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 is moving from sole focus on servicing a market to a split focus
including developing and marketing their own products. This is a significant
transition for the team. What is the best way to organize this effort? How do
you manage a business transition?
from the CEOs:
the company’s financials are great for their market, cashflow may be
insufficient to fully fund a development company.
development of new products can create conflicts if it creates competition for
resources between internal and external projects.
avoid this, create an independent company or entity – in a separate location.
Seek outside funding whether bank, angel or partner financing. The independent
entity can then buy resources from the primary entity at competitive rates.
years ago, another CEO utilized the strategy just described. The important
that venture is properly resourced.
that there is a balance between proven structure and creative application
best resources available at same rates that key customers pay.
free guidance but not free services – peer reviews are key.
third CEO had an opportunity to open a new business using the spin-off model.
allowed infrastructure sharing – with proper compensation and incentives
both entities were successful.
Properly implemented, this model works.
are four aspects to the challenge.
business plan for the new venture must address all four.
internally (vs. externally) creates natural conflict. Workers will tolerate change
in direction from clients better than they do from insiders.
Situation: A company wants to up its game by focusing on service. They are evaluating different options to provide customized services to gain a sustainable differentiating advantage over their competition. How do you enhance your customer service model?
from the CEOs:
the gaming industry one CEO sees an effective model focusing on higher level customer
service. The top games have allowed user customization using generic
customization tools. This allows the provider of the tool kit to serve a larger
number of users using a single tool kit to provide a wide variety of gaming
example from the gaming industry focuses on middleware developers. These
developers create an interactive knowledge base for customer self-service. The
knowledge base is monitored by the host company, and misleading or potentially
harmful input is excluded. The benefit is that this enlists clients to provide
their input on customer service as well as product development.
CEO sees this as a useful way to drive down customer service costs by providing
more tools and fewer bodies to perform the customer service task. The model’s
objective is for the customer not to need personalized service, but to be able
to develop solutions on their own using a flexible took kit. The host company
gains additional advantage because their user agreement allows them to take the
best models used by clients to spark their own product development.
fourth CEO sees lasting value in developing close relationships with customers.
They have developed tools that allow the customer to solve simple customer
service tasks but require company assistance for the more sophisticated
solutions. The company, in exchange for this added expense, learns from the
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: A finance company wants to revise its web portal. The objective is to provide up-to-date specialized financial information to clients for a subscription fee. Currently information is provided directly to clients. The portal will allow clients to manipulate the data provided to gain greater insight into their own strategies and operations. How do you launch an Internet portal?
Advice from the CEOs:
This presents an opportunity to bring several niche services together under one umbrella.
The plan is to make money by selling subscriptions. A challenge will be determining how much clients are willing to pay for this service.
Perform an analysis to determine how much clients can either make or save by utilizing the new service.
Try a menu approach with varying fees depending upon the number and frequency of services accessed.
To more quickly gain recognition and credibility, consider partnering with an existing well-established entity such as Bloomberg. Design your portal to integrate your data into their existing traffic flow.
This reduces the development effort because the partner already has the shell and a well-established market presence.
As an alternative to partnering, it may be best for the company to develop the portal on its own.
In this case, if there is a tightly defined target audience and the company already possesses all the equipment and programming required to launch its own portal, it may be best to carefully select initial clients and for the company to do everything itself.
If the company has the necessary access to key target clients, this will save the need to split revenue with a partner.
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.
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?
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.
Situation: A CEO is evaluating a horizontal market development opportunity to markets related to their current market. There may be branding implications. The new opportunity focused on a different sector and can add business unrelated to current customers. However, the new opportunity will stretch current resources and potentially impact current business and service delivery. How do you expand into new markets?
Advice from the CEOs:
Because the new opportunity utilizes known capabilities the company should be able to segue into the new market relatively easily.
Because the company is already familiar with security and other issues relevant to the new market, compliance should present no challenge.
Consider the impact on company time and resources. Building any new business will challenge current priorities and will require a careful balancing of efforts to assure that both current and new customers’ needs are being met.
Build workload and service schedules for both existing customers and the effort that it will take to develop the new opportunity including the time needed to create and build new customer relationships. Take your best estimate of resource utilization for the new effort and double it, then ask whether your current staff and capacity can handle both markets. If the answer is positive, then you can be more comfortable with the decision to expand into new markets.
As you evaluate the new market opportunity, look at both anticipated and unanticipated but predictable challenges that customers may face over the next five years.
For example, is there misalignment between future challenges likely to be faced and the current expertise and skill sets of managers who will be tasked with addressing these challenges? If so, tailor the sales pitch for new capacities to address these challenges.
Are there existing mismatches between products and services currently offered in the new markets, and do proposed solutions help to address these mismatches? If so, there may be significant opportunities in addressing these mismatches across multiple customers within the affected markets.
Situation: Much of a company’s work is non-standard. Each customer’s solution is individualized. Finding the best solution in each case frequently requires a stretch. The CEO’s approach is to simplify the problem to its essential components and from this develop a unique solution. However, several of the staff responsible for developing solutions shy from this approach when confronted with a new challenge. How do you create a bias for action?
Advice from the CEOs:
Company culture is defined by the CEO. In this case you wish to establish a culture of innovation. This might be defined by the phrase “we don’t do simple things.” This means that you need innovators or creative people in the problem solving positions.
Consider breaking the roles apart. You need experienced and balanced but creative people to develop the unique solutions. People like yourself. On the other hand, you need methodical, reliable people to put the solutions into effect. These two roles usually require teams of different personalities. They don’t conflict, but are different.
Look at Landmark Worldwide as a resource for your staff. Landmark specializes in teaching people to expand their horizons. This doesn’t mean changing who they are, but facilitating their ability to team with others with different but complimentary talents to achieve original and effective results.
To help the team understand what you want to accomplish, bring in an organizational development consultant to help communicate your vision and assist with culture transformation.
It is important to recognize that these individuals are likely as uncomfortable with this situation as you are. This realization helps to craft a win-win solution that will strengthen the company.
Situation: A company has a technology road map and a flexible set of technical capabilities. To date they have elicited broad interest from a variety of different markets. They currently don’t have the resources to pursue a large number of different markets, and will likely need their next round of funding within the next year to year and a half. How do you focus your sales and marketing?
Advice from the CEOs:
A race to generate interest from a number of markets is a valid strategy at this stage of your development; provided that you raise or generate the cash to survive. This caveat describes your critical challenge – determining how long you can afford to maintain and fund a broad strategy.
Look at your burn rate and timeline. Pursue options that will generate cash before your next round of funding. Your top objective is to validate your ability to generate revenue prior to your next round.
You haven’t yet found the fish. You are fishing and have nibbles but no bites. Look at what your people are doing and start to eliminate options that are less likely to pay off both short and long-term.
To preserve development cash, create a new rule. Any project that you accept must come with development dollars. This will eliminate some smaller prospects and targets but will help you to focus on others which are more immediately promising.
When one company was in this position, their rule was that the first PO gets the engineers. No PO, no commitment of resources.
Another’s company’s policy is that they don’t work for free.
A softer version is to give the prospective client 30 days to produce an LOI for the proposed project or you will go elsewhere.
Even better is an LOI and $50K up front.
A third company’s strategy from the beginning was always to hunt for elephants – even when they had no money. This has worked well both short and long-term. It represented the level of faith that they had in their technology and capabilities.