Situation: The President of a professional service company and his team are considering adjustments to their business model. The alternatives under consideration are a client-centered model and a service delivery model. What’s the right model for a service company?
Advice from the CEOs:
In the client-centered model, the emphasis is on maintenance of the customer relationship by the responsible manager, with support from the group to optimize service delivery.
Consider the service being provided and the client’s expectations. Does the client want to have a principal point of contact – a client manager – to address their needs?
This model centers on the key manager creating and maintaining an ongoing relationship with the customer, including rapid response to inquiries from the customer.
In the service delivery model, the emphasis is on a developing and maintaining a high standard of service delivery so that multiple individuals can deliver the service rapidly and reliably.
As in the client-centered model, consider the service being provided and the client’s expectations. Is the customer’s principle concern functionally rather than personally oriented – for example keeping a system up and running in the fastest time with a manageable expense? In this case, the individual technician is not as important as speed of response and assurance of a quality outcome.
The service delivery model centers on standardized and predictable delivery of a defined service, with high responsiveness to the client’s needs. Those who deliver the service are paid variably based on their skills and assigned to deliver service consistent with their abilities. A benefit of this model is that business maintenance is not as dependent on individual service providers as the client-centered model.
In choosing between these models, it is important to speak with your clients and to understand their needs and priorities. Is your model a direct business to customer relationship or a business to business relationship? Is your offering perceived by the customer as a service or a product with tangible results? Is your customer more interested in meeting short-term needs or developing a long-term relationship?
As an example, is the customer expecting a personal, customized service and desirous of maintaining a long-term relationship? For this, a Nordstrom-like model may make the most sense – a highly personalized level of service where the relationship managers on the sales floor keep detailed records of individual customer’s tastes and past purchases and will even have items pre-selected prior to the customer’s arrival at the store.
This model implies that the most important assets to client development and retention will be your account managers. A business development manager may bring in a new client and then hand off that client to “one of my best managers” who will develop the long-term client relationship. The account manager will become the principal point of contact for the client; however, they will bring in other expertise or assistance to handle specific client needs. When a customer calls in, depending on the immediate need, that customer may be triaged directly to their manager or to an individual who could, for example, perform a transaction for them. Responsiveness by the manager within a defined time frame will be an important metric to monitor.
Situation: A B2B company has historically negotiated pricing with customers individually. While there are similarities between customers, each receives a product customized to their needs. The CEO is considering creating a “full disclosure” pricing model including their costs and seeks feedback from others. Do you share company costs with customers?
Advice from the CEOs:
With only two exceptions, the CEOs did not agree with the concept of fully disclosing their cost structure to the customer.
The industry exceptions were public construction and government work. Some cities and the federal government require cost breakdowns and mark-ups by regulation.
The difficulty with the profit or license line, however it’s labeled, is that it becomes obvious that this is the company’s profit ‘nut.” This may be shared with a CEO that you respect; however, if the CEO shares this information with others in the organization your cost breakdown may become the basis for future line-by -line negotiations for cost reduction. Those with whom your company negotiates will be acting in their company’s interests, not yours.
The key is to optimizing pricing is to identify and sell a solution to the customer’s pain. If you do your homework well, and the customer is the right prospect, the price that you charge will pale in comparison to the costs that the customer seeks to avoid.
In your first negotiation, make sure that you have identified the customer’s pain and are presenting a value that addresses this pain. Only after you set expectations and have assured balance of effort do you go into more detail about your cost structure. Even here, only share detailed cost information if you deem this critical to the sale.
Look at it this way – price is not the key issue. The key issue is whether you can solve the customer’s problem and do so while providing an appropriate return on investment for the customer.
Situation: A CEO is concerned that there is insufficient fairness and accountability within her company. One manager is paid hourly and the CEO is thinking about shifting this person to salary plus bonus both to put them on par with other mangers and to create more accountability. How do you create accountability?
Advice from the CEOs:
What exactly are you trying to achieve? An operations manager is paid competitively at hourly rates, even compared to salaried employees. The issue is that this person has no responsibility for results as they relate to the P&L. Given this, the group consensus is that it is better to have this person on an incentive program that ties compensation to the performance results that you want.
One objective is that you want this employee to contribute more to planning, strategy or the company’s attempts to develop solutions to the challenges that they face. Have you spoken to the employee about your expectations? Does the employee realize that you want or value their input? Direct communication with the employee is important.
While the employee understands his responsibilities in the operations area, be sure that he is aware that he is also important to the profitability of the company, and managing operational expenses which are contributors to that profitability. Depending upon the individual’s background, he may need training about the links between expenses and the P&L.
Given these factors consider the following options:
Adjust the employee’s compensation by switching from hourly to salary. Make the base livable, but not comfortable, and tie the bonus (which will make the total compensation package comfortable) to the profitability of the business. This will have an immediate effect.
Clearly explain to the employee that you value his creativity and input. Give this person the freedom to contribute and make it clear that his contribution is expected. Early on encourage this and acknowledge contributions in meetings.
You may want to make this person a part owner of the business. This will have a long-term effect.
Situation: A company started a new branch office last year. This office started with three people and has remained at that level with some turnover. Morale is low because the branch office team doesn’t feel supported by the home office. The CEO is concerned that this could kill the branch office if it is not fixed. How do you boost morale in a branch office?
Advice from the CEOs:
The problem is most likely the home office, as they assert. There have been few visits from home office personnel – particularly the company president. In addition, they are being criticized in weekly reviews for not hitting the same metrics as the company’s established operations.
Remediate this situation by scheduling weekly executive visits and monthly visits by the president until things are up and running and there is a track record of profitability.
Clarify your expectations to everyone – this is a new office running to different metrics until they establish themselves. Once they are established, they will run to the same metrics as everyone else. Coach the heads of other divisions that the new office needs support, not criticism, until they establish themselves.
Allow the branch office to bid low for market share until they are established in their new location for a period – at least 6-12 months. Create a different set of metrics for a start-up office, and review these during weekly sales meetings.
The role of management is to show the colors in the new location and manage peer feedback from established locations. Help them win! Establish start-up metrics like lunches with potential clients to establish relationships. Since the branch office is generating business for other locations, create separate general performance metrics from territory specific metrics for this office and show both in staff meetings.
Situation: A private company has a Board of Directors that functions more as an Advisory Board than a traditional Board. For example, they do not have the power to fire or replace the CEO. The CEO wants feedback on how to interact with the Board, and how to work with them between meetings. How do you make the best use of your Board?
Advice from the CEOs:
Decide what you want from the Board, and clearly communicate this to the Members.
Treat the Board as a single entity – not as individuals. Avoid politicking individual members between meetings. Use the Board to drive decisions.
At your next Board meeting have a discussion with the Board:
Let the members know that you are concerned about whether you are using them effectively as a resource.
Lay out strategic elements to be dealt with over next period, and ask for their advice.
For example, if you are moving into a new market you need advice on how to succeed. Are they the right group to provide this advice? If not, what other expertise should be added to the Board?
Consider having this conversation in a special session of the Board.
Bring in expertise – if your industry has shifted, adjust the make-up of the Board to reflect the new realities. If you need to raise capital, look for expertise in this area.
Eliminate less productive members from the Board.
If you are looking at a new market, build an Advisory Board that is knowledgeable about this space, but who are not necessarily customers. Consider retired executives from companies in this market.
Additional needs that you might want to address either through your Board or an Advisory Board:
Financial expertise in new markets.
Where should you partner to make a complete offering or to supplement your offering?
Another CEO has a similar Board situation. In this case, the CEO makes it clear that Board members are expected to:
Assist in bringing in business.
Members are expected either to produce or they are off the Board.
Meetings are driven to a specific agenda with expectations of deliverables.
Situation: A company’s CEO wants to segue from rainmaker-project manager to leader, with others taking the lead on projects. He has tried raising prices on his time, but clients are willing to pay the higher price so this hasn’t worked. How does the CEO set boundaries so that he is not involved in day-to-day project management?
Advice from the CEOs:
The most important question is: where’s the real battle – is it in the client’s or your own head? Is this really a client problem, or are you unwilling to let go? You need to answer this question before alternate strategies will work.
Look for the right project managers. You will change your hiring when the goal is for you to not be deeply involved.
Hire people who are better than you.
Gradually phase existing relationships to others.
In early work with a new client, set expectations so that your involvement is at the appropriate level and your team handles the heavy lifting.
Instead of attending meetings in person, use electronics – video conferencing. This saves the travel time for the meeting.
Don’t respond to client emails too quickly when you are copied – let others respond.
As one company grew, they invented new roles with high profiles but little work. These roles were figureheads for project leadership.
Project emails were set up so that all client emails went to the team, as well as the CEO, but the team would then respond to client questions.
Situation: A company is doing well, but the CEO is concerned about emerging hurdles that may stall momentum. The key issue from a systems development perspective is changing a “one-off” project based focus towards a modular mindset – essentially shifting a short-term to a long-term view. How do you align expectations across the company and transition to a broader focus?
Advice from the CEOs:
Start by clearly communicating your expectations. Work with your managers so that they communicate a consistent message to developers. Look for organizational changes to better align talents of individuals to roles taking advantage of these talents. You may want to refresh the gene pool by bringing on additional people.
One company with multiple teams creates healthy competition against performance objectives between teams with recognition and rewards to the top team.
If the change involves creating greater alignment between functions, create opportunities for individuals from different functional areas to work together. For example, have an engineer accompany a sales person on a critical call to close a deal. If the deal meets spec objectives, is closed, and the project completed on schedule and on budget, the engineer is bonused on the sale.
One company rents a lake cabin every year. Use of the cabin goes to teams recognized for meeting objectives, deadlines or other outstanding performance. An added benefit is that on the way to and from the cabin as well as while they are there, teams spend time talking about the next performance coup that will get them the next use of the cabin.
Look at your organization – both your Org Chart and the physical space. One CEO found that his engineering organization was stove-piped both in terms of reporting and incentives, and physical barriers prevented groups from easily interacting with one-another. To create better coordination between design engineering and manufacturing engineering, the teams were relocated to a new shared space, without physical barriers. Also, the Org Chart was adjusted to increase incentives for collaboration between the functions.
Situation: A company has a long-term relationship with a Japanese distributor that is also an investor in the company. Due to time zone differences and language difficulties, communications are very difficult. This leads to significant cost overruns for the company. How do you satisfy a difficult foreign customer?
Advice from the CEOs:
In working with a difficult partner, it is critical to set expectations, establish ground rules and repeat these at the beginning of each conversation or teleconference until it is clear that both sides understand each other. Even at this point, these should be repeated and reinforced any time a new individual is participating in the conversation.
Do you want us to give you (a) our honest answer, or (b) do you want us to tell you what we think you want to hear? – They would be foolish to choose (b).
Preface each critical response with this choice to reinforce the agreement at the beginning of the meeting.
In a situation where you are losing money under a fixed price contract, you may have to have a “Come to Jesus” meeting. During this conversation, you want to understand and establish:
Whether this relationship is profitable for both of us, and
Whether this project is doable by each of us.
Usually this will result in a radical shift in the model.
If it does not they it is better for both if you part ways. You are unlikely to reconcile the situation.
The bottom line is to establish, mutually, whether you can satisfy your partner through your efforts. This is critical to your future with this customer.
If you cannot find an acceptable solution you must abandon the effort.
It makes no sense to take on business that is not profitable to you, even if the revenue is important to plan achievement.
At the current rate, you will not make up the loss in profitability through additional volume.
Situation: A company has a high-powered Board of Directors. This Board is focused primarily on company strategy. The CEO wants to create a separate Advisory Board for technical and business development. How do you create and leverage an Advisory Board for technical and business development?
Advice from the CEOs:
Be clear on the role and compensation of the Advisory Board.
Create a clear set of expectations to initiate the process, and refine these expectations in early meetings of the Advisory Board.
Early stage companies often pay out of pocket expenses for attending Advisory Board meetings, plus stock options. When business development is the focus, you may want to add a percentage of any new business brought to the company by the member.
More mature companies may add a stipend for Advisory Board service.
Not all Advisory Board members may be compensated equally, particularly if members receive a percentage of business that they help to create. You may also choose to compensate members differently based on their experience and influence.
Choose Advisory Board members carefully.
Go beyond personal contacts of the CEO and company officers. Look for individuals who are known and respected within the industry. You also want individuals who have exceptional contacts and who will agree to use them to benefit you.
Look for individuals who are highly positioned within target companies – for example a VP of Operations or of Business Development. Also look for individuals who have excellent relationships with personnel in target companies
Be open and clear about your expectations of individual Advisory Board members. Celebrate success.
Establish metrics that the members are expected to fulfill.
Record commitments made by Advisory Board members and include updates against commitments as part of Advisory Board meetings, as well as updates against metrics that expected of members.
Celebrate successes of Advisory Board members and note individual and team contributions whenever the Advisory Board meets.
Interview with Trevor Shanski, Founder, eWORDofMOUTH, Inc.
Situation: A company with a new lead generation solution is ahead of the curve for their market segment, and ready to transition from a product development focus to a full-scale business development focus. This means developing new capabilities on a limited budget. How have you made the transition from product development to business development?
Advice from Trevor Shanski:
The reality of early stage companies is that they live on scarce resources. Founders and early executives have to be able to work for lean base salaries during the learning curve. They will be individuals who have selective characteristics.
They will be able to accept conservative salaries near-term, as well as during financial bumps in the road. Their focus will be growing the company’s value and their incentive will be having a material stake in the company.
They will have limited outside demands on their time and attention so that they can work long hours.
They will appreciate the challenge of heavily performance-based compensation, with the potential to win big if they can deliver.
They will have a network of connections and relationships upon whom they can call to gain early business traction.
Characteristics for successful early stage executives include the ability to work intimately with the founding team. Early stage companies are idea and capability incubators where things change quickly. Players must be able to get the job done with little support.
It is critical to have a clearly defined set of expectations for the first few months as you bring on new executives. Early foci will include:
Immersion in understanding the product capability and possibilities.
Sitting down with a white board and openly looking at fresh thoughts for how the market should be approached. Founders frequently suffer from tunnel vision after a long period of development and need a fresh outside perspective on the market and messaging. What partnerships could accelerate market development? What knowledgeable experts should be leveraged to build awareness? What potential is out there that the founders are not seeing?
After these factors are defined, the next step is to develop an action plan and milestones to guide plan execution, plus a budget and alternatives under different resource scenarios.
Once the plan is in place, the focus will be to gain early feedback on the company’s product and capabilities, and then iterate quickly to find the right message to target significant segments of the market.
The focus of early stage companies has to be on quickly developing plans, and then executing.