not go as you anticipate.