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.
Situation: A company, an S Corporation, produced substantial profits during the first 6 months of their fiscal year. This becomes taxable personal income to the owners if it remains profits. How would you advise the CEO and owners to make best use of these excess profits?
Advice from the CEOs:
Use some of the funds to invest in new opportunities for the future growth of the company.
Prepay significant costs like software licenses multiple years in advance. Make sure that you attend to your accounting so that you properly reflect the ongoing profitability of the business. Otherwise, what you may believe is profitable in future years will not reflect true profitability because you will not be accounting for all of your true expenses.
Is anyone in the company deserving of a one-time special bonus for performance or a salary increase?
It may make sense to take dollars out of the company and to diversify owners’ investments by investing in real estate, stocks, etc.
Check out the current rules around 401K programs that may allow you to invest increased amounts per year per person. Talk to your financial advisor about the details and regulations surrounding these programs.
List your alternatives and compare the anticipated ROI, on an after-tax basis, of the various options. This will help you to evaluation options including:
Reinvesting in the business – various options.
Investing outside of the business – various options.
Interview with Clark Avery, President & CEO, Aesyntix Health
Situation: We’ve established a strong core business and it is time to diversity. Our principal growth opportunity is complimentary to but a different business model from our core. What are best practices for maintaining focus on core business while developing a new opportunity?
First and foremost, be emotionally and strategically ready to make the bet and commit to action. In doing so you must “know thyself.” Specifically, taking a long look to determine whether you tend to overanalyze or are too quick to pull the trigger. Understanding your tendencies will help in the steps below.
Establish the prerequisites for pulling the trigger. For us we had to determine the:
Level of operating stability for the core business that will allow you to split focus.
Level of financial stability and predictability that will support both core and expansion efforts.
Level of organizational and process stability that will allow you to take on the new opportunity.
Understand and define the differences between the old game and the new game.
What are the financials of the growth opportunity? How do they differ from your core business? Are there conflicts that must be resolved?
Can you launch an innovative solution to differentiate the new offering?
Gather enough understanding of market need that you will satisfy with the new opportunity so as to be able to address it effectively.
Establish a sound execution strategy and timeframe for launching the new business.
Some/many of your decisions will be wrong. You need the resources to tolerate a learning curve while running fast towards your goal.
Draft a leadership development plan of both the core and new business before you start. This plan must define the skill sets and growth needs of each business.