Situation: An early stage company wants to create core values, vision, mission, and a BHAG (Big Hairy Audacious Goal) to guide the company and inspire employees for the next five years. What are the most important aspects of this process? How have other companies done it? How do you create core values, mission and vision?
Advice from the CEOs:
As the founding CEO of an early stage company, define yourself first. What are your skill sets and talents? Start from the beginning: why did you start your company? What motivates you and what do you want to build or accomplish? What are you passionate about? What really turns you on? You are the individual who, in an early stage company, must inspire your employees. What inspires you and what has attracted your employees to the opportunity presented by your company?
Create your business plan around your dream. If creating something exciting and new or making money is important, how can you make creating something exciting or making money living your dream? If the most important factor is something else, how can you achieve this living your dream?
The US Government is desperate for export opportunities involving high tech products which will employ Americans. The opportunities are in new innovations, not commodities. For example, solar panels are high tech but they have become commodities at least in their current configurations. Look for something that is unique and new – for example software that helps to increase the efficiency and security of the grid.
Entrepreneurship is not about having a steady income. It’s about creating something new. If what you develop works, you will make money. However, if you want a steady income – go get a job.
Situation: Market swings in recent weeks have shaken up some people. A CEO is curious about how other companies are seeing this as well as how the see their companies doing in the current economy. How are you responding to market instability?
Advice from the CEOs:
Business turned back up two years ago, and we are working on major sales opportunities.
We reduced executive expenses.
We are sharing a bookkeeper with another business to reduce salaries.
In April we increased staff to respond to strong first quarter demand; however since April revenue is flat to declining.
Let a few people go, may have to do more of this.
The current economy benefits our industry because our service thrives in an uncertain economy. We have not yet had to make adjustments.
We continue to see a big shift from direct hire and full-time to temp and part-time employees – this is working in our favor. Weaker competitors have closed shop.
Business is going well. Most customers have cash. The major decision that we face is how much to grow. We’ve seen some project cancellations, but not enough to hurt.
What concerns you about the future?
Availability of credit lines.
Varies by bank and your relationship with the bank.
Securing additional or increased lines may be difficult.
Anticipating a raise in rates by the Fed, lines may carry a higher interest rate.
The trickle-down effect from consumer spending continues to be weak. We are looking for opportunities less sensitive to swings in consumer spending.
Receivables are being pushed out.
What are you doing about this?
Proactively having employee meetings and being straight with employees about how the company is doing.
Situation: A closely-held, non-public company is in negotiation for a possible sale. The CEO seeks guidance on when and how to communicate this to employees. What event would demand communication? The CEO is concerned that if the sale falls through this may significantly damage employee morale. How do you communicate a company sale?
Advice from the CEOs:
The trigger point for any employee communication will be due diligence. At this point, you may have a serious buyer.
Going into due diligence, limit updates to those who will be involved in the process.
Most acquisitions do not go through, so a broader communication risks disrupting the company – unless you are very confident that the sale will proceed.
Prior to due diligence, there is no benefit to communicating any possible sale to employees.
What message do you deliver to those who will be involved in due diligence?
We are entering a due diligence. This is an exercise that we’re doing for our own education so that we understand the value of the company. This is just a drill.
Keep your eye on the business and don’t be distracted by the offer.
Have a good idea of an acceptable sale price.
For a company with intellectual property or significant assets, three to five times EBITDA is a good starting point – unless the sale is a strategic buy to the buyer.
A possible deal is often spoiled by terms and conditions that the buyer attaches to the deal.
One buyer (at any one time) is the same as no buyer. When owners get serious about selling the company they will need a broker to develop multiple buyers, to advise them through the sale process and to defend their interests.
As we begin 2015 more people are feeling upbeat about the economy than they have through most of the last six years. The dollar is at new highs against global currencies. The US is approaching energy self-sufficiency. However, some still see regulatory headwinds and downsides. What do you see and what will you do differently in 2015?
Advice from the CEOs:
Over the last six years, software companies have seen large increases in outstanding credit to clients, combined with restrictions on clients’ credit lines available and fewer new purchases. We hope for a better year in 2015, and will focus on reducing outstanding credit to improve cash flow.
Cash continues to be king. B2B business sectors with good cash positions are solid.
If your product/service saves clients money and makes financial sense, you’re in good shape.
Raising money will continue to be a challenge. Investors have been focusing on accelerating deliverables, creating a difficult environment for entrepreneurs. The Wall Street Journal says that the share of people under 30 who own businesses has reached a 24-year low, referring to young entrepreneurs as an endangered species,.
What is your current planning horizon?
We continue to plan quarter to quarter. There are too many variables for a longer horizon. We pay up our credit lines, and cover multiple payrolls with safe bank deposits.
We are watching headcount and dollars in the bank.
We are communicating more with our best employees and bringing them into more decisions so that they won’t be looking elsewhere.
Situation: A company wants to execute a strategic shift in direction – taking it into a new business which will diversify its offering to customers. The CEO needs to assure that everyone is on-board to both speed the shift and minimize cost. What are the keys to successful strategic change?
Advice from the CEOs:
Be front and center with your vision. State the vision clearly, in terms that everyone will understand. Focus on the benefits of the change for the company and employees and be realistic about the challenges involved.
Be enthusiastic. This is critical to all change efforts. Be cheerleader as well as leader.
Plan ahead and begin to communicate well in advance of the anticipated change. Plant seeds and encourage the team to generate options or solutions. Give all levels of the organization the opportunity to become involved and participate in both design and implementation of the change.
Be consistent in messaging and support across the team. Don’t vacillate or promise what you can’t deliver. Employees will watch for the presence or absence of consistency. If it’s absent, they won’t join in.
Conduct scenario analyses. This enables you to try out different futures and implementation options.
Identify critical issues. Look at possible results – first consider the “most likely”, then “best” and “worst” possible outcomes. Considering best and worst generates new alternatives, and improves the perspective on the most likely outcome.
Conduct visioning exercises. Create a graphic vision of possible futures.
This increases group participation and sparks creativity.
It improves group function, thereby enhancing results.
Visual representation is more memorable than standard bullets and lists.
Special thanks to Jan Richards of J G Richards Consulting – jgrichardsresults.com – for her insight on this topic.
Interview with Kelly Masood, President, Intilop, Inc.
Situation: An emerging company is gaining traction as it moves from early adopters to mainstream. They need to continue to develop new technologies, while bringing down the cost of existing products. This is a delicate balancing act for a small company. How do you grow without losing control?
Advice from Kelly Masood:
It’s important to maintain momentum and continuous improvement. From a practical standpoint, we do this by applying common sense to our technical discipline. Common sense, here, is a relative term. It isn’t really taught in school at any level, but is gained through experience. This is the true expertise of the CEO.
The delicate part of the balancing act is the mix between developing new technologies and building an effective business model. An effective business model is built on innovative and cost effective products and sustainable profitability. Since new technologies go through development stages, it is important to create break points where you transition from development to productization to marketing and sales. Continuous improvement in existing products based upon customer feedback and new product ideas for future developments are crucial aspects of a successful business model.
If you want to minimize outside funding and investment you have to watch cash flow and development expenses. Revenue from existing products is the key. When you don’t have resources, you become resourceful. If the team is dedicated to producing innovative and good products that make business sense, they figure out how to accomplish it without cutting corners.
To mature your team over time you must keep them motivated, occupied and adequately compensated today while inspiring them to make it big in the future.
You maintain interest through the pursuit of new technology and the learning associated with it. Engineers like to see their designs work and turned into a product that creates value, is used and is appreciated.
Keeping the team occupied and challenged starts with choosing the right talent in the first place and then getting them to focus on building great products.
Compensating them with a fair salary means locally competitive rates, sweetened with stock options to provide great upside potential.
For us, retaining great employees is about enabling them to innovate products that will find broad market acceptance.
Key Words: Early Adopter, Mainstream, Develop, Cost, Continuous, Improvement, Common Sense, Business Model, Cash Flow, Expense, Price, Retain, Employees, Off-shoring
Situation: The CEO has regular lunches with staff to foster communication and sharing of information. In recent months few employees are attending these lunches. Also, a negative tone is beginning to pervade the office, though the situation seems to improve when the CEO is present. How would you address this situation?
Advice from the CEOs:
The immediate priority is to correctly diagnose the problem. Is this a question of the CEO’s energy or the team’s awareness of plans for the company? Is there something else going on of which the CEO is unaware?
Meet with employees. Have an open and frank discussion with them about the future of the company.
Meet with the most valuable employees first. Share hopes and vision for the business. Express appreciation for their contributions and discuss plans for their continued growth. Next, ask open-ended questions about the company and seek their input on how to improve it. Listen to what they have to say.
Next are borderline employees. Again, share the vision and appreciate their past and current contributions, but be honest about expectations for performance. Then ask the same open-ended questions that you asked the first group and listen.
For underperforming employees, again appreciate past and current contributions, but be clear that unless they substantially improve performance, future employment isn’t guaranteed. Ask the same open-ended questions asked of the other groups and listen.
Be patient. Don’t try to develop all the answers immediately. Listen and learn what drives employees – particularly keepers. Involve them in developing programs to drive the future.